Livestock were mostly lower early Friday with grains higher.
Cattle Look Sloppy
Live cattle futures were two-sided early Friday with feeder futures lower.
Scott Varilek with Kooima Kooima Varilek says the live cattle futures opened slightly higher but were not able to hold those gains with light holiday trade volume.
“The market doesn’t have a big headline that we’re chasing after or talking about. So it’s been a little bit lukewarm, which can kind of get boring and kind of find some selling,” he says.
Market Pricing in Lower Cash
However the market was also pricing in Wednesday’s lower fed cash trade.
“Kind of sloppy you know we get some $255 bids around. June goes off with fireworks at a record high for a spot month, so a great finish. Now here we sit with August $17 under where that went off and we’re wondering okay packers are going to use that to bid a little lower,” he says.
Some trade did develop at $255 live with a few $256 after the close which was down $2 to $3, and dressed sales at mostly $403 to $405, down $3 to $5. However, it was on light volume.
“Maybe just a few regionals trying. There’s some majors that are just non-existent in the market here. And what it sounds like is, you know, those cattle that they have bought for the several weeks out, they’re going to kill all of those. They are going to take them. They’re not going to extend them down another week and give you another week to put pounds on. They’re going to use this market, say, hey. Let’s use everything we have, try to get this cash market to break a little bit.”
With the August futures lower and moving into the dog days of summer, Varilek says the packers are trying to break the market.
“So that that’s their attitude right now. And our confidence is a little bit shattered. So it wouldn’t surprise me if we saw some more $255 kind of trickle as we move on. If people are going to start getting a little bit anxious here with this big discount on the futures.”
Plus, packers are using some of their own formula cattle as it is the beginning of a new month.
“They finally are. feeling like they might have an opportunity to break this market and they’re going to do whatever it takes. I mean, their margins have been in the red.”
Supplies Still Tight
However, he adds that supplies are still tight.
“I mean we have 102% on feed but that’s just because we feed them so much longer. Those placements can be really low, but we just extend them. And it’s impressive with how long we’ve been able to feed them, how big we’ve been able to make them. So really raising that bar there on what we can do there,” he points out.
Boxed Beef Prices Cool
The boxed beef prices have also start to cool with the July 4 beef buying done and softer demand after the holiday.
Boxed beef briefly moved above $400 on the Choice cutouts but looks like it has topped and is on its seasonal decent.
“We usually see see a little bit of a pullback this time of year with the dog days here. Some people say never trade cattle during the dog days of summer it gets a little sloppy and that it sure can,” he states.
Plus, the futures discount to the cash is indicating the cash will be pulling lower.
Feeders Cool as Well
The feeder cattle futures are also cooling with cash index starting to trail lower.
“Do they have to go significantly lower maybe not. Unfortunately, the northern feeder sales, you know, something that’s been a real highlight boost to this market. Those are kind of in the back seats.”
The index is projected to be down another $5.50 to around $371 due to the lower southern prices so that is pressuring the futures, even with the big discount to the futures.
“Really taking the cherry off that top pretty fast. You know, a quick $10 off the cash. And we’ve got a little time before we kind of get into some more Northern runs again. And we’re getting some moisture around cow-calf country,” he says.
That moisture is helping replenish the grass and so those cattle won’t be coming in as early as expected.
Rebuilding Signals?
The supply continues to be tight and there is some heifer retention happening again.
“We keep thinking that, hey, we’re getting this cowherd rebuilt. You know, money talks, high prices cure high prices. And I still think that’s the case. I mean, hearing that in some areas that all of these light heifers are going back to be bred again. And I heard those stories last year, too. Producers are trying to rebuild. I mean, there’s that desire. There’s that want to do it.”
After two years of record profits there is reason to rebuild.
“You can lock in some big prices for next year’s August. So, I mean. There’s still a big carrot dangled. So I believe that we are retaining some heifers. That all adds to that tightness that you’re talking about,” he explains.
There are also tighter numbers without Mexican feeders as the border is still shut. Although he thinks there is heavy lobbying pressure to get the border opened by the end of summer.
USDA Rolls Out $500 Million Program for Processors
This week USDA also rolled out a program to help get beef prices down, offering $500 million of assistance to small and medium sized beef processors.
This excludes the four big majors.
Will it impact the market or beef prices?
Varilek says initially there was some nervousness about government intervention but the cattle market hasn’t seen a severe reaction.
“I mean, at first you heard, we’re going to try to break up the big four. It’s like, wow, we all have wanted that and don’t like this big four-headed monster that we have but then you get really nervous what are the unintended consequences here. I mean is that going to be a really bearish kind of story because we’ve got more packing plants closed. So you look at this just another way to put some focus on some of these smaller packers try to keep them going,” he explains.
Will it make a difference in beef prices. Varilek doesn’t think so and it has only outraged some producers that USDA is offering a bailout to any size packers.
“I mean, well, the packers made this bed. The reason that the herd is so tight is so many years of low profits that we just liquidated the herd kept liquidating. So do we feel sorry for him absolutely not,” he adds.
Uptrends Still Intact in Cattle
Even those the futures look sloppy, Varilek says the longer term uptrends are still intact.
“I mean, just take the zoom out picture and you’re saying, okay, this all still feels okay. And, you know, August getting beat up a little bit here in the front, but there’ll probably be some life back in that contract,” he says.
Lean Hogs Still Struggling
Lean hog futures fell on Wednesday and were seeing follow through technical selling on Thursday.
The market continues to see selling on every rally with the funds still near record short.
Varilek says the market has been frustrating as the trade keeps waiting for the supplies to contract due to disease.
“You’re seeing these summer months go off at some pretty disappointing prices. You get a little hope on the August contract up above $98 but there’s nothing to keep it running due to the sideways cash and cutouts. You hear the packer’s looking for some hogs here for the immediate kill and it still is not making a difference,” he adds.
So, he says the October contract could suffer the same fate.
Grains Up a Third Day
Grain futures were up for a third day on the momentum from the post report rally.
The market is working on higher weekly reversals but even if that happens will it change the trend of the market?
Varilek says it looks like the market is trying to bottom.
“We tested the below $4 on the July corn and you know, bumped a little bit. So it looks like we can rally, you know, 31% ahead year to date on exports. I mean, you like that, you feel good and that’s all without China being involved. So maybe just a little demand push and that’s what you absolutely need.”
But do the reversals mean a lot?
Varilek says, “Probably not. Sorry, I’m going to disappoint you. You’re probably expecting that when you’re talking to me. But still looking at the corn acres at 95.3 acres and the fourth largest corn acres we’ve ever had coming on top of a 2 billion bushel ending stock number. Supply is not going to be an issue.”
Plus, some of the dry areas of the Western Corn Belt are getting some rain.
So, he is using the rally to make catch up sales on corn.
