Cattle futures are higher early Friday, as well as hogs. Grains are under pressure.
Nearby Live Cattle Negate Key Reversal With Higher Cash
Live and feeder cattle futures opened lower on Friday but quickly turned higher with strong cash news according to Scott Varilek, Kooima Kooima Varilek.
He says cash bids are surfacing on Friday morning at $238 to $240 in the North.
Some sales were reported in the North late Thursday as high as $380 dressed to a regional and a handful of sales at $370 to $372 dressed and $235 live. In the South a few sales were reported at $225.
(At midday Friday, light volume in developing in the North at $238-$240 live, dressed at $380, $10 higher than last week’s weighted average in Nebraska. Southern live deals range $228 to $230, $4 to $6 higher.)
Live cattle futures had a disappointing close on Thursday making record highs on bullish news and then closing with nearby contracts lower putting in bearish key reversals.
It was a classic buy the rumor sell the fact trade says Varilek as the markets worked in bullish news including President Trump proposing a 50% tariff on Brazil imports, including beef.
Plus, USDA announced Wednesday evening the Southern border was once closing again to Mexican cattle imports due to concerns regarding New World Screwworm (NWS).
What Happens if the U.S. Gets New World Screwworm?
Currently there is no indication of when the border will reopen to Mexican cattle imports after a case of (NWS) was found just 370 miles from the U.S. border.
However, it may be inevitable that the pest gets into the U.S.
So how does the market react with a case if detected?
Varilek says it will initially be negative because the markets have never had to trade it before and there will be concerns that consumer demand may fall since this is a flesh eating pest that leave horrific images.
However, he says once that wears off the pest could be positive for the cattle market because it will again tighten the already historically cattle numbers.
“Producers needs to be prepared and make sure they are putting on hedges to protect their operation,” he says.
Lean Hogs Back Higher
Lean hog futures were also higher early Friday in tandem with cattle, but still seeing buying by funds on the breaks and the Lean Hog Index was also slightly higher reversing its lower trend.
Varilek thinks the market is being supported by disease and supplies issues and points to some $95 feeder pig prices as evidence of that.
Funds continue to be record long in the lean hogs and so far have defended that position on breaks.
Grains See Risk Off Selling From Weather and Canadian Tariff News
Grains and outside markets are trading risk off as President Donald Trump announced Thursday evening the U.S. will impose a 35% tariff on imports from Canada, effective Aug. 1. An exclusion for goods covered by the United States-Mexico-Canada Agreement (USMCA) on trade was expected to stay in place.
However, Varilek says it still creates uncertainty in the markets and is a signal of rising tensions between the neighbors.
Weather has also been ideal and even dry areas of Northern Illinois received some rain over night with more in the forecast, which may also be pressuring grains ahead of the WASDE Report at 11:00 am.
Varilek doesn’t think the report will provide much meaningful news and even if it did it would not be traded long with the weather forecast so perfect for the Corn Belt and promoting ideas of a bumper crop.
