Mostly lower ag markets to start Monday, except cattle.
Cattle See Muted Rally After Cattle on Feed
Cattle futures were higher early Monday and some contracts gapped higher on the open in reaction to USDA’s bullish Cattle on Feed Report on Friday.
On feed was up .4%, placements were record low, down 12.1% from last year and marketings were down 6.6%.
Joe Kooima of Kooima Kooima Varilek says the reaction was a bit muted considering the placements were well below estimates. However, he says some of it was already priced in.
“So three months in a row now, I think it’s some of the lowest placements since this whole series began.
Off our August lows, we’re close to $50 rally in the feeders and $20 higher from our August lows and
the fats. And I would say the last part of it’s been the biggest part here in the last two weeks,” he explains.
Placements Record Low
The placements were down over 12% and he says that is tied to the slow reopening of the Mexican border to feeder cattle imports, the other big factor has been drought in southern cattle feeding areas.
“You look at the weather scenario that we had this year and maybe four or five months ago, the drought was too much. So we pushed cattle. out quicker than because of that and now that fast forward here a few months you know three four or five months now we got some moisture falling down in the southern plains in certain areas,” he says.
He says as a result there’s going to be some heifer retention showing up.
“And I think it was 38 to 62 on the ratio of heifers and steers. So there’s some of that starting to show up as well. So it seems like we’re just kind of in the middle of maybe we’re getting the heifer retention at a larger scale than what we want to realize too.”
On Feed Longer
The on feed number was down just .4% from a year ago with marketings down 6.6%, which shows feedlots are still feeding more days and to heavier weights.
He says, “Feeding a little bit longer and getting a different regional balance of maybe a supply issue that we had up here compared to the south as well.”
Cash Firmer, But Scarce
With the report the cash cattle trade was delayed until Friday and was light according to Kooima.
“I think there’s a little bit of $230 in the south, so I would call it $2 better down there. Very light cash trade,” he says.
The north also saw light cash trade with $228.5 in western Nebraska, so about $1 dollar better he says. “And maybe some $227, $228 bids are out there, and I don’t know if we exchanged a whole lot of hands with that. I think as high as $365 maybe in the meat, a little at $355 as well.”
He says producers should have asked for higher money considering the bullishness of the report.
Cash This Week?
With most of the northern feedlot areas now cleaned up will there be enough leverage to get higher money again?
Kooima says, “Yep, I feel that’s the case anyway. You know, we talked about last week about the regional
imbalance that we had here in the north the last several weeks. But I think that week where we’re
up $5, things got moved here pretty good.”
USDA Packing Announcement
USDA Secretary Brooke Rollins said last week during a new conference they would have a big announcement about Tyson and the closed packing facilities that would bring more competition to the
marketplace.
Then on Friday, USDA late announced $5 billion for the SPUR program to offer guaranteed loans for small and regional packers, which was a disappointment or a relief?
“This announcement helps some smaller you know plants. It doesn’t mean much right now because when you hear Tyson in there you think of and you hear competition in there you’re like oh boy what does the government have in store here?”
He says it could as easily been a bad surprise as has been seen with past government intervention.
Long Term Retest the Highs?
Longer term if the futures market can get above the next level of chart resistance how high could prices go, especially with the record low placements hitting in first quarter?
He says, “We had some great technical objectives met the last week, especially with some inverted head and shoulders in the feeders and even in some of the fats as well.”
If the market can stay at these levels without any election surprises and making higher highs, he thinks the futures will go after some gap areas on the charts.
“I wonder if we can maybe go check those gaps out, which wouldn’t quite be contract highs. But, you know, those gaps make for an interesting story,” he adds. He thinks there are too many unknowns with the economy to retest the contract highs.
Lean Hogs Make Contract Lows
Lean hog futures were back testing contract lows again on Monday. Kooima says he feels like a broken record but demand is sinking the hog market, both on the futures and the cash and cutouts.
“You’ve got beef five times the price of pork and we can’t even get a feel-good rally out of this. Why can’t we get some kind of advertisement to show that this is a great product and it’s five times cheaper than beef why can’t that even just carry a tune to get this market to move a little bit?”
Soybeans Tank on Brazil Elections
Soybeans were down over 20 cents with the plunging Brazilian real and the higher U.S. dollar index after Lula won his fourth term as president over the weekend, beating out Bolsonaro.
“The has the real breaking, their currency, compared to ours. And that’s basically all you need to know. So that puts us in a tougher spot up here with our bean prices going to obviously be higher with their drop in their currency down there,” he says.
USDA Report Error
The market is also digesting the disappointment from USDA’s announcement that they had processing errors in the September report that resulted in incorrect corn yields in Kansas and Nebraska.
The agency raised Nebraska yields by 5 bushels and lowered Kansas by 3 bushels per acre. The national yield was raised by .3 bpa to 178.8 bushels per acre.
However, USDA says the October yield is correct at 181.2 bushels.
Kooima says it is another kick in the gut for farmers and the market.
“You admitted that things weren’t done properly or there’s a mistake found but yet all the numbers are still okay. It is unfortunately going to just be a black eye for the USDA here moving forward and just the trust aspect that we rely on them to have these reports live at 11 o’clock and not at least during the afternoon when maybe something like this would arise that you can be like wait a minute that set of numbers was wrong we look back through and at least we had a day to kind of figure something out so this one’s hard to swallow,” he concludes.
