Cattle were lower again early Friday, hogs higher and grains mixed.
Record Cattle Correction
Live and feeder cattle futures were lower again on Friday which makes a record 15 days down in the August live cattle contract and a $20 correction.
Scott Varilek of Kooima Kooima Varilek says everybody’s looking for the bottom and wants to know if it is close.
“Stairs up and the elevator down. It’s been brutal. It’s not acting like it’s bottoming here. I mean you would hope that on a Friday you’d see this oversold market and see some profit taking but the attitude is not there, we’re not feeling like we’ve got a bottom yet,” he explains.
The industry knew this market would break at some point from the record highs but no one knew when. The selling has escalated on the way down.
Will the Futures Break the Uptrends?
Varilek is hoping the uptrends hold at this point.
“We can just look at some measurements on some charts and try to figure it out. The main thing you’re watching now that’s the long-term one at about $217 to $218 on that front month You know, we’re still at $226, so it has some room there yet, but not much,” he adds.
The feeder cattle are also getting within $10 to $15 of the long term trend line support that has held for six years.
“We’re going to be testing some of those lines. So that’s kind of your long term support. If those get taken out, I think that gets met with long term selling and continued downward pressure,” he says.
The market did gap lower on some of the October and December live cattle contracts and that also provides a short term measurement technically.
“So there’s some support at $218 for October and December. So, that’s $4.50 dollars away, so those would be some initial lines that need to hold or we’re in trouble,” as funds have already been liquidating their massive long position.
Cash Tumbles
The futures are at a discount to the declining fed cash market, which took another big hit this week.
Cash in the North was mostly $238, with a few up to $240 and dressed prices were mostly $377 to $380, down $12 to $15.
The South on Thursday was mostly $237 to $238, down $10 to $11 from last week.
Varilek says the producers have lost leverage.
“I mean, it’s just two weeks ago we had packers calling and, hey, I want your cattle. They were being aggressive. And now the difference
that it is is it’s just dead silent.”
The strong basis and the heat have pushed some producers to sell.
“Packers are going to use that leverage,” says Varilek, “They’ve been losing money for quite a while and now it’s time for them to get their margins back and they’re going to utilize this to break.”
Beef demand has also weakened which has weighed on boxed beef prices, which is a normal seasonal. He says there will be a little boost for Labor Day buying the second week of August, but sluggish from there.
“You know, it’s just it’s getting tougher to sell and that time of year. So, also another reason why they’re not going to push that hard.” he adds.
Cash Feeders Cooling
While feeder cattle futures have lost $35 in the September, the cash feeder market has also been cooling.
“I think that’s kind of the surprise is, cash feeders. We’ve been able to lean on that, rely on that. These video sales this year were some great prices. They sold very well on there, you know, and there was a lot less numbers.”
He says that’s because some cow calf producers decided to wait because prices got much better last year at auction.
“So, I think that’s probably your high cash that you’re going to see here for a while because your confidence in trying to buy some feeders that don’t work is there. You are going to start seeing some buyers sitting on their hands a little bit here and letting it come to them. And that’s something that hasn’t happened in a long time.”
He hopes that doesn’t snowball as producers say they don’t want to sell at this cheaper price.
“Remember how much we celebrated last time we got to this level. You’ve got $346 August feeders. I mean, we were cheering when we got to $300. When we got fats to $200, those prices were so unbelievable.” he states.
Record Imports From Brazil
Varilek says record beef imports are also pressuring the market and the USTR not slapping the Section 301 additional 25% tariff on Brazil will only feed into that.
He says imports have been climbing from Australia, Brazil, Argentina and Mexico as the administration made the point they want beef lower.
“So that’s also putting a pretty big damper on the market.”
Hogs See Technical Breakout
Lean hog futures have seen a chart breakout this week with funds covering shorts and exiting cattle/hog spreads.
The cash index and cutout values are also solidly over $100 which is helping as well.
Varilek says, “We’re finally seeing a little bit of life. I mean you had that $99 top in cash for so long and able to get that above $100 and move it. So I think there’s that hope. I mean, we finally recovered from some of these lows on the charts and putting on a nice steady uptrend here.”
He says the lower numbers due to disease may finally be showing up and weights are also sliding with the heat.
Grains Mixed
Grains opening slightly higher with soybeans getting help from nearly 26 million bu. of new crop soybean export business and 12.5 million of it going to China.
Meanwhile, wheat futures were still higher trading Black Sea export disruptions, while corn was struggling after running into chart resistance and with a moderating weather forecast.
Varilek says corn has been getting help from wheat, “And if the wheat does give up here, I don’t think corn can do it by itself. I think it needs that help. You’ve got Russia Ukraine turmoil happening there and the weather is part of it,” he says.
He says Sunday night’s forecast will be important to determine if the corn has more upside or not.
