Cattle and hogs were sharply lower early Friday, with grains sliding further.
Cattle React to Brazil Tariff Cut
Cattle futures gapped lower on the open Friday morning and made new lows for this recent move. Funds are further liquidating in reaction to White House announcing the 40% tariffs imposed on Brazilian agriculture products in mid-April would be cut and made retroactive to Nov. 13. The tariff rate will revert back to 26.4%, meaning import volume will likely pick up as they are the largest exporter of beef in the world.
Scott Varilek with Kooima Kooima Varilek says the market had been anticipating the tariffs to be lowered on Brazil beef for several days and it was part of the recent selloff in cattle. “So I think a lot of this was already penciled into prices.” he explains.
Lower Cash, Higher Weights
Another bearish factor for the cattle market has been lower cash trade as Varilek says the producer has been losing leverage to the packer due to heavier weights. “I known producers don’t like to hear it but we aren’t current,” he says. The evidence of that was backed up with USDA’s most recent carcass data which showed dressed steers weighed in at 892 pounds, which is up 14 pounds from the end of September and 22 pounds from a year ago.
“We have guys with big cattle. They might have passed the $240 and now we’re waiting for, you know, thought it was maybe going higher and now you’re just kind of trapped and we just keep fighting that market. So guys are trying to clean up some cattle. We do have some discounts happening on heavy cattle from a major out there. So starting to hear that. So that should open your eyes pretty big. If you have cattle that are big, we’ve got to get them moved,” he explains.
Southern live deals have been done at $222 to $224, $4 to $6 lower than the previous week’s weighted averages. The North was at mostly $218 live to start the week, down $7 and dressed price volume was at $345, down $6. However, prices did decline in the North as the week progressed Varilek adds. “Yep, $215 happened pretty quick. And then it was $212. I mean, we’ve had some much lower prices that are happening and guys are taking it.”
When Will the Market Bottom?
The charts look ugly after a third gap lower opening opening in live cattle futures. Varilek says the market may attempt to fill the gap areas of the charts but some key support areas were taken out this week. He says the long term uptrend lines are still in place and there is the possibility of an exhaustion of selling after a third gap lower opening. However, with the move to fresh lows Friday morning that has him cautious about trying to call a bottom.
Hogs Fall With Cattle
Lean hog futures are lower on Friday morning in tandem with cattle. After two up days in the hog market on short covering and spread unwinding with cattle the market is back lower seeing triple digit losses.
Grains Slide Further
The grain markets have had a tough down week and are working on lower weekly closes without a rebound on Friday. Varilek says the markets were led on the way up by soybeans with the China deal as a catalyst. So conversely soybeans have been leading the markets back lower. He says this is profit taking and a “buy the rumor sell the fact” reaction to the confirmation of China soybean sales. However, there are some other factors at play with outside market influence, the bearish biofuels news this week has been a negative, as well as some farmer selling as we are getting close to the end of the month and delivery notices on December futures contracts.
