Grains were lower Friday morning with cattle and hogs trading mixed and choppy.
Cattle Struggle to Recover
Cattle futures were trying to recover early Friday but struggling after a week of selling pressure.
Scott Varilek with Kooima Kooima Varilek says the market has seen sloppy trade and profit taking after hitting overhead chart resistance at the 50% retracement level. Plus, it is tied to low open interest and the funds not participating in the market.
News from USDA the second port would be opening to Mexican cattle imports and positioning ahead of the USDA Cattle of Feed Report were also a weight on futures.
Largest Mexican Port Reopening to Imports
The Santa Teresa, New Mexico port will be reopening to feeder cattle imports on Sept. 24 and it is the largest port on the Southern border.
Varilek says this isn’t new news but the market over reacted as the headlines were still negative.
“It’s just another negative market reaction and we’ve fought off a lot of these negative headlines. I think it’s maybe just the fact that hey this border opening process is going smoothly we’re not seeing any backlash we’re not seeing the New World Screwworm (NWS) just head across the U.S. So this is going smooth and there are more cattle coming across,” he says.
USDA stated that in 2024 Santa Teresa, before the border was shut down, had 500,000 head a year going through that port, 40% of all the Mexican imports.
Cattle on Feed Report
The market was also gearing up for the Cattle on Feed report but the early estimates show placements down 3.2% from last year which would be bullish as its the lowest for this date since 2015.
“I mean, yeah, 96.8%. And we do have some Mexican cattle coming across. So I thought, what impact will that have on the South? Is it enough numbers to really to jolt that? And as of now, not yet. I mean, the estimates for for Texas, Kansas are still well off year ago
level. So, I mean, it’s still, you know, showing just how tight supply that we have here. All you have to do is look at a feeder calf auction or try to try to reown some feeders to realize how high these prices really are,” he explains.
He thinks there is a lot of corporate buying in the feeders or packer influence type cattle. “I don’t think they want to let this get away from them like they had in the past. So they’re taking ownership because as you buy some of these feeders, you’re looking at, hey, this market needs to come a long ways before I can break even.”
Cash Feeder Market Strong
The cash market for feeder is still strong with a positive basis for those selling and using the board.
Varilek says the cash feeder market is still strong in the sale barns, which he thinks is a true testament to the tight supplies and the market is hanging its hat on that.
“We can’t rally on that alone. It doesn’t necessarily mean that the market’s going to go up and bail them out because we are seeing some negative closeouts come across these desks and in the fat yards and we’re putting a lot of weight on them to make up for it, to try to feed our way out of it, which, you know, that has has worked in the last few years. We might get our hands slapped a little bit, but as of now,
we haven’t seen them take their foot off the gas, but on that cash market and man, feeders are the leaders. And that’s the hope that we have, that they can be what leads this market to a real correction and not just to, yeah, we got a little rally off the lows and now we’re back down again,” he adds.
Fed Cash Market Quiet
After a higher week last week the fed cash market has been rather quiet this week and that is typical ahead of a Cattle on Feed Report.
The South has yet to trade with some light Northern cash at $222 to $223 live and $348 to $350 dressed.
“So we’re feeling better. Hey, it’s moving in the right direction again. We still have prices, you know, moving up rather than here’s my bid. You better take it. So we’ve had the ability to move cattle if you needed to,” he says.
The difference from the past according to Varilek is the cattle that have been on feed a long time have been able to move but producers may not be as current now. “But this week haven’t had a lot of action a lot of traction as far as bids from packers, so maybe after the report,” he says.
With plant closures at Joslin, Souderton and Lexington and record high diesel prices it has been difficult to move cattle from the North to the South to fill shackle space in those plants.
Varilek Tells Congress to Back Off
Varilek was in Washington this week and told Congressional leaders about the difficulty in the cattle industry that’s coming from high energy prices and plant closures.
However, when asked about the possibility of government subsidized insurance to help retain heifers he pushed back. “I said no. You cannot farm corn or soybeans without government subsidized insurance and they’ve got their hands in that market. We don’t want that as we’re the last of the independent in the agriculture industry. The market will fix itself which was what I tried to say. I mean we were getting $3,000 for feeder calves in the sale barn what more incentive is there to want to try to grow your herd?”
Due to drought and other challenges rebuilding has been tough but they will be able to do it.
Varilek also told lawmakers the government needed to quit trying to lower beef prices through higher imports.
Cattle Futures Need to Hold
With the correction this week in cattle where does the board need to hold.
Varilek says, “I think our recent lows here down around, you know, it’s the $210, $211 area on these live cattle. We had three big legs lower.
So it’s looking like an Elliott wave formation and we need to recover off that low. And this would be that little setback right here that we need to hold.”
If it does hold he thinks the futures can move higher and carve out the bottom.
Lean Hogs at Contract Lows
The lean hog futures were also trying to consolidate on Friday morning after string of lower days and contract lows.
However, Varilek doesn’t see much fundamental reason for hogs to rally with plenty of supply and the Lean Hog Index continuing to trail lower to meet the discounted futures.
He thinks the inability of the Senate Ag Committee to get a fix for Prop 12 also was bearish for the market.
Grains Also Under Pressure
Grain markets were also lower early Friday on profit taking going into the weekend and some harvest pressure, despite some areas seeing disruptions due to heavy rain.
Harvest pressure is to be expected but he thinks the funds will continue to defend their near to record long position in the market.
“I still feel like we’ve got some pretty decent demand. We’ve got some ending stock numbers, especially on corn that are lower than what we’ve been used to the last few years. So I think that these funds are going to defend. And it seems like later in the day they do defend as this market does start to recover from these lows. So I still feel okay,” he says.
