Ag markets were mostly lower to start Friday except corn.
Cattle Tank on Trump Post on Curbing Beef Prices
Live and feeder cattle futures gapped lower on the open Friday in response to President Trump’s post on Truth Social that he was allowing 300,000 MT of beef imports to enter the U.S. duty free over the next 90 days to lower beef prices.
Scott Varilek with Kooima Kooima Varilek says the news is is enraging cattle producers he works with.
“So the announcement is 300,000 million metric tons of ground beef that he wants to bring in quota-free, tariff-free, so he can lower the prices of beef, you know, and help us ranchers. That part in there is the part that really frustrates everybody,” he says.
So what does this really mean for the market?
Varilek says those additional imports equate to 44 days worth of ground beef consumption in the United States.
This comes at a time when beef demand has already been waning but prices were already correcting on their own.
Futures React Negatively
The cattle futures saw immediate sell pressure on the open with the knee-jerk reaction.
Varilek is hoping the most bearish news is priced in but the unknown is how retailers will handle that amount of beef.
Cattle Producers Frustrated
He says cattle producers are frustrated with the news because it does not help them rebuild the cow herd.
Varilek says, “Now you’re starting to throw your hands up and say, Hey, the cost of everything else is up. You know, the cost of building houses, the cost of pickups, the cost of diesel, you can throw all that out there. And now we’re the ones that are getting highlighted. And, and that’s why our hair is standing up that this is not something that we want.”
NCBA issued a news release in reaction.
Today, National Cattlemen’s Beef Association (NCBA) Chief Executive Officer Colin Woodall issued the following statement in response to President Trump’s post regarding beef imports:
“NCBA is disappointed by the President’s statement. While America’s cattle producers share the goal of keeping groceries affordable for consumers, flooding the market with government-subsidized, below-market beef is not the way to rebuild the American cattle herd. Cattle markets have already turned sharply lower this morning, to the detriment of farmers and ranchers. This is a critical time of year for cattle producers, as we approach the season where they are making decisions regarding their herds. Cattle farmers and ranchers are responding to strong market signals and historically high demand, and we are already working to rebuild after years of ongoing drought, high input costs and other challenges that have reduced U.S. cattle numbers. Today’s announcement and other market interventions throw cold water on the prospect of herd expansion and sacrifices long-term stability for short term messaging.”
JBS Suspending Cattle Contracts?
There were also rumors in the trade that JBS was suspending some of their cattle contracts with producers because now they’re going to have enough beef to cover their needs short term.
Varilek says he can’t confirm that news from any of his clients but it would not surprise him. He says it is part of the trickle down effect of tight supplies but it just gives the packers more leverage.
“So now this is going to be another band-aid for them to keep that leverage going. I mean, this is a time of year they’ve got mostly formula cattle anyway, and they do year round. So now this is going to start to sting on these cash negotiators because we’ve lost Joslin, that’s a big cash negotiating area. Now you have a whole western half of Iowa that’s going to be looking for somewhere to go with cattle,” he explains.
That will hurt because those Iowa producers were the ones that set the market.
“Now you’ve got a big chunk of us that are hey we’re all going to start looking for formula deals and everything too. You’ve got Texas not
trading enough so confidentiality hits. Kansas is joining that confidentiality thing. So, we’ve got some really sloppy cash feel out there and this is just going to give them more leverage here,” he says.
Border Reopening Aug. 24
The other negative for the market is the Monday reopening of the border to Mexican cattle at Douglas, Ariz. The market has been pricing that in as Varilek says there is uncertainty on how many cattle will be crossing.
There was another case of New World Screwworm (NWS) reported in Sonora, Mexico, which is close to the Douglas port but USDA has said they are not going to stop the reopening as a result.
“They’re going to get it opened. And, you know, with what we have for feeder calf prices up here, I think we’re going to start getting some cattle to cross. So we have to start taking that into effect. I mean, we’re not going to go right back to levels that we had. No, we’re not doing that right away. Does it over time? Maybe yet to be seen, but it’s going to have an impact on these feeder cattle,” he says.
The tight feeder cattle supply tied to the Mexican border being closed was a big part of the rally according to Varilek.
“Over the last year and a half here, almost two years, how much did that mean to the market? Was it $25? Was it $30 extra that we put on because of that? Well, now that has to kind of start to come off because we have another source of cattle,” he adds.
Plant Dark This Week
In the meantime the beef plant at Schuyler, Nebr. was closed Thursday and Friday as JBS said their coolers were full.
“Maybe it’s some maintenance, not sure. But it was kind of a Thursday, Friday close, you know, part of Wednesday there. Didn’t really see it coming. They had to move some cattle around, but they are going to go on Saturday again. So it kind of came and went pretty quick.”
So he says the market didn’t dwell on it.
Cash Cattle Lower This Week
Cash cattle trade was also lower this week starting at $225, $5 lower, but then there were some better sales by regional packers at $226 to $227 in the North plus some $355 to $356 dressed prices, down $9 to $10 from last week’s weighted averages. The South has been fairly quiet.
Varilek says, “So that at least felt good, you know, that we could maybe some guys that were asking a little more, they did move forward and got them. Maybe it’s your last push as boxes have rallied some due to Labor Day buying.”
He thinks close to Labor Day the boxed beef values can jump even further but cautioned that it doesn’t always translate into higher cash prices for producers and cash prices fall right after the holiday.
“We don’t always get paid because the boxes go higher. That’s not how that works. So I’m kind of expecting that to start to break a little bit here. Leverage is in the packers’ hands, you know, more and more all the time, I feel. And we’re going to have to chew through some of these cattle,” he says.
Plus producers are trying to put some weight back on cattle hit by heat stress, so those will be fed longer. So the market may not get much better until October when the supplies get tighter.
Cattle Futures Take Out Long Term Uptrend Lines
Cattle futures are taking out uptrend lines that have been in place for six years, which is bearish.
“2020 is where you start to draw some of those lines from. And we’ve had them up for quite a while, and we always knew, hey, we’re way above those trend lines, guys. We’re okay. Well, now we’re finally there,” says Varilek.
So now the market has to decide if it is going to keep trending up or not.
“We’re starting to toe below some of these lines and August is the front month right now on some of these long-term continuation charts. We look at and October at $6 below August and that is penciling in lower prices,” he explains.
Varilek says with gap lower futures below the trend lines it is a big red flag signal which he is not excited about. He adds those gap areas need to hold or there will be more technical selling despite the market being oversold and futures still discounted to cash.
Cattle on Feed
The market is also preparing for the USDA Cattle on Feed Report.
The average trade guess is 102.5% on feed, placements at 95% and marketings at 92.5%.
“I just don’t know that we’re going to get enough of a push from it. We’re already looking ahead.”
The market is anticipating numbers will start to build with the border reopened to Mexican feeders and more beef imports coming in.
“I think those two stories just, you know, take the cake.”
Hog Charts Beat Up
Lean hog futures were lower again on Friday with some spillover from lower cattle.
October is at a big discount to the LHI and where August went off the board but that isn’t even holding up the futures.
“August goes off the board at a much higher price than October, and it always looks like, wow, October looks so low. You know, seasonally, some more numbers, but it usually creeps back up, but not right away. Usually for the first couple of weeks, it just maintains that discount.”
So that might finally improve in September.
Corn Hits New Highs
Corn futures opened lower on Friday but quickly bounced and took out the contract high from May.
The market is pricing in a smaller crop and has had a sharply higher week with the Pro Farmer Crop Tour finding lower yields than last year and USDA in every states. Plus, a flash sale of 8.1 million bu. of corn to
If the market closes above those levels how high could it rally?
“There’s a $5.90 measurement on the corn for upside potential there, but that does seem like that’s a long ways away.”
Soybeans Consolidate
Meanwhile, soybeans were down slightly on profit taking after a big up week and despite huge flash sales.
China and unknown bought a combined 52.7 mb of new crop soybeans Friday morning and if that keeps going Varilek thinks the market will have to move higher to ration demand.
“I had said beans and the teens quite a while ago, and I still kind of feel like that can happen. I mean, we’ve got some narrowing basis on some of the soil crop stuff towards the end of the season. There’s a little bit of scrambling for that. So I do think the funds are behind this, that we have some strength ahead of us,” he adds.
