Cattle and soybeans are higher early Friday with corn, wheat and hogs lower.
Cattle Test Contract Highs
Cattle futures were strong out of the gate Friday with many of the live cattle futures once again making contract highs and other contracts are testing those chart areas.
Scott Varilek with Kooima Kooima Varilek says the cattle market has been impressive and resilient.
“Cattle have been very strong. They’ve been overbought for a significant amount of time. And yeah, bumping on some of these contract highs. Some months are breaking through. And when some of the front months were making contract highs, the deferreds were kind of left in the dust, and now here in the last few days, more confidence in the back just continues to push higher. The resilience of this market is just very impressive.”
He says the market has shook off plenty of negative news including the Iran war, possible Mexican border reopening, closure of the Lexington, Neb. plant and the JBS plant strike at Greeley, CO.
When Will the Cattle High Hit?
Varilek says the market is getting hard to protect as many producers and market participants are waiting to see if the market is topping.
“I think there’s a lot of open inventory out there, guys that don’t have cattle hedged. And we’re just waiting. So whenever there is that official rollover, don’t know when it is. Everybody would love to know. And everybody says, call me if you think that is going to happen. That list is a thousand people long. So I don’t know that I’m going to get everybody called when that hits,” he says.
Higher Fed Cash Push
The futures have been pushed by the cash market which was up $9.26 last week on the 5-area weighted average.
“The way that it rallied was very impressive. It wasn’t just a few regionals out in front. We’ve got a couple of majors out there leading this cash market and for a couple of weeks in a row here now, coming in and grabbing entire show lists and the right kind of strength behind cash markets. So that helps a lot,” And he explains it provides the avenue to clean up the show lists and pull down the weights.
Producers have regained leverage but will it continue to push cash higher this week?
“Going into this week I think the thoughts were we’re gonna ask $252 but if the bids start coming out at $250 give me a call and there might be a little bit of interest there so I think anything $250 or higher, we’re feeling good. And it’s going to have to take that. I don’t feel like we’re going to move cattle less than that, especially with the strength that we’ve seen on the board here.”
Feeders Regain Leadership?
The feeder cattle cash index is back going higher and so will cash strength help pull the futures into new highs?
Varilek says, “These feeders have been the leaders for the last couple of years during this rally. And I think recently there was a small window here where a few of the cattle buyers were telling me, hey, I think there’s some soft. trade happening here and it’s easing up just a little
bit maybe not as strong that’s about all you had to say it must have encouraged the rest of the buyers to show up and we’re you know back off to the races got another you know projecting the index up another $2.40 here today and giving us that confidence.”
Plus, as planting ramps up there will be fewer cattle and buyers at the sale barns.
Mexican Border Reopening Soon?
The other headwind is continued talk the Mexican border might slowly start to open to cattle imports in a few weeks.
However, so far it hasn’t spooked the cattle market.
“Well, I think there was probably a few guys sitting on their hands waiting for more details there and now here we sit with kind of the same information, not a lot. So they might have to reenter and jump back in and get some inventory. I like what I’m seeing. To get to contract highs,
it’s not out of reach here,” he adds.
When the border does reopen it will be staggered and start in the far west ports but Varilek anticipates an announcement soon.
“You know, maybe it’s a staggered open here in a couple of weeks. And it’s like, OK, I just haven’t heard anything new yet on that story. I think that it is and I think that they probably will. I think we have a lot of measures in place to help prevent this. It is screwworm. It’s not hoof and mouth disease. It’s a little bit of a different cookie here, something that we should be able to try to manage. I don’t think it’s as big of a disaster as what some of the news is,” he states.
Plus, he says Mexico has learned how to deal with those cattle and are running those plants 24-7.
“They don’t have the regulations that we do here. They can ship us a lot of beef, just import us the beef, and they’ve got a self -sustaining industry down there. We can ship them corn. We’ve got a lot of cheap corn here. So that’s what I see.”
Hogs Correcting
Lean hogs saw a pop at the beginning of the week on news of FMD in China but have corrected since than and the action has been disappointing according to Varilek.
“One of our lead hog analysts here said, yeah, hogs suck. You know that that’s how what our attitude really is. We feel like we’ve got news that could rally these these hogs we we’ve got new PRRS outbreaks happening. I mean the disease is still there and so when we’re in the heart of
production we hear those stories,” he says.
Still hogs have not been able to turn around but he thinks its just a matter of time.
“I think that these hogs in these summer months can really take off here yet. So still holding out hope.”
Corn Removes War Premium
Corn futures are lower again on Friday on follow through selling and are working on a lower weekly close.
The market is taking out war and inflation premium according to Varilek.
“The energy rally that caught a lot of attention across agriculture markets and grains really benefited from it. You know, got to some levels, gave us some opportunities. Hey, to say, hey, I actually can look at some prices that might work here. That was fun. Now that we’re in the mood of, OK, we’re having ceasefire talks, we’re going to meet with Iran in Pakistan, Israel just kind of maybe coming to the table as of this morning.
We’ll see. But I think that’s starting to pull some of that premium out.”
Plus, he says the 2.127 billion bu. ending stocks in the WASDE was a reminder of the large corn inventory in the U.S. with basis weaker than normal.
Soybeans Rally with Meal and China Hopes
Soybeans were higher again on Friday morning and have been strong all week getting some help from higher soybean meal as spreads are unwound with bean oil.
The other supportive feature is China and hopes for large purchases announcements in mid-May at the trade meeting between President’s Trump and Xi.
