Friday morning live cattle were lower, feeders higher, hogs mixed. Grains were up except corn.
Live Cattle, Shallow Correction
Live cattle futures were slightly lower on Thursday and again on Friday seeing some profit taking after hitting three month highs.
Scott Varilek with Kooima Kooima Varilek says the live cattle were overbought after rallying $21 off the lows.
“A $21 rally in live cattle to me is like okay, this is time I better reward some of that. We didn’t see any deliveries on the October board. So no challenges there to try to scare some of the longs out. So that all felt okay.”
The market is also consolidating awaiting cash and the USDA Cattle on Feed Report.
Outside Market Jitters
Plus, the stock market has been down the last two days and crude oil pushed back above $100 a barrel, both are bearish for cattle.
“We’re talking about escalating war with Iran after the midterm. So that’s all still there. Energy prices skyrocketing. That’s a big challenge for us in the cattle industry,” he says.
Plus, what does this mean for consumer demand?
“Are they starting to get strapped a little bit with this high energy? We’ve all had to maybe tighten our belts just a little bit because of the pump price, that changes things,” he adds.
USDA Announcement
USDA Secretary Brooke Rollins also said Thursday the agency would have a big announcement about the beef processing industry that would help producers, specifically regarding Tyson.
Varilek says the White House has pulled out the stops to try to sway cattle producers who are frustrated with policies designed to lower beef prices, including increased imports.
So, they speculate that USDA may announce that Tyson has a buyer for the Pasco plant, which is not new news. “Is this just an announcement that the White House is going to try to take credit for this, that, hey, we’ve got a sale on Pasco, that’s good? That would be my lean, that that’s what it is.”
Action on reopening the Lexington, Neb. or Joslin, Ill. facilities would be much bigger news and more helpful for the market but Varilek says that is a long shot.
“To think that it’s Joslin or Lexington that one of those plants has a buyer and is going to reopen. I would sure doubt that Tyson wants to do that. That would be the shock part of it if one of those two would be it, specifically Joslin,” he explains.
Cash Fundamentals
Boxed beef values were also down another $3.12 on the choice and $4.93 on select on Thursday as slaughter ramps up.
Meanwhile, there’s been no cash trade reported this week, which is not unusual ahead of USDA report.
Asking prices have been above last week and Varilek says the market is expecting higher trade at around $230 in the south and $225 in the north.
He thinks now that the north has gotten current and cleaned up the heavy cattle that is achievable.
“You’ve had the ability to sell some cattle if you want to there are several packers out there you can get some bids maybe they haven’t been as high as you want but you’ve been able to do it we’re not just in a corner like hey i gotta take whatever bit I can get so I think that’s the good part of it,” he says.
Cattle on Feed
The Cattle on Feed Report will be out Friday afternoon with expectations placements could be another record low.
Trade guesses indicate placements could be down from 7.4% to 8.3% from a year ago. However, there is concern the market may be ahead of itself, setting up the chance for disappointment.
Varilek says, “So it got penciled in that we have such a small placement number. And that’s kind of my risk, I guess, that, hey, we already knew this. It’s been talked about. So it has to confirm to keep the rally going.”
He will be watching for the percentage on feed of heifers versus steers on this report to show if the small placements are because of the tight supply or because producers are retaining heifers and not sending them to the feed yards.
Hogs Try to Bounce?
Lean hog futures were trying to bounce in the nearby contracts Friday after more new contract lows on Thursday as cutouts sank to around $75 and the lowest level in three years.
However, Varilek says he wasn’t holding out much hope of a bottom being carved out.
“We’ve got the open interest in hogs is actually higher than what the live cattle contracts are, and that’s kind of a rarity. That doesn’t always happen. So, that just kind of says I think this hog trend is just strong. So we always say when hogs trend, they really trend. Well, they’ve got this downtrend,” he explains.
He says even the summer months are trading below $90, which historically has generated some buying interest but it may be too early.
“It just feels like, hey, we’re having this big break and we’re in October when we can sometimes see a little life before we get to December. And the fact that we’re trading this week already right now tells me that that’s going to be a challenge to try to get $90 and try to even hold that for in those summer months.”
Soybeans Rally on Exports, Corn Down on Harvest
Soybeans finally bounced Thursday after eight sessions lower and reaching oversold status. However, Varilek says the market is also trading strong export demand.
Weekly exports were the biggest in three years at 104.4 million bushels on soybeans and China was rumored to be looking for another five to seven cargoes out of the Gulf.
“We have an ending stock number that’s manageable and we’re moving some beans. I think we’ve had anybody that wanted to sell them has done that we had a little shift in ownership. So, I think that they have to be the leader here,” he says.
Corn is still seeing harvest pressure with concerns about slow export demand, with marketing year to date sales down 34% compared to last year.
Varilek thinks domestic demand has been strong as ethanol prices are up following higher energy markets but says the options market is telling a different story.
“But when I look at the options market, they’re all just so, you know, to me, cheap. They’re cheap. You know, there’s no way I’d spend any storage on corn right now, just as cheap as these calls are, which tells me this market just apparently doesn’t expect that it’s going anywhere.”
