Livestock are leaning higher early Friday with grains mostly lower.
Cattle Recover Awaiting Cash
Live and feeder cattle futures are recovering from the lower day yesterday. Scott Varilek with Kooima Kooima Varilek says the cattle futures have been chopping back and forth this week and need to take out last week’s highs on the charts to break out and to new highs. “I mean it had this big push behind it and we’re gunning for those gaps that are at the record high prices and thinking, okay, here we go. And then when we set sideways, we get a little bit antsy here and you start to get a little bit nervous. I think this week, I think there was plenty of people that were starting to teeter. Okay. I was feeling pretty confident now I’m more in the 50 -50 and I think that’s okay.”
Market Needs Higher Cash to Continue the Rally
The futures market is awaiting cash for direction and Varilek says higher cash above last week’s $245 in the South could help push the futures to new all-time highs.
“But what we would need to punch up there, I think is some higher cash. And the The good news is we’re in the time of the year when that can happen. So we had $245 in the South last week. I think that they can get it this week pretty easy, but I feel like they’re going to start asking some higher prices. So there’s a chance for that, you know, that cash to poke through. I get nervous when I’m relying on Southern cash, I guess, in general. But Just the feeling is that that could happen. You know, we’re our seasonal cash highs, second, third week of March, and we’ve got, you know, some good things to look forward to.”
He also believes Northern cash trade on fed cattle will be higher this week. “It was a little sloppy last week, you know. It was, okay, we’re above $240, we’re at $241. I’m going to sell a few just to kind of make sure this is real. Am I dreaming? And then $242, and I think that caught some cattle. As high as $244, and that would have been on unlimited numbers. Nobody could get the $245 up here. There were some rumors of that last week that there was a Packer there, but I don’t. I think that one was false. So It’d be hard, you know, for us to not, we’re not going to probably sell it more. We’re going to try to get those extra dollars there.”
The only concern he has is with excellent feeding weather carcass weights are huge and the packers may use that to try to regain some leverage. “Plus, we’ve got some kill cuts, you know, with the tight numbers. And with Lexington down, we’re still doing kill cuts. I mean, that’s just how emergency tight we were. So we’ve got a couple packers that’ll be closed on Monday for President’s Day, maybe just backing up these cattle more so they can crank it up when we get into March there.”
Cargill Ground Beef Plant to Close
News on Thursday indicated the Cargill ground beef plant in Wisconsin would be closing mid-April. However, he says it won’t have a market impact, especially because there is excess slaughter capacity. “But no, it shouldn’t affect anything. We’ve been able to handle any of these, you know, plants that are kind of closing and even the minor ones, because we’re still shipping cattle from here to Cactus, Texas. I mean, that’s just a regular thing going from north to south. And I don’t see any problems with it,” He does add that some old news on the possible strike at the JBS beef plant in Greeley, CO was part of the weakness in the market Thursday.
.Optimistic About Spring Demand and Rally
Varilek says beef demand is slow in January and February and so that is a bit of headwind right now but he is still optimistic about a normal spring rally as demand ramps up.
He explains, “January is always your lowest demand time of the year. And then February is kind of your close and you might get a little of tick for Valentine’s Day, but not much. But what we’ve kind of seen over the last few months is the big shift to the chuck and the rounds and the big drop in the rib eye rolls. And that happened a little bit more dramatic on a percentage basis than what it normally does. You know, the ribsdrop 25 percent, normally drop 20. And the chucks in the rounds really caught a big boost. So for me, I’m looking for that to shift. I mean, I’m feeling good. I don’t think that there’s negative news out there, or we have a black eye from any kind of a story on demand that consumers still want beef. And so I’m looking forward to
it. I still think that’s going to happen.”
And that is when Varilek thinks the futures will have the best chance of making new all-time highs.
Hogs Try to Recover
Lean hog futures were down six sessions and did some technical damage on the charts on fund liquidation and profit taking. However, Varilek says the market was also concerned about the U.S. pulling out of the USMCA as Mexico is the largest export market for U.S. pork and the U.S. also relies on Canada for feeder pig supplies.
He says, “It was such a nice, long, hard work uptrend and it felt good and then, you know, sharply lower, two gaps lower we’ve had in the chart here on the
way down. And yes, a lot of that is tied to the, you know, Trump’s starting to talk about trade deals again, thinking about pulling out of the USMCA and it’s makes the hog market a little bit nervous because they need Mexico. It’s a big customer for us and then you throw Canada in the mix too. I mean, the hog market needs those countries. So it was an automatic, okay, the funds need to probably liquidate some. We need to correct this market because we’re just a little bit scared of that kind of news. I mean, cash is as good as it’s been in a while. That feels okay. The cutouts may be a little bit sloppy, but it was just kind of a, okay, Let’s protect ourselves a little bit and see what shakes out.”
He still thinks the hog market can move higher with disease issues supporting the back months. “I think the overall story for me is that I’m still feeling, okay, about the overall hog market and that we can move higher. Our feeder pig prices are still very high and tough to find. So disease, those issues are still there. If we’d get that third gap lower, that’s what they call an exhaustion gap. So I think that there’s actually some people hoping for that saying, okay, we get a third gap lower. I’m going to be in there. That’s my buying opportunity. And I think that’s what we would see.”
Grains See Profit Taking Pre-Holiday
Grain futures had a strong technical close yesterday with a chart breakout in soybeans and wheat. However, Varilek says the market may take a break today and see some profit taking heading into a three day holiday.
“It’s a little bit of profit taking here on some of these markets. We’ve had a big charge. We’re getting through moving averages. We’re through retracement levels. And, you know, the next goals are some of those old highs, which, you know, another 20 cents in the beans is where it would run into its next resistance. But, so just taking a little bit off today. And for me, it’s, okay, do we really have the news behind us to, to break through a topside? And I’m just not there. I don’t, I don’t think we have it from February 13 today to March, the end of March, when we get our acreage report. We are generally a pretty sluggish market unless there’s some kind of news happening in South America. And I just think that’s where we’re at. I don’t feel like it has the bull being fed hard enough here to keep it going. So these Friday corrections do not surprise me at all. I still think it needs something bigger to try to break it out,” he explains.
