Cattle Futures Drop on Technical Weakness and Weak Demand
Cattle futures declined on Monday following lower weekly closes and technical resistance levels. Joe Kooima of Kooima Kooima Varilek noted that while the market appeared technically promising earlier, a sharp downturn on Friday led to a negative outlook. The feeder cattle market had shown an inverted head and shoulders bottom, while live cattle completed the final leg of an ABC correction, but these technical improvements were overshadowed by weak fundamentals.
The fundamentals for cattle are struggling, with boxed beef values dropping nearly $9 on Thursday and Friday due to increased slaughter rates. Weekly cattle slaughter reached 548,000 head, up 64,000 from the previous week as packers recovered from earlier disruptions. Kooima attributed the weakness in beef prices to rising imports from South America, which complicate demand assessments. Cull cow prices have also fallen sharply to $140 from $200 a month ago.
The cash market for cattle is currently divided, with prices steady in the south at $226 live but lower in the north at $218 to $220. Kooima noted that packers were more active in bidding last week, though it remains uncertain if this will provide a sustained boost. The market also faces challenges from muddy feedlots, with hopes that improving weather will help.
In contrast, lean hog futures rose on Monday, with December contracts and deferred contracts achieving key weekly reversals. Kooima cautioned that hogs are difficult to trade due to their vertical integration and volatile cash markets. While the market is technically oversold, fundamental improvements in cash and cutout values remain elusive. The potential for increased hog supply in six to nine months adds further uncertainty.
Grain futures also rebounded on Monday after a challenging week. Corn lost 30 cents, soybeans 40 cents, and wheat 15 to 25 cents last week due to China disappointment and a larger USDA corn stocks estimate. However, key support levels were held, and end-user buying emerged at lower prices. Flash sales of corn to Mexico and soybeans to unknown destinations provided some support. Additionally, escalating conflict in the Black Sea, particularly Russia's strike on Ukraine's key port of Odessa, added a war premium to grain prices.