Livestock markets were mostly lower on May 22, with cattle futures experiencing sharp declines and grains moving higher. The drop in live and feeder cattle futures followed limit down moves the previous day, with analysts pointing to continued pressure from fund long liquidation.
Scott Varilek of Kooima Kooima Varilek said that new funds had entered the market but chose to liquidate their positions rather than roll them over. “We’ve got a lot of new funds into these markets, but they were liquidating these contracts rather than rolling it back, just straight whack out, taking their ball and going home is the way I heard it. And I think that sums it up. So I don’t know if there’s a reason why,” he said.
Varilek added that rising stock markets may have encouraged funds to shift money toward equities instead of commodities. “I think that’s just what started the break here and just kind of adding to the pressure as we go down,” he said. He also noted technical damage in cattle charts: “We break a neckline on the head and shoulders kind of formation. My least favorite formation, but it is what it is right now…some severe weakness that measures, you know, another $10 lower here on the fats.” Varilek warned selling could intensify at record high prices: “Unhedged guys that want to press their shorts…that’s kind of how it can act on the way down you know stairs up elevator down,” he said.
Additional market pressure came from news about labor issues at beef plants such as Cargill’s Fort Morgan facility in Colorado and rumors about potential strikes elsewhere. Varilek described market fears over plant closures: “And the packers still can’t find enough cattle, losing a lot of money…So now the fear is, do they just leave it closed? You know, which is, it’s scary.” Higher carcass weights reported by USDA data also surprised some traders; Varilek commented: “It was a little bit of a surprise…just the fact that one packer wants to start to discount some of those heavies scares the trade.” Lower cash trade values later in the week further disappointed sellers.
The market was also positioning ahead of Friday’s USDA Cattle on Feed Report amid expectations for higher placements compared to last year due to factors like dry conditions and early movement off wheat pasture. Despite concerns about more big placement numbers in upcoming reports, Varilek suggested much negative news may already be reflected in prices: “So we are penciling a lot of that into the market…it’s not like we need to do another limit down day because there’s this big placement number.” Meanwhile lean hog futures continued falling due partly to tight supplies but weak demand; disease issues have compounded challenges for producers.
Grain markets recovered after earlier losses as traders priced in risk related to possible escalation in Iran over Memorial Day weekend. Varilek observed: “I think there’s a little bit of war posturing…that’s probably why we’re getting a little bit of a boost in the grain market here.” Uncertainty remains regarding weather threats or Chinese purchases for grains.
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