Are the Bears Going Into Hibernation Early This Year?

Cold and flu season is in full swing in our household – one of the many things I’m blaming on the public school system… and Walmart. There have been a lot of balls in the air lately, and I think I speak for most of us when I say things aren’t looking to slow down over the next couple months either, but you can bet I’ll keep telling myself they will.

Regardless, I think most of us thrive a little better this way. I say I want things to slow down, but by the second day, I wouldn’t know what to do with myself. Apparently, the cattle market feels the same. At 9 a.m., I had every intention of writing about a bullish close, but I’d be lying if I said I expected feeders to finish $6.65–$9.57 higher and live cattle to gain $3.97–$5.30. Hell of a day!

The big one-word question with a not-so-one-word answer: why? We know tight supplies have a hand in it, as they usually do, but what made Tuesday the 6th so special? There’s plenty to unravel here. First and foremost, yesterday afternoon’s rally in boxed beef alongside a higher kill certainly played a hand. Shorts blowing out of their position always helps. And, of course, a headline never fails to fan out a straight flush. Today, we caught a favorable hand with Trump uttering that he doesn’t intend to extend these temporary beef imports. His comments framed the additional 300,000 metric tons of tariff-free imports over that 90-day window as a short-term measure to help the consumer, with no intention to renew it long-term. As much as we’ve all been guilty of giving him an eye roll in the past, I’m personally putting more of the heat on his advisors, but he handed us a better headline today so take that for what it's worth.

Meanwhile, I have mixed emotions about the weaker dollar and what it's telling us about the broader economy. I’ve got a feeling this next recession - whenever that may be - will hit hard. But for now, this weaker dollar seems to be helping our export markets, making U.S. beef cheaper for foreign buyers where purchase volumes were slacking.

That said, August beef exports were up 3.6% from last year, but down 0.6% from July. I’d hardly hang on 1/6th of a percent month-over-month. Although traditionally exports go up as we get into the cooler months here in the States, the weather hasn't gotten the memo, and unseasonably strong domestic demand is keeping more product at home anyway, so all the better! As long as buyers keep showing up and demand outpaces supply, that's all that matters. 

I always say if you want a good indication of the state of the cattle business, look at the kill. Branching off of that, we also need to watch how retailers/consumers respond to larger strings of product. Not to mention the volume of formula trades in a fat cattle market where we’ve strayed so far away from traditional negotiated cash (under 20%).

Formula trades tend to give us an overall 30-foot view into the packers' hand in terms of captive supplies. Normally I use 30-foot view as a reference to a broader picture, but when we’re talking about the packers – that tends to be a closer view than what we're used to getting.

Last week’s nationwide formula trade totaled roughly 201,500 head, nearly 45,000 below a year ago. That gap keeps the packers relatively current and competitive in the cash market alongside today's demand picture, and if you caught yesterday’s read, I’m still leaning on the tortoise in cash this week. Hopefully, today’s momentum on the board helps push cash to where it should’ve been two weeks ago.

With December live cattle around $224 post-rally, the next resistance area is closer to $225–$226. A move above $226 could open the door to the low-to-mid $230s. We’ve seen fund money come and go, but the fundamentals still look relatively strong through winter.

And on that note, cattle weren’t the only ones catching funds today. Grains put together a few buyers too, with reports of some early yields running 10–20% behind last year and harvest progress lagging in parts of the Corn Belt. If USDA trims yields in Friday’s report, that could give corn enough gas to get out of the driveway long-term.

One good day won’t settle every question, but it sure makes the rest of the week look a little better. I suppose we'll see whether the bears are settling in for winter or just sleeping this one off - but we could see some profit-taking tomorrow, so as always, reward the rally!! Have a good evening!

Thanks,

Samantha Cozza-Wright