Cattle futures extended their recovery on Monday after posting higher weekly closes, strengthening the view that the market may have established a near-term bottom. Improving cash cattle prices, reduced concern over the gradual border reopening and positive developments surrounding the Cargill plant in Fort Morgan helped support the rebound.
Brad Kooima of Kooima Kooima Varilek believes the market overreacted to the border reopening announcement and that the lows may now be in. However, he remains cautious about how far the recovery can continue.
Futures have moved above last week’s highs, and cash trade improved late in the previous week. Still, weak boxed beef values, poor slaughter levels, high producer break-even costs and heat-related cattle deaths continue to create uncertainty.
Kooima sees room for further gains during August, particularly if seasonal Labor Day demand supports beef prices. He is less confident about the market’s ability to sustain the recovery beyond that period.
Border Reopening Concerns Begin to Fade
Cattle prices have moved higher as traders place the border reopening further behind them.
Kooima believes the original market reaction was excessive because the reopening is expected to be gradual and is not scheduled to begin until the middle of August.
A slow reopening should limit the immediate increase in cattle supplies entering the market. That may reduce the pressure traders initially expected when the announcement was made.
The market is also receiving support from developments at the Cargill facility in Fort Morgan. Plant workers appear to have reached a settlement and are expected to vote on August 4.
If the agreement is approved, the facility may begin reopening slowly, possibly with one shift later in the month.
The return of processing capacity would be positive for cattle demand, although the gradual schedule means the effect may not be immediate.
Futures Move Above Last Week’s Highs
Both cash cattle and futures appear to have stabilized after the previous decline.
Futures opened the week by moving above last week’s highs, reinforcing the view that selling pressure has eased.
Kooima uses retracement levels to estimate how far a recovery may extend. On Friday, the market reached approximately a 38% retracement of the earlier decline.
The next target is the halfway point of that move. Several moving averages are also located near that level.
For October cattle futures, Kooima identified an area around $231.50 as a possible objective.
The market was only about $2 below the 50% retracement level, but he doubts futures can move significantly beyond it without stronger support from the cash market.
Weak Boxed Beef Limits the Recovery
One of the main concerns is that boxed beef prices have not responded strongly to reduced slaughter.
Slaughter levels have been exceptionally low, partly because extreme heat disrupted cattle movement and processing activity.
Normally, lighter slaughter reduces beef production and can support wholesale prices. That response has not occurred to the extent Kooima expected.
Weak boxed beef values pressure packer margins and reduce the incentive for processors to bid aggressively for cattle.
As long as beef prices remain sluggish, packers may continue delaying purchases and resisting higher cash prices.
This creates a ceiling for futures even if producers become less willing to sell at lower levels.
Labor Day Demand Could Support August Beef Prices
Kooima remains hopeful that boxed beef values will improve later in August as buyers prepare for the Labor Day holiday.
Seasonal buying could provide the demand needed to support wholesale beef prices and improve packer margins.
If that occurs, cattle prices may extend their recovery during the month.
However, Kooima is more concerned about what may happen after the seasonal buying period ends.
The market may struggle to maintain higher prices if beef demand weakens again or if slaughter levels begin to normalize without a corresponding improvement in wholesale values.
His outlook therefore favors a possible August bounce rather than a sustained long-term advance.
Cash trade strengthened as the previous week progressed, with some cattle selling at $233 and $235.
Kooima estimates that producers have a 60% to 70% chance of securing $235 or slightly more during the current week.
Higher cash prices represent the clearest path for futures to move above the major retracement levels.
However, packers remain constrained by weak margins. Without stronger boxed beef values, they may continue to delay purchases and resist producer asking prices.
Feedlot operators may also be reluctant to sell cattle that lost weight during the extreme heat.
Some large steers reportedly lost around 100 pounds. Producers may prefer to hold those animals long enough to recover part of the lost weight through compensatory gain before marketing them.
That reluctance could tighten near-term availability and provide additional support to cash prices.
Heat Causes Significant Cattle Deaths
Extreme temperatures have caused livestock deaths across cattle-producing regions.
Kooima said the industry has discussed possible losses of approximately 30,000 head, although he stressed that the figure is only an estimate.
The total may include several categories of cattle, ranging from animals weighing around 800 pounds to those approaching 1,600 pounds. It may also include feeding cows, heiferettes and cattle outside the usual fed-cattle category.
The true number remains difficult to determine because many producers are reluctant to discuss their individual losses.
For the affected operations, the financial impact can be severe.
At the national market level, however, Kooima does not currently consider the estimated losses large enough to fundamentally change the supply outlook.
He also warned that the event may not be finished, meaning additional losses remain possible if extreme conditions continue.
Low Slaughter Encourages Producers to Hold Cattle
The combination of heat, weight loss and high break-even costs has reinforced a holding strategy among producers.
Feedlots had already been keeping cattle longer and increasing finished weights in an effort to lower break-even costs per pound.
The recent heat complicated that strategy by reducing animal weight and slowing normal marketing activity.
Producers may now wait for cattle to regain weight rather than selling immediately after the stress event.
This behavior can support the market temporarily by reducing the number of cattle offered for sale.
It may also create larger supplies later if many operations delay marketing at the same time.
Feeder Cattle Cash Market Recovers
Feeder cattle prices improved sharply at sale barns during the previous week, although the cash index has fallen below futures.
Part of that weakness reflects a limited number of cattle sales in northern regions.
Fort Pierre reportedly held a solid auction on Friday, which Kooima expected to lift the feeder cattle index when the latest calculation was published.
Elsewhere, producers have shown little interest in selling during extreme heat or after the recent market decline.
Even Oklahoma City, typically an important Monday market, had very limited activity.
Owners of 800-pound steers without an urgent need to sell may prefer to wait and see whether the market stabilizes further.
Feeder Cattle Demand Remains Engaged
Kooima doubts that the feeder cattle market will experience a major additional sell-off.
Corporate buyers, individual feeders and Canadian participants continue to show interest.
This demand provides support even as the market absorbs the border reopening news.
Limited sales volume can make the cash index appear weaker, but it also reflects producer reluctance to accept lower prices.
The result is another holding pattern in which neither buyers nor sellers appear willing to force a large move.
Hog Futures Show Signs of a Seasonal Top
Lean hog futures were mixed early Monday, but recent price action suggests a seasonal high may have formed.
Nearby contracts posted lower weekly closes.
Kooima noted that the market had returned to the halfway retracement level and the 100-day moving average near $103 before failing.
He believes the break was primarily technical.
The speed of the decline has been notable. Hog futures erased in two days gains that had taken nearly six weeks to build.
A price gap left during the previous week may still be filled, but Kooima would treat such a recovery as a selling opportunity rather than evidence of renewed strength.
Grain futures extended their decline on Monday after posting lower weekly closes.
Recent rainfall removed part of the weather premium that had supported prices.
Kooima believes the markets are too oversold to justify aggressive selling at current levels.
November soybeans reached their 40-day moving average, creating a possible area of technical support.
The market still needs a catalyst to generate a meaningful rally.
Not every production area received sufficient rainfall, but traders are currently following the view that rain improves crop prospects.
Chinese Soybean Purchases Fail to Reverse Weakness
The grain decline continued despite new soybean sales to China.
Flash sales totaled nearly 18 million bushels, with another 5 million bushels sold to undisclosed destinations.
These purchases provided evidence of export demand but were not enough to overcome improved crop expectations.
Markets now consider crops to be in better condition than feared roughly a week and a half earlier.
Kooima believes grain prices may stabilize, but he expects rallies may still need to be sold in the near term.
Closer to harvest, the market may reassess corn acreage and yield potential.
He believes planted corn area may be smaller than currently reported. Yields may also have been reduced by excessive moisture in the eastern Corn Belt and extreme heat with limited rainfall in western areas.
Cattle futures have extended their recovery, supported by stronger cash trade, reduced concern over the gradual border reopening and possible progress at the Cargill plant in Fort Morgan.
The market may have established a low, but significant obstacles remain. Boxed beef prices are sluggish, slaughter levels are weak and heat-related cattle losses have added operational pressure across producing regions.
Kooima sees room for an August bounce, especially if Labor Day buying strengthens beef values. However, he believes futures may struggle to move far beyond the 50% retracement level without a larger advance in cash prices.
The cattle market appears to have stabilized after an exaggerated response to border reopening news, but the recovery remains fragile. Stronger cash cattle prices and seasonal beef demand could extend the August rally, while weak packer margins, heat losses and poor boxed beef performance may limit how far it can go.
