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Varilek’s Cattle Call: Still Chain Speed Issues

Cash cattle trade was sparse again this week with small numbers traded at $217-218 and $137-138 live. It was much of the same story as last week with buyers only able to buy a few from negotiated traders. Smaller daily slaughter numbers were evident with packers citing worker shortages with flu season mixed in with continued covid issues. Wednesday was a rally day for the futures possibly in anticipation of the worst behind us, but the rally was not sustained.

Traders are watching to find light at the end of the tunnel as daily slaughter data is printed. This is a futures market that I trade, and markets can bottom when the news is the worst or top when the news is the best. We can not complain too much about the break in futures with the December live cattle futures making contract highs this week in the upper $140’s. Feeder calf prices look to have a great year as well.

Feed costs are still a large question mark with the increased volatility, and inflation often in the front page of the headlines for funds. It will prove to be tough to get a good lock on your costs for the year. Spring is coming even though it doesn’t feel like it today, and the acreage battle will begin. To date the Midwest looks to be maintaining some dryer conditions, but that did not hold yields back last year.

Hog supply is making the protein news with empty slots in barns noted. Disease is creating a bigger hole in feeder pig supply than expected. You can feel the packers looking around a little harder for market ready hogs, and feeder pig prices are showing it with a higher purchase level. Getting pigs out of Canada will be an ever-growing battle with issues of getting truckers in the country too. Have a good week.

Scott Varilek, Kooima Kooima Varilek Trading

The risk of loss when trading futures and options is substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

 

Varilek’s Cattle Call: Negotiated cattle will struggle

We had a slight struggle this week with cash cattle trade. Volume remained low with the slower chain speed in the height of sickness running through packer employees. The last two will weeks were hoped to be the climax of the issue, but we are all guessing when it comes to the effects of viruses. Trade wrapped up from $135-137 live and $218 dressed. Each buyer only had the ability to shop for about 500 head so the negotiated cattle will struggle and back up in the future with no change. Carcass weights over year ago levels did not signal hope for this issue to end quickly.

The highly anticipated January grain report was released Wednesday showing a slightly bigger crop than expected but not overwhelmingly bearish. The grain trade held together for the first day but looked for a correction in days following. If the funds want to hold a long position, the bull needs to be fed. This information did not give any fuel to the fire, and the easier path seemed lower. It is yet to be seen when inflation becomes the main story in grains again if it does.

Feeder calf prices in the sale barn did jump noticeably after the negative grain report was released. That jump shows the uncertainty to what feed costs will be for the coming year. Cost of gains are followed with a question mark in my opinion so trade carefully against your risk. The futures prices are at a premium level so hedgers will be more nervous if we see the board start to slip. It might be more enticing to entertain protection now with the upfront news a little sloppy in my opinion. Demand seems great, but will the producer be able to ask for higher prices with lower negotiated volume. I dearly hope we are not back looking for the charity bids again. Have a good week.

 

Varilek’s Cattle Call: Tale of Two Stories

To start the year, we have two stories affecting the cattle markets. Up front, the news is feeling a little rotten. Carcass weights are one pound higher week over week and twelve pounds over year ago levels. With the backed-up cattle in the first year of covid, it remains alarming to have larger weights this year. Weather is not a hindrance with gains on cattle with closeouts proving positive even with $6.00 corn.

Another compounding problem to go along with the weights is a slower chain speed for the packer. Worker shortages is an issue with covid and flu season in full swing. The lack of help is capping how many cattle an order buyer can purchase. Cash trade was slow with some early $140 trade in the north that decreased to as little as $136 in the south. Luckily, we feel current in the fed cattle sector to weather some of the issues, but if we see struggles to move cattle continue, that will make for tough sledding. January is usually sloppy seasonally for cash trade with slower demand as well.

Let us get to the other side of the story then for some good news. The cow herd is growing smaller and is looking to rebuild. If it rains in cow-calf country this year, I think an increased number of heifers will head for replacements and not to the feed yard. That makes a tighter supply of market beef with great demand and new packing plants coming online. Cow slaughter in 2021 was the largest since 2011 which was the year that started teeing up the ball for the 2014 rally. In my opinion, sometime in the next two years, the producer could be back in the driver seat when marketing cattle. Deferred futures are already pumping premium prices in anticipation to some of this data. Have a good week

Scott Varilek, Kooima Kooima Varilek Trading

The risk of loss when trading futures and options is substantial.  Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

Varilek’s Cattle Call: Futures Market Rally

The year is near an end and the cattle market is finishing strong. We have live cattle futures prices over $140 live and a rallying feeder calf market. There is a lot of optimism to start 2022, and I look for early feeder calf sales to start hot. Producers have some empty yards to fill with positive closeouts in their pocket to give incentive to keep feeding. However, there was a lot of money left on the table this year with packer margins getting out of control and producers only making good profits in the last couple months.

We know grilling season will come, and I project excellent demand once again. However, I am fearful of the number of cattle marketed in the spring time frame. Since 2018 the northern cattle industry markets more cattle in the first quarter than it does in the last quarter. More feeders are planning for market ready animals during the spring than in the past taking some of the boom potential off the cash market in my opinion. It may in turn be easier to market cattle during the fall run than in the past. Do not hear me wrong, if we have enough people stand up and negotiate a price, we could see a great spring. I am still leary of how much captive supply the packer holds and do not trust them to just pay us because they can.

One thing to keep an eye on is rain in cow-calf country this year. If grass is plentiful, I believe more heifers will be kept rebuilding a smaller cow herd. When heifer retention starts, it pulls those heifers out of the feedyards creating tighter numbers and a healthier live cattle trade during that time. In my opinion, we will see that happen in the next two years, and that is why we have great premiums in the deferred cattle contracts. Have a happy new year and be careful in 2022 with higher priced cattle and feed costs. Plan the trade and trade the plan.

Scott Varilek, Kooima Kooima Varilek Trading

The risk of loss when trading futures and options is substantial.  Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

Varilek’s Cattle Call: Leverage over packer is key to a rally

The cattle futures and cash market took a break from the highs this week. A near $5 break in the front month cattle was not anticipated with cash trade above $140 just 2 weeks ago. Charts of the live cattle contracts took a negative tone with a broken trendline. That is something funds will watch for direction and can be one alarm for a market seeing higher prices. The cash this week did trade $138 early but appeared to slip closer to the $136 level on lighter volume.

During the weeks of rallying cash, the industry did see higher volumes of negotiated cash. We strongly believe with more negotiation we can get a price closer to what we deserve as cattle feeders. With less negotiated cattle in the last few weeks, we slipped. Packers are now buying cattle for delivery in the second week of January. A producer with market ready cattle can be quicker to sell with the threat of fewer current bids in the country. Those are some points that are being addressed in the latest pushes in Washington, D.C. There has never been a bill forcing negotiated fair cash trade, and beef producers should not be racing to become the poultry or hog industry.

Carcass weights were slightly alarming with steer carcasses 6 pounds over year ago levels for the week ending December 4, 2021. The weather has been outstanding promoting good gains. I know some people have asked Santa for a southern blizzard to get these gains down, but that seems hard to wish for. Likely some winter weather will come, but the mild temperatures have cattle moving along nicely. Have a good week.

Scott Varilek, Kooima Kooima Varilek Trading

The risk of loss when trading futures and options is substantial.  Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

 

Varilek’s Cattle Call: Box Beef Slip

Editor’s note: This week’s column is coming to you from Joe Kooima, Scott Varilek’s business partner.

Cash trade started the week on firm ground with trade starting at $140 in the north sector, but finished with slight weakness of $139-140 in the south with some $138 being reported in the north. Cash market has had a tremendous run in the last 5 weeks stemming from the shift of leverage into the feedlots alongside cash negotiation and participation from all the packers. The futures discount to cash has also helped move cattle, although at marginally lower cash than previous week.

Boxed beef perhaps is the main story this week, roughly $8-10 lower on the week. Weakness is coming mostly from the high-end cuts, in front of the back-to-back holiday run, with pushback coming from the retailer and consumer. This can be more of a short-term issue with product still having to move through the system at softer prices. Rarely do we see much correlation between the boxes and futures, so I am not willing to hang my hat on falling beef prices. But at this price level I am willing to watch what unfolds, given that the box prices are at/near pre-pandemic prices.

Carcass weight continue to work higher than last year once again. It is somewhat of a yellow flag to see this, but given we are still profitable and willing to sell cattle at softer prices this week, I am alright with the weights the way they are.

Grains, both corn and soybeans flighted to the upper part of their recent range. The grain report Thursday showed nothing different in respects to ending stocks compared to last month’s report. However, corn basis is giving strength to the corn market and a dry pattern in South American is offering support to the soybean contracts.

Joe Kooima, Kooima Kooima Varilek Trading

The risk of loss when trading futures and options is substantial.  Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

 

Varilek’s Cattle Call: Outside Market Pressure

Cash trade finished strong through Thursday with trade starting at $138 live and finishing with $142 alongside some $142.50 to a regional. The producer is finally hanging on to leverage over the packer, and not getting out of hand with it in my opinion. Producers have many reasons to be angry with the packer over the last few years, but they are making deals and keeping cattle moving. The basis is appealing with a $4-5 discount for the futures market. I expected the futures to like this news more than they did with the cash trade, but the long speculator could fear the uncertainty in the outside markets.

The latest pandemic news is a new repackaged Covid story with a new name, Omicron. Futures markets have traded through disease news heavy the past year and a half, so in my opinion, they will be able to shake off the bad news quicker. I understand that is a bold statement and remember that nobody knows what the markets are going to do including myself. We can look at the past to discern how markets react to recurring news for some direction, but it is new territory when dealing with something like this pandemic.

Carcass weights on steers are now higher than year ago levels. Weather is outstanding for optimum gains in the feedyard. That is alarming when comparing to the backed-up cattle in 2020 with slow chain speeds. However, there is a lot of profit in the beef industry, and the producer is now able to demand more of that pie.

Make sure not to give up on aiding in a long-term fix for the beef industry. When profits start coming in it may be easier to forget what producers just went through. Never has there been an opportunity to demand cash negotiated trade to stay alive. We currently have the ear of regulators and can give the small family operation a better chance of survival. Have a great week.

Scott Varilek, Kooima Kooima Varilek Trading

The risk of loss when trading futures and options is substantial.  Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

 

Varilek’s Cattle Call: Hot Cash market

A Happy Thanksgiving it should be for producers who saw a nice jump in cash trade. Live cattle trade started the week at $136 and ended Wednesday at $140 live in the south. It was a long time coming for producers to gain full leverage over the packer with demand sustaining excellent movement. The prices were moving swiftly with feedlots not remembering even how to be this bullish. It has been 2 years since some feedyards were able to pass on a bid. This trade will leave the feedyards current and not willing to drop prices very easily.

Feeder calf prices are on the rise with profitability in the fed cattle sector. Futures prices from February on back are making contract highs with funds joining the party in the last few weeks. Deferred feeder calf prices are nearing $180 respetively. I do believe this rally is where we see relief from the last 3 years of a struggle for the beef industry. In my opinion, it’s a market that you can find some sort of price floor and leave the top side open. Nobody knows how high it will go, and you will start to hear the saying “the market tops when the news is the best.” We have a lot of good news in front of us and hopefully more to come.

It is not for certain if the recent political push to fix the cattle market has prices moving higher, but it certainly did not hurt in my opinion. Fundamentalist have been talking of tighter beef numbers coming with a decreasing cow herd, so the cattle cycle will also play a part here. Once we see feeder prices moving higher, many will want to rebuild the cow herd and hold heifers back for breeding. With less heifer slaughter, that is when the tight fed supply has an opportunity to shine. We will be watching that closely for market direction in the coming years. Have a great Thanksgiving!

Scott Varilek, Kooima Kooima Varilek Trading

The risk of loss when trading futures and options is substantial.  Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

 

Varilek’s Cattle Call: A few cattle sell

Cash cattle prices were noted steady at $122 in the north with some $124 in the south. The market was unable to see higher levels, but producers were able to continue the clean-up of cattle backed up on the showlist. Some packers were bidding for more than a month out, but others did schedule cattle for pickup within two weeks. It was no runaway, but the market will appreciate movement of cattle in a tighter window. October live cattle futures were able to rally with no deliveries posted in week 1.

The government hearings continued with Senator Chuck Grassley carrying the torch for the northern cattle feeding sector. It was good to hear the northern representatives fighting for our cattle industry, but after hours of talk I can see why the government has a hard time getting anything done. The issues in the industry have been evident for years, and we have asked for help with no major changes yet. A small independent family operation looks to be at the greatest risk for the future currently. However, I like some of the dialogue from government officials and remain at task to finding solutions.

Boxed beef prices are slipping from record highs but remain strong at $285 for choice boxes. I like the news I hear for beef demand, and some are calling for the product to turn higher again with excellent domestic and increased export news. The hide and offal also made notable increases as well.

Cow numbers are still tightening in the United States creating premium prices for deferred contracts. The industry feels better times are coming, but it is just taking longer to find our way there than expected. The increased prices create more risk so have a plan in place with your profitability in mind. Have a good week.

Scott Varilek, Kooima Kooima Varilek Trading

The risk of loss when trading futures and options is substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.

 

Varilek’s Cattle Call: Call your politicians

There was a small uptick in cash cattle trade last week with a few more yards able to trade at $122 live and others taking $192 dressed. The north is far from cleaned up, but any small movement of fed cattle is welcomed. The October futures will enter the delivery process next week to see how desperate some are to move cattle. With October futures just above $120, it might become a way for yards to dump cattle that fit the specifications for delivery.

The cattle on the showlist being pushed back by the packers will start to fill the small hole toward the end of the year with December futures still carrying a near $5.00 premium. Many of the bids received are for the last week of October and the beginning of November already. If you are interested in selling market ready cattle, it is hard work. The frustration for the small family yards is mounting pushing some to reevaluate business operations.

There is a lot of government buzz as some cattle organizations are busily working to get a revised cash negotiation bill to Washington D.C. The current Livestock Mandatory Price reporting policy has been extended to December 1, so it is of the utmost importance to try get some fixes done by then. It is a great time to call your politicians for help fixing now while we have some attention.

With a lot of tough news for the cattle industry lately, I have been challenged to share some good news for a change. I happen to hold the greatest news you could ever hear. Jesus Christ is our Lord and Savior, and God is still in charge. We can take comfort in that when we are feeling down. He always has been and always will be the “I AM.” Have a great week and God Bless.

Scott Varilek, Kooima Kooima Varilek Trading

The risk of loss when trading futures and options is substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.