Varilek’s Cattle Call: Packer contracted cattle at record highs
Livestock futures finished the week on a weaker ton with triple digit lower trade on Friday. Live cattle closed below an uptrend line which cause for jitters from the technical side. On the last trading day of a month funds have been known to exit some positions to square up books. We know the funds are long, but do not know whether that is the reason for lower trade. Monday’s opening trade may give us a signal to the temperature of the poor close Friday in my opinion.
Cash trade drags on with the packer holding a record amount of contracted cattle for March, April, and May. With that kind of packer leverage, the producers could have a tough time trying to get a spring rally. We may be starting to experience life without strong negotiated cash. Many long-time negotiated cash traders are giving into packer contracts just to keep cattle moving. It is near a nightmare trading cash cattle for the small northern producers currently, and the fact big losses are occurring makes it tough to swallow. Feeding cattle is providing many gray hairs lately, but we will not just roll over without a fight.
Demand continues to rage on with hopes of more restaurant trade soon. For the last twelve months consumers have enjoyed and craved quality beef. Getting some of that money back to the cattle producer is where the problem lies. Cattle feeders are down in the mouth and could use a pick-me-up moment. CFAP money helped, but as losses keep coming, the immediate future feels rough. A large slaughter of 666,000 cattle last week shows the appetite for the packer to keep the chains moving after a winter week slow down prior.
Feeder calf prices continue bringing premium levels to breakevens for feedlots, but that is nothing out of the ordinary. Plan your trade and trade the plan. Now more than ever it requires hard decisions in the cattle business. The later half of the year provides hope with a boost in futures prices. 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.
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In response to the severe drought conditions in the West and Great Plains, the Agriculture Department this week announced that plans to help cover the cost of transporting feed for livestock that rely on grazing.