Heavy carcasses weigh down market
Live cattle futures broke through the bottom side of a range last week showing the largest two-day correction since the rally started in September of 2019. The funds have continued to hold a long position but have now been tested with the sign of a weaker chart formation. However, the futures recovered with a steady trade on Friday.
Fundamental news appears slightly negative in the up-front market. Carcass weights continue to be aggressively larger than year ago levels with Kansas dressed steer weights more than 40 pounds heavier than the 5-year average. I apologize for reporting about carcass weights every week, but it is a driving factor currently.
Cash remained steady around the $124 live price and $198-199 dressed. The break in the futures was sudden but did narrow the basis. With cash trading sideways for the last several weeks, perhaps the board just ran out of gas and needed to correct from the contract highs.
Coronavirus is certainly creating a stir across the agriculture markets. Currently, we are all looking for answers and what this means to the market. In my opinion, the “uncertainty is always bearish” slogan comes to mind. Ultimately, we hope the fear is calmed and the disease can remain under control otherwise ripple effects could be felt.
The cattle on feed report was right in line with the market estimates allowing us to move on from that worry. Placements were slightly increased but marketings were also ahead of pace. To answer many questions, it would be unusual for a spring rally to be completed just two weeks into January. 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.