Varilek: Winter weather effects on market still unknown
April 12, 2019
Cattle futures did not have much additional news to trade this week. It was a calm week for the most part with mostly a sideways trade.
Cash cattle trade was renewed in Kansas at a disappointing $124 early in the week. Formula cash traders have been frustrated with the lower prices set early in the week. Poor yard conditions and ample supply were some of the main reasons the south gave in so quickly. The hot spring cash trade in 2017 and 2018 had many feeders gunning to take advantage again this year by increasing available supply. That could be why we can't get the boost like years past.
This poor cash in the south is causing deliveries on the April cattle futures. Because we are in the contract month, producers can take advantage of the board price trading at a $2 premium to cash which means the basis continues to be poor. If producers are not winning the leverage battle now, that tells me we could have a tough summer of live cattle prices. There were some $127 live and $204-205 dressed bids in the north spotted on Thursday.
The funds are still the power holder with their record long position. The June cattle contract will have a sizeable period of liquidation in the future. Once that starts, I think that will put some pressure on the upside for June. The 5th business day in May would be the textbook day we would expect the roll to start, but I suspect that could begin a week or two prior to that date. However, I expect that the funds will make one more push ahead of this liquidation period.
Winter weather continues to plague the north. Damage to the feeder calf supply is not yet calculated. Surely the losses should matter to the market, but it might not show up until after the first fall runs of feeder cattle. Decreased gains in the feeder yard are still very evident. The live cattle cash trades should still have some life left over the next month with lighter weights being recorded. Unfortunately, we are tracking yet another winter storm set to hit soon. Let us hope the weatherman is wrong this time.
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