Varilek’s Cattle Call: Market trending slowly up
March 1, 2019
I am happy to be coming to you with news during an up trending market. The live cattle futures and cash prices continue to rise. The speed of the rally may be slow, but it is welcomed nonetheless.
Open interest continues to increase meaning more traders are entering the cattle futures. The debatable issue is what this means for the market. The bears will say the funds need to exit which gives the chance for a break. However, I do not want to fight the trend with that and personally view it as the strength of the market. Old sayings always seem to arise within the markets… "The trend is your friend."
Demand has remained surprisingly strong for the last several months. We still have the best seasonal demand to come with grilling season approaching. It looks like the groundhog was a liar this year, but I promise the snow will eventually melt.
I love being friendly cattle, but the higher markets have created some nice hedge opportunities. Currently we have an overbought market with the continued rally. Hedgers have really increased the pace this week with straight hedges and options. Option prices are relatively low with the volatility in check. Having the choice to lock in the profit or stay open is sure more fun than watching profits slide in to the red.
The summer months have us all a little nervous with an increase in supply, so I am not opposed to find a hedge strategy. The front market seems to be on solid ground with the winter conditions and spring demand around the corner. The winter conditions are friendly the market now, but keep in mind it will back more cattle up in to summer marketing.
The USDA cattle inventory report last week leads me to believe this summer will be the peak "On Feed" numbers for the cattle cycle. Increased female slaughter in 2018 and a 97% rate of heifers kept for breeding are the two factors that bring me to that conclusion.
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That should be plenty to chew on for my first week with you. I am praying for all of you fighting weather and needing some relief. The bright spot is we have profits to take as cattle producers.
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.