Varilek’s Cattle Call: A Week of Red
We wrapped up one of the worst weeks I have ever seen in the agriculture futures market. Between a fire in a packing plant and a USDA grain report, producers were left with sharply weaker futures markets. Tensions were high with free falling grain and livestock markets.
The fire in Garden City at the Tyson plant is the most current hurdle we are facing. The timeline of repair if the biggest question creating uncertainty in the market. Stories are floating around with everybody seeming to have a brother that knows a guy who works for Tyson and knows something. Joke aside, we are all searching for accurate data on the situation. The length of the repair could be greatly affected if the concrete has been compromised. If the concrete does need to be replaced, we are looking at months of repair versus the just weeks. The good news is the fire did not take place on the kill floor.
Packer margins are one thing that could help bail out the downtrend in the market. The desire for them to keep cattle running through the system is certainly there with packer profits near $500 per head. We will watch the daily slaughter numbers closely to see how much they are affected by the closed plant. If the weekend slaughter numbers are high, there is a chance we could kill more cattle week over week with everybody else picking up the slack.
The boxed beef prices have rallied substantially as we approach the Labor Day buying. Seasonally, the boxes can trade weaker toward the end of August into September with the fall run of fed cattle upon us. It is an inopportune time to have an increased showlist with a decreased kill capacity. The news is coming fast so fasten your seat belts for more volatile markets. Volatility makes marketing decisions extremely tough so be careful and trade in your bounds.
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.