Varilek’s Cattle Call:  Beef Industry Changes

The futures market made contract highs for live and feeder cattle last week. The open interest continues to climb with new buying even with new highs. Stochastics have the market overbought but did not have much affect in my opinion. 

The cattle inventory report Tuesday was a major reason for the rally.  You may have heard, but the cow herd size is shrinking.  With only 94 percent heifers kept for beef replacement year over year, the cow calf producer has not elected to expand yet.  Beef cows at 96 percent was in line with trade estimates pre-report. 

Some sectors of the beef industry do not want to welcome any change that has been proposed over the last several years.  With a cow herd being forced to a smaller size, I hope we can find some common ground.  Seeing family cattle operations struggle to stay competitive and unable to get a “sweetheart deal” is frustrating to see.  “Sweetheart Deal” is the newer term tagged to be cash incentive above and beyond the rest of the market if you use a formula to sell your cattle.  The contract library legislation is being presented is hoping to unmask and make public what everyone receives for cattle.  If negotiated cattle are mandatory reported, why not show everything.

There is a long-winded rant for you.  I hope to see a long life in the cattle industry that I can pass down to my children.  Raising cattle is in our blood to an extent so as I always say, get involved with your cattle organizations of choice.  The shifts we have seen in the last 15 years alone happened much faster than I anticipated.  The industry went from 80 percent negotiated cattle to less than 20 percent in that span.  Nebraska is the latest state to see a sizeable increase in formula trade.  Captive supply for the packing industry is a lot of leverage against the producer.  Northern negotiators are currently trading under the price of southern inferior cattle.  We are at some higher prices, but inputs and interest rates are also making better sales needed.  Hope you can get some motivation out of my rambling today.  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.