Varilek’s Cattle Call: Cash Rally
October live cattle futures climbed into contract highs while the contracts behind it edged closer. It has been a while since a front month has led the charge meaning bull spreads are working. That is one of the three major signs to a strong market. Those signals would be basis, spreads, and the market. It gives the bulls another leg to stand on with more optimism from many traders. However, the funds did not appear to engage into the bullish move with open interest staying at the tightest level since 2015.
The cash cattle market was one of the factors leading the charge with the south gaining $2.00 to $147 and the north seeing a range from $150-152. The upper prices were for black cattle only as of Thursday. The choice-select spread over $30 was a reason for the increased interest in northern quality cattle. With the large female slaughter over the last year, I am led to believe that we are severely tightening up on supply moving forward. Year to date the slaughter totals are increased in the beef industry with the move coming from females.
There is a cattle on feed report Friday which might start to shed some light on fundamentals. Are we really getting tighter with lower placements? That thought has existed for a few years with many traders waiting for the actual to happen. In my opinion, this is the year we see tighter numbers after seeing a hot cow slaughter market keeping up with great demand. We will then need to decide if the smaller number of negotiated traders is enough to capitalize on the opportunity for the beef producer. Packers have enjoyed record profits over the last few years with leverage over the beef producer with committed cattle, but maybe the herd has gotten too tight with not enough money making it through the entire beef sector. 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.
