Varilek’s Cattle Call: Contract Highs
The cattle futures finished the week on another positive note with many contracts establishing contract highs every day of the week. The funds looked appeared to add length with a growing open interest. The long-term tighter supply was still the main reason for the rally alongside some help from China headlines. All contracts of live cattle traded above $160 during the week.
Brazil found another case of suspected a-typical mad cow in their supply chain which was caught during their preventative measures. China acted by putting a temporary ban on Brazilian beef. We have seen this process happen before, but there did not appear to be a timetable to the length of a ban. With a higher price on beef in North America, I do not anticipate a large boost in exports from the United States in my opinion.
The “cattle on feed report” came out Friday and appeared to be a little friendly. The “on feed” number of 96% was 1% below estimates. Placements also came in 1% below estimates at 96%. We all remember how tough January was in the north to place calves. The south may have picked up a small bit of traction while the north was digging out. Marketings of 104% were in line with estimates.
The overbought cattle market did not slow down the optimism for the week. Numbers look to be tight and stay that way for the foreseeable future. When moisture finds its’ way back to cow calf country, it will be time to rebuild the herd. That heifer retention will pull heifers from the feedyards making it an even tighter supply temporarily. The biggest risk in my opinion is the health of the economy. Yet again market analysts are calling for the risk of a recession. Two years of talking about it may lessen the hurt if it happens, but we have to be aware. 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.