Varilek’s Cattle Call: Good demand, high packer margin
The August live cattle futures another long string of deliveries with the south unable to clean up the showlists of fed cattle. One producer was posting the deliveries in Tulia, TX. The feedyard has not been able to find a packer to work with the rumor being they have burnt some bridges. That is all street talk, but they need to be mentioned as it affects the basis with the August contract nearing its expiration.
Demand is apparently still good with boxed beef rallying for 22 straight days. One of the main reasons for the rally is labor supply issues for the packer. It is evident that our country is experiencing this problem, but even with that in mind last week’s slaughter is expected to be 665,000. There is over $1,000 per head profit for the packer so they should be able to find a way to entice some worker participation. If you are a frequent reader, you already know my thoughts on how the packer can have that much leverage over producers. We can not shut the gate and wait for a better price with the packer already holding captive supply.
The cattle on feed report should not have much weight on the market in my opinion. The USDA showed 98% cattle on feed, 92% placed, and 95% marketed. Carcass weights increased slightly and are 10-15 pounds within year ago levels. We are lower, but I expected weights to be distancing themselves more than that with the comparison to the 2020 debacle of not enough slaughter ability.
Sale runs of feeder cattle are picking up, and we have plenty of empty yards in the north. Have your plan ready and keep an eye on opportunities to lock up some feed needs if it looks appealing. Harvest pressure and fund liquidation from the grains is giving us a break to make some easier decisions feeding cattle. Have a great 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.
Start a dialogue, stay on topic and be civil.
If you don't follow the rules, your comment may be deleted.
User Legend: Moderator Trusted User