Varilek’s Cattle Call: Grid sales increase
The steady increase for cattle futures is raging on. The overbought stochastics over the last month is not scaring the market in to looking for a correction. We can keep an eye on the steady uptrend line for support when analyzing the chart. Funds are currently gaining strength to the long side without major hedge pressure. In my opinion, hedge pressure has not been evident since the futures market is not at a desirable level.
There is an increase of feedyards in the Midwest making sales on the grid in the past months. With boxed beef prices giving incentive to raise quality beef, the north is learning how to benefit. The choice/select spread is still more than $25 with choice boxes higher than $225.
In the past producers feared the discounts for yield grade four cattle but have gained the confidence to test the grid sale. I have heard talks of significant premiums from producers starting to use the platform. The key has been to make sure you are able to establish a base price as opposed to setting it against the weekly average. I was not raised to strive for average and want to maintain my ability to say yes or no to a set price rather than taking whatever the packer gives me.
This increase in grid sales has also helped keep feedyards current on cattle sales. Carcass weights are seasonally increasing and have eclipsed year ago levels on steer weights for the first time during the fall run. Favorable weather conditions through the end of the summer were conducive to positive gains.
I believe we can continue to look for new avenues when marketing cattle. If the south is taking advantage of grid sales, we better investigate the process. The prices of northern cattle should be significantly higher with our supply of better-quality cattle. As producers, we love what we do so continue to look for the long term health of the industry.
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.