Varilek’s Cattle Call: Happy New Year
We might all be sick of hearing about the dreaded 2020. Turning the page looks to have opportunity for agriculture moving forward. Grains are already seizing the opportunity of a weaker U.S. dollar, and a feed hungry country in China. China is on the move as they grow their sow herd at a rapid pace providing better grain prices in the recent.
Cattle prices finished the year with a slow grind recovery in the futures and cash. The largest hurdle for cattle producers in 2020 was leverage which started in March with decreased slaughter capacity. Large carcass weights kept the feedlots scrambling to get cattle shipped out on a timely basis. December cattle futures traded at a 10 year low for the contract in the latter half of the month.
Looking forward I expect less numbers on feed and in the cow herd in 2021. With increased heifer slaughter over the last 5 years, we might finally see the shift of leverage start for the producer. We are finishing 2020 with decreased U.S. beef production by 1% even with the extra carcass weight on the market. These are my hopes for a more profitable year for the cattle producer moving ahead. However, January trade is usually stagnant with decreased demand and a more sideways trade seasonally. In my opinion, we will not shoot out of a cannon real soon. Producers are still in clean up mode with packers already holding inventory for several weeks out.
The funds are not very involved in the cattle futures market currently so keep an eye on any direction they may show as we move through the spring. Good luck in your future endeavors as we start a new chapter. We can count our blessings and learn from our mistakes. I wish all of you a prosperous new year.
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.
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