Varilek’s Cattle Call: Holding Action Rally

We finally saw some recovery on a free-falling futures market last week. It was nice to see a change in attitudes from Monday through Friday. Negative returns have still been at the forefront of feedyard cash flow.

Last week notes the shift in open interest from the October contract to the December contract. If the cattle market decides to rally, the funds will likely participate in the December contract now instead of October. The funds appear to be close to a neutral position now, but with positive China trade news, traders are more hesitant to sell the markets currently. Note that sales to Hong Kong appear to be picking up strength as well.

The recent rally has decreased the cash cattle basis significantly over the last two weeks. Producers are slower to take cash bids at a $100 or lower causing a negative shift in slaughter count. I am writing this on Friday so I can only account for part of the weekly kill, but through four days, we are 19,000 head short of year ago levels. This is the first major sign of cattle backing up during the fall run. Maintaining our current weight status is of the upmost importance for the price performance during the remainder of the year. The December contract has a $6.00 premium to October which is giving incentive to close the gates.

The cash market carried packer bids from $157-$160 dressed for most of the week with Tyson finally participating. Most of the producers seemed to be passing bids with cattle that can stand more time on feed. This is the first week cash has stabilized since the plant fire in August.

Feeder calf runs are starting and northern feedyards are beginning to look harder at filling empty pens. Calf prices appear to be more in line for the financially beat-up finishing yards to start considering new purchases. Readers liked my line from last week, so here it is again. Do not get too buried in bad news that you forget to look for the next opportunity. Happy Anniversary to my editor Kayla Kooima-Hansen. Have a prosperous week everybody.

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.