Varilek’s Cattle Call: Market Rallies On
Last week’s futures market continued higher touting a more than $10 rally. From a technical standpoint the market was fighting through an overbought status but remained unaffected. When news broke of the plant fire, the December cattle chart left a gap at $111.17. Traders have been watching that level because of the tendency of the market to return and fill gaps. Oddly enough the $111.17 December target is also halfway retracement for the entire move from the contract high to contract low. I am not trying to bore you with technicals, but the importance of these targets is worth noting.
During this futures market rally, the open interest has decreased. For a more stable rally, I would prefer new party or fund buying as opposed to the current liquidation causing the market to climb. In my opinion, this open interest decrease was partly due to lack of producer hedging with futures prices not yet above most feedyards’ breakevens.
Northern cash traded from $165-167 dressed and $105-106 live with the south at $103. It was a nice improvement week over week but the positive basis incentive has dried up. With a large amount of cattle traded last week, it would not be surprising for the cash trade to be light as we enter a new month for packers to pull from contracted cattle.
Boxed beef trade is a little sloppy but is typical for this time of year. However, I think the packers obviously still have plenty of room in their margins to soak up some of the decrease. Heifer slaughter is still 6% above year ago levels for an additional fun fact. Good luck with harvest this fall and stay safe.
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.