Varilek’s Cattle Call: Placements and cattle on feed higher than expected
March 25, 2019
If you recall a few weeks ago, I stated the funds are still the main story in the live cattle futures. We continue to grow the record open interest with the funds holding a record long position. The funds still appear to have more control over the cattle futures than the fundamentals.
The June contract is the leader with over 200,000 contracts of open interest. We expect tougher movement in the futures when those long positions start to unwind. It is not unusual for some of the major rolls to start in late April or early May. The steady uptrend currently gives the funds no reason to exit their June position.
Cash prices are not the leader of the uptrend in cattle. Live cattle basis has remained negative. The stretch over the next two months is typically when we see our best basis of the year. However, we have yet to claim a positive basis victory yet. Packers still have ample supply week in and week out despite weather struggles sliding more cattle back in performance. Producers cashed in on the 2017 and 2018 positive basis. So, part of me thinks the funds might be here to claim some of that prize.
Friday's cattle on feed report had a slightly negative tone. Placements and cattle on feed were higher than expected. The marketing number was also a touch negative with the large placement number being the biggest of the hurdles.
In other news, the action in the lean hog market is hard to ignore. The recent analysis showing catastrophic swine death loss in China due to African Swine Fever, has created a sharp rally in pork prices. Higher pork prices could be a boost for the already healthy beef demand. However, our large pork supply domestically has not changed. The pork demand will have to rely on exports to maintain these prices.
In closing, everybody loves the funds when they are on your side. Currently they have our beef markets on the rise so keep an eye on what the funds are doing. Futures prices are keeping our hopes of positive closeouts high with sunshine finally in our sky.
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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.