Varilek’s Cattle Call: Profits for feeders

The cattle futures stood a small test last week with lower live cattle cash trade.  The funds did defend with a surprise rally on Thursday.  With a market near record highs, volatility is a bit of a normal occurrence.

The recent heat took a toll on fed cattle.  If hogs can lose four pounds in a week while living in a controlled environment, imagine how much weight the cattle lost.  Some shipments of cattle were fifty-ninety pounds below expected weight after the week of heat.  It had a bigger than expected impact in my opinion with stories of increased death loss falling on an already tight supply of cattle.

The cash cattle market was $3-4 softer in the north with $183-184 trade.  Early bids were taken with not much resistance to feeders in my opinion.  Leverage may have been in the producers’ hand, but profits were large for feeders.  It was hard to pass up the $400 per head profit after years of struggle feeding cattle.  The south traded a few $179.

 It is hard to put any stock in southern cash with very small numbers, but unfortunately, we have a market set up to look at it.  Texas is the largest cattle feeding state in the nation and has sold out to giving packers almost all the captive supply.  Large corporates hold the votes and power to make decisions in the beef industry which is a scary thought to me.  It comes down to more money equals more votes.

I like the beef demand.  Weather projections on the East coast are perfect for grilling beef over the Labor Day weekend.  Boxed beef prices are holding strong even through the dog days of summer.  The fourth quarter will yield more tight numbers in the feedyard, and I look forward to a hot feeder calf market.  Have a good week.

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.