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Varilek’s Cattle Call: Stabilization

After a brutal two weeks of futures trade, the market was mostly stable on Thursday and Friday. I was told that in order to get out of the emergency room, one must become stable first. The funds were still the main story with the liquidation of long positions which caused a drop in the open interest of roughly 60,000 contracts.

The USDA cattle inventory was released January 31 showing a steady inventory of cattle and calf inventory for the United States. The calf crop was down 1 percent from 2018. The number that stuck out to me the most is still along the theme of the decreasing cow herd size. Heifers kept for beef replacement were down 2 percent from a year ago. This was a continued trend from the last couple of cattle inventory reports. The increases in heifer slaughter for the last 4 years would agree with the tipping of the cow herd size.

Coronavirus continues to be a worry over the agriculture markets. You can find many varying stories regarding the severity of the disease. It is the wildcard that hangs over the market as a threat, but who knows, maybe eating a ribeye steak is the cure.

Cash cattle prices remain on the softer side with the south trading at $121 live. The north continues to receive dressed bids in the mid $190’s due to poor yielding cattle. Carcass weights decreased by 6 pounds from the prior week but remain well above year ago levels.

To finish off, I hear progress on future changes to the cattle industry. The first news I hear from San Antonio is interest in two specific topics. Cash transparency could possibly be enhanced by showing all transactions including formula trades to better show the independent producer what prices are. Second is potentially eliminating the two-week wait period before printing carcass weights. By the time the cattle producer receives that information, it is old news. I hope to have more on those topics in coming weeks as they are hot of the press. Take care.

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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