Varilek’s Cattle Call: Summer Grind Continues
We did not see large action in the cattle markets last week following the USDA reports. Last Friday’s actions may have been in anticipation of what numbers we would see on the two reports. The “on feed” report showed a larger placement number than expected creating a continued negative tone in the feedlot sector. Of those placements there was a 3% increase in heifers alongside a 1% decrease in steers. That follows right in long with the long-term picture we saw on the “cattle inventory” report.
The cow herd is still decreasing with no major sign of heifer retention yet. The cost of production and/or lack of profitability are factors in keeping cattle producers from expanding in my opinion. Traders all see the lower supply of beef cattle which is why deferred cattle futures hold a significant premium to current prices. The optimism is there for profitability but uncertainty around the cost of production is challenging.
Grain prices have seen a large break but look to be trying to recover with uncertainty of the United States crop supply and world food issues. Volatility is making it tough to decide about locking in feed. Many traders may be waiting for a seasonal harvest low making a July rally tough to stomach for an end user trying to wait it out. It is easy to find yourself chasing your tail when prices make unpredictable swings. The one for sure topic is corn basis. The old crop basis remains exceptionally strong even with dropping futures prices.
The Agriculture Marketing Service is currently working on a program for the “cattle contract library” which is formed from the latest legislation measures. Involvement and input from cattle producers are desired to help make sure the beef industry gets what it needs. The hope is to create a more level playing field for small family producers looking to stay in business. Enjoy the last month of summer and keep the grills lit.
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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