Varilek’s Cattle Call: Test of the Strength
We had a significant test lower across the agriculture markets on Thursday just after the signing of phase one. Friday was better for the grains, but livestock didn’t hold up quite as well. Fundamentals on the live cattle kept the market sluggish.
First off, the carcass weights for the week ending January 4 were not helpful. Steer weights were 20 pounds higher than previous year levels, with the heifer carcasses 7 pounds over the previous year. Many knew fed cattle were backed up in the feedyard but maybe not to that extreme. It still partly goes back to the excellent fall feeding weather.
Second, the cash market is a struggle as well. Bids ending the week are spotty, but I did hear a price of $123.50 picked up on clean fancy inside cattle. Dressed bids of $198 are still being passed with yields of 61% on some yearlings not making it very appealing. The packers are not aggressively trying to raise bids to purchase cattle.
One beef industry topic is to raise the restriction of speculative longs that can be held of a contract under delivery. That sounds confusing but the theory of the proposed change is to keep the playing field level for longs and shorts in the cattle markets. It is noted that currently shorts in the market are possibly keeping the market depressed for their benefit with the ability to have additional shorts as a bona fide hedger. The debate and studying of past data are currently in the works.
With the larger weights on fed cattle, the supply of choice product is more than ample. The choice/select spread is now below the five-year average just three months after being at the $28 level. A test of winter weather may help the beef industry become more current. Good luck out there with the cold temps and snow as I am thinking of all the livestock ranchers braving the cold weather to do what they love.
Scott Varilek, Kooima Kooima Varilek Trading
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