Varilek’s Cattle Call: Tight supplies stabilize cash prices…for now

It was another steady uptrend for the cattle this week with a large push from the funds.  Basis levels were decreased, but cash prices were higher.  The south traded $2 higher at $186 with the north trickling few out at $187.  Early thoughts were $190, but with packer kill cuts and few bids around, trade started to trickle Thursday and Friday. 

The overall economy will play a role in the future of the cattle from here on, in my opinion. The tight supply fundamentals are the reason cash prices stabilized the cattle market, but it will need some further news to extend this rally. The Dow Jones and S&P 500 are trading at record levels yet, but the worry of the health of the consumer is growing. Interest rates are still high and manufacturing looks to be hitting some rocky ground. Also, who can forget that we have an election coming up this fall? It is uncertain how markets will react to what unfolds upon the arrival of a new President.

This rally is giving us opportunities to look at hedge strategies once again. The gut check we took with the summer futures break is not forgotten and may highlight an area of risk. This is how I like to see a market rally with a steady uptrend and increasing open interest. While all feels good now, I do not want to ignore the chance to find some better protection. 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.