Cattle Call by Scott Varilek: Fund Liquidation
The biggest story of the week is the exit of the funds in the cattle market. After a $9 break in live cattle futures and a decrease of roughly 35,000 contracts of open interest, we are trying to dust ourselves off from the blow. When the funds want to liquidate a large long position, the selloff can be relentless. The sideways range of the chart has seen significant damage from the fund liquidation. Making it difficult for technical traders to study and measure from. However, a sharp break in January could give us ample time to attempt a recovery in time for a spring rally.
Fundamental news remains the same as previous reports. Carcass weights are still 21 pounds over year ago levels and boxed beef has settled after a break just above the $210 level for choice product. The choice/select spread remains significantly narrow during the sluggish demand period after the seasonal Christmas spending spree. Packers speak of running fewer hours at the plants currently, but that can be typical for this time of year. Cash news is quiet as the packers seem content with the contracted cattle they have.
We will be coming into tighter numbers as we approach the end of February and seasonally can place a cash high towards the end of March. Of course, that is the inner cattle feeder in me hoping for higher prices. We also expect better beef exports in 2020. Next week I will have the cattle inventory numbers for you after the USDA releases their report. Have a good week and maybe I will see you at the Stock Show.
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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