Varilek’s Cattle Call: Caution Signs
Boxed beef prices continue to decline with the choice/select spread at a mere $8. As noted in previous articles, weights are significantly higher with more days on feed and optimum growing conditions. The availability of choice quality cattle is more than ample creating the narrowing of the spread. A decrease in demand does not seem to be on the buzz wire as much as I had expected with such a large break in boxed beef prices.
The February contract is still carrying a record open interest level. There are some caution flags if the long funds decide to roll out or exit from that large number of contracts. The February contract remains a $6 premium to cash but that premium could mainly be due to spring rally optimism in my opinion.
The cattle on feed report Friday showed a negative tone for the market. Cattle marketings were 97 percent versus the 99 percent the prior month adding to the reason of larger cattle weights. Placements came in at 105 percent with most of the guesses thinking only slightly over 100 percent. The “on feed” number of 102 percent is and increase of 1 percent over the prior months report.
Cash cattle trade for last week was mostly 192 dressed with some 119-121 live bids. The year of 2019 was a very trying for agriculture. I feel like most producers are ready to flip this calendar to the new year. We finally have cattle in the yards with positive breakevens for a change, so I hope for a better start of 2020. I want to wish all of you a Merry Christmas. Enjoy your time with family and as always, eat beef.
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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