Varilek’s Cattle Call: Correcting Market
With lower beef production year over year and carcass weights significantly larger, imagine what we could have if we were current in the feedyards. Excellent weather, cheap corn, and a premium futures market structure are some reasons to blame for the large carcass weights. Now, the corn is rallying, and the futures market is taking out some of the premium. The incentive to clean up might finally be upon us with the sharp break in futures adding worries to a beaten-up cattle feeder.
Initially, the recent break started with concerns of packing plants struggling with covid 19. Reminders of the awful spring are scaring hedgers into looking for shelter. In my opinion, it is yet to be seen if actual struggles are occurring on the chain speed. After a disastrous spring, packing plants have better protocol in place to help combat such issues. Margins are still well in the green for packers and desire to keep beef moving should be highly incentivized.
Cattle producers are still fighting to find more profitability and leverage when trading fed cattle. Weights are unable to find themselves getting back in line with previous year levels with excellent feeding weather. Cattle are outperforming expectations, and the packer continues to delay pickup of cattle being purchased.
The cattle on feed report appeared a little friendly with lighter than expected placements and a slightly smaller number on feed. It should not have much bearing on the market in my opinion with the earlier paragraphs controlling most of the market, leverage being the main issue. Get that beef ready for Thanksgiving and let us feast.
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.