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Varilek’s Cattle Call: Decreasing Prices

Spirits in the cattle feeding sector are down after the sharp correction in the futures market. December cattle futures are sporting a $10 break in the last few weeks, and the October contract has not trended lower during its expiration since 2011. Open interest continued to deplete with little participation from funds in my opinion. Blame was placed on the upcoming election keeping traders away from the cattle futures. The cash market was quiet last week with very spotty trade. The south managed some $105-$106.50 trade with the north buckling on some long fed cattle from $100-$104. It was a struggle to get action from the packers.

Choice boxed beef are below $210 for a weaker tone but still maintain better than expected movement in my opinion. Packer margins are still significantly green and not finding their way into the cattle feeding sector’s pocket. Cattle feeders are due for some green ink and will likely be forced to play closer to the vest moving forward.

The cattle on feed report finished the week off with a slightly negative tone printing 104 percent On Feed versus a 103 percent estimate, 106 percent Placed versus a 103 percent estimate, and 106 percent marketed versus a 106 percent estimate. Yes, the report was a touch negative, but with a significant break the last two weeks, we may not need to correct more based on the report in my opinion.

The cattle industry is wearing a black eye with this last break, and I would love to offer some hope. However, we need to get the weights under control before feedyards can have any leverage over the cash market. Go vote and remember, grilling season never ends.

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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