Varilek’s Cattle Call: Live cattle contract highs

Open interest in the live cattle remains at record levels with the funds holding a record long position. The funds appear to be defending their position. Some evidence of this being the recovery of the futures after the March 12 break. We have a steady uptrend with increasing fund trade, so keep an eye on the funds’ direction. As of now it is still record highs in all the deferred cattle contracts.

The cash market traded lightly early in the week of March 12 with some $203-$205 dressed in the North and $127 live in the South. Those prices were disappointing for the producer. However, many traders have not given up hope of getting $130+ cash. As we close out the month of March, the packer is still getting cattle bought for two and three weeks out with relative ease. General thoughts are the packer has to be closer to the knife then they appear. The packer is doing a tremendous job in keeping control of the cash market and maintaining leverage. We will see if making contract highs spills over in to the cash market.

Hedgers have been active in the market with opportunities to lock in some modest profits. As a commodities broker, one of the main questions I get asked is, “How high can the market go?” The second being, “How low can it go?” I know those questions come with the territory of trading futures, but let me give you this thought. “Plan the trade and trade the plan.” It is key to have a good marketing plan in place ahead of time. If you prefer puts and calls, then stick with it. The same goes for a trader that prefers straight futures. Keeping your emotions balanced during swings in the market can help your plan.

Overall I see strong technical support around $110 for my early “summer low” call. None of us know what the markets will do by then or even tomorrow, but with the hot demand and peak of the cow herd numbers possibly behind us, I do not anticipate the $30 flush like we experienced in 2017 and 2018.

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.