Varilek’s Cattle Call: Market Woes

Cash cattle traded steady to weaker last week provided the big clean up that was needed. Many producers had been holding cattle trying to fight the market for better prices only to find a weaker trade in the following weeks. Larger carcass weights have proved that cattle are staying on feed longer. With the weaker futures trade and poor attitudes, many producers finally put wheels under several pens of fats in the north. This clean up needed to happen if the producer was going to gain any leverage back as some feedlots still had calf-feds in the yard.

One good note is the packer is closer to the knife (meaning fed cattle are being picked up quicker after the sale is made.) Rather than waiting several weeks to deliver cattle to the packer, a few sales are for next day delivery. We all hope this is a sign of spring rally, but it is yet to be seen if we have enough gas in the tank to turn this market around.

Coronavirus worries continue to plague the market. Regardless of whether the outbreak is worth the attention it is receiving; traders are fearful of an increasing problem. The fact that Japan and South Korea are both making headlines with their first cases of the disease is a negative sign for the beef market. Those countries are two of our top export customers and fears of decreased restaurant revenue is expected.

The cattle on feed report showed 102% “on feed” which was in line with pre-report estimates. That inventory was one of the largest ever shown for the month of January. Placements came in at 99% toting a better than expected figure. In my opinion, this report did not seem like a game changer in either direction as compared to the pre-report estimates. Be sure to think spring and good luck calving.

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.