Varilek’s Cattle Call: Negative closeouts

The feeder calf market remains volatile. It has had $29 break from previous highs with a small recovery last week. The rally in corn could be to blame for the washout in the feeders, but continued losses in the feedyards do not help.

Cattle weights for the week ending May 25 showed all cattle five pounds below a year ago. We saw the last of the long fed yearlings move through the market so we are on to the 2018 calf crop. Winter conditions proved to be tough for the finished weights and cost per pound of gain was much higher than anticipated. Producers were using a 65-75 cent cost of gain projection when the feeders were purchased and have seen it come to be closer to 90 cents.

The basis remains positive, enticing producers to sell in the 183-187 dressed range. However, it is not making up for most of the losses experienced in the feedyards. Packer margins are still very strong with better weather for grilling finally upon us. Feeder calf prices seemed to be following the ups and downs of the futures markets but estimates for the placements in May are starting to come in significantly lower.

We are finally unwound from the record open interest in June live cattle futures. We can all breathe a sigh of relief to finally be through those contracts. Enjoy the weather and don’t forget to grill your Dad a steak this week.

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.