Varilek’s Cattle Call: Cash Price Strength

Live cattle cash prices continue to impress with a $4/cwt higher trade week over week. The south was able to finally move the needle with some $140 trade on Thursday while the north saw upwards of $149 live. The seasonal Labor Day buying rally was as scheduled with domestic demand staying strong. Exports have also been in the picture with a notable increase this year.

The biggest question for the market is if it can stay strong after the Labor Day buying is finished. The market usually sees a correction toward the end of August into September. However, the cattle markets did not experience much of a summer low with steady cash throughout the summer. A strong floor has been evident for cattle feeders this year despite feed prices rallying. Open interest in the live cattle futures is small so possibly traders will be willing to take on any kind of break to participate in the tighter supply of the cattle cycle.

The higher feed costs mentioned are challenging quality grades for packers as feeders are moving cattle with fewer days on feed. The future prices are showing an increase, but feedyards are current with corn basis maintaining strength even with a new crop break from the highs. As we enter harvest, yields will still not provide ultimate clarity on prices in my opinion with strong world demand and uncertain economies. It feels like an opportunity to highlight that formulas are not the main reason for the past quality increases in cattle. Genetics, feeding practices, and camera grading were bigger factors in my opinion.

Feeder auctions are underway, and optimism rages on in the cattle industry. Northern farmer feeders are taking a larger role in purchasing feeder from my notes. Southern corporates may be experiencing tougher bottom lines with a feed price disadvantage. I am not sure exactly how to unravel that in the future, but it is worth noting for now. Have a good 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.


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