Varilek’s Cattle Call: Demand Confusion
Cash cattle trade was underwhelming again in my opinion. Producers past the $220 dressed bids giving hope of a stronger back, but the $221 price increase started buying cattle. With a decent yield and freight, that figured around a $138 picked up price. The third week in March used to be a seasonal cash high week, but the shift of feedlots feeding cattle for spring has provided more supply during a hot demand season.
Demand can be a question mark with all the turmoil overseas. If wars escalate and send markets into a spin, the risk of not spending extra consumer dollars on beef becomes a worry. High gas prices are already affecting how futures are acting in for livestock in my opinion. Livestock and energy futures appear to be trading in opposite directions since the start of the Ukraine invasion.
The demand for beef has been excellent for two years with the packers and retailers showing large profits. If the good times happen to end, the chances of getting extra dollars down to the producers will become slim. We still see a decreasing cow herd with lower profitability and dry conditions. The incentive needs to be there with high equipment and feed costs. The lack of a fed cattle cash market has kept a lid on what could have been some needed healing in the cattle industry in my opinion. If slaughter capacity grows and the cow herd stays tight, the prices will need to reflect strong incentive to increase numbers. It is hard for me to believe about a year ago the beef producers had to turn to the government for a bail out when the packer had record margins. The dollars were much needed, but now let us focus on the issue at hand. 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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