Varilek’s Cattle Call: Feed Cost Correction

Corn prices took center stage last week with a sixty-cent futures correction. It was the first major test of the strength in the corn markets. Many beef producers have been waiting for a better opportunity to lock up feed needs, but the price is still at a higher level. The new crop corn futures dipped below $7 but it may be waiting for next week to decide if it corrects further or recovers higher.

There are a few different ways to digest what the corn future is. With a large break in the July corn contract, basis picked up strength telling the story of the demand for corn now. However, the crop in the ground is showing some good ratings with rain hitting many areas across the corn belt. It is yet to be determined what the forecast holds, but the start of the crop looks favorable.

Then we throw inflation and world turmoil in the mix. The grain futures have a lot to chew on, volatility will remain high for the foreseeable future. Even with the correction, the price is still viewed as high to a feeder. As previously purchased feed runs out, the decision to lock in more is a challenge.

The feeder calf futures showed that they want to trade higher if corn takes a serious break. The feeders are the leaders when it comes to the cattle markets, and they swiftly recovered from the lows as the corn broke. Cash prices for cattle have been holding strong in the sale barn in my opinion with the previous $8 corn.

Live cattle stayed choppy with steady cash trade at $135 live in the south and $2.22 dressed in the north. Our peak beef demand is behind us, but boxed beef is holding strong. Producers are actively selling new crop calves, and the daily slaughter levels stay high. Beef must be moving, or the chain speed would start slowing down in my opinion. 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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