Varilek’s Cattle Call: Feeders are the Leaders
The grains took over most of the story lines for ag commodities again last week with delayed planting. There is no historical data to compare with as we have never experienced this large of a delay due to moisture of this magnitude. Corn challenged the top side of a 5-year range for the week and is yet to break through.
With the higher corn prices, and fears of more rally to come, the feeder cattle market took a turn for the worse. A quote used in the cattle futures industry is “the feeders are the leaders.” Meaning the feeder futures took most of the blame for the break in cattle futures. We experienced a few positive closeouts this spring, but feedyards continue to see lack of profitability. The negative returns and higher feed costs were the main reason for an adjustment to feeder calf prices.
Cash trade last week was mainly 186-188 dressed for as far out as the week of the 17th. Even with a weaker futures market on Thursday, packers were still willing to grab cattle at the 186 prices. The basis and cash price were an improvement from the previous week.
Feedyard conditions are still poor. If you add in the higher feed costs, producers might be eager to keep the cattle moving. Cost of gains are all higher than we projected when we purchased feeders this winter. Summer futures prices are also well below the current market. Conditions, feed costs, and futures prices might all help keep us current moving forward. I guess I am searching for the diamond in the rough during tough times but leave it to a cattle feeder to find the optimistic points.
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.