Varilek’s Cattle Call: Financial Sector Volatility

Future markets were swinging more violently last week with the outside market worries. Energy prices were on the climb and the Dow Jones had 4-digit swings. The uncertainty of a recession looms over the markets keeping us all guessing. It is not new to the buzz of the markets, but the worry picks up when markets start trading with increased moves.

Beef demand remains steady, but the worry is maintaining part of the consumers paycheck with other expenses on the rise. The lack of profitability for beef producers is one reason female slaughter is continually on the rise. Cow slaughter was up 5% in 2021 and up 16% year to date in 2022. I worry if the more margins do not start to trickle down to the production level while demand is good, we will have a tough time trying to rebuild a smaller cow herd if interruptions arise. Increased amounts of cheaper South American beef will be shipping north if we cannot find sustainability in the beef industry.

Grain prices are making it a challenge for the feedlots to keep a handle on cost of gains. Inflation is still a top story in the corn futures keeping them hovering around the $8.00 per bushel mark. Planting season is off to a slower start, but supply fundamentals are not the main driver of the grain markets in my opinion. Seasonally corn and beans can put in highs this time of year and the first sign of major farmer hedging looks to be more evident. Prices are high enough that a feeder may not want to buy corn prices here and will just take what comes at them. I cannot disagree because it is scary if the market does correct and too much feed inventory is priced here.

Knowing the fundamentals of the markets can be an advantage, but sometimes it doesn’t give you the edge you should. Now feels like one of those times with the outside markets trading the way they are. Good luck and have a good week.

Scott Varilek, Kooima Kooima Varilek Trading

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