Varilek’s Cattle Call: Flared Feeders
The cattle futures maintained strength finishing with a higher week. Live cattle open interest has continued to break during the futures rally over the last two weeks. In the past with a smaller open interest, it has resulted in more volatile markets with limit ups and downs. I have always considered the 300,000 contracts or less a danger zone for volatility.
“Angry ranchers” is the theme with packer margins well into the green as producers are losing money. We are at peak numbers in the cattle cycle which is partly to blame. My big beef, pun intended, is why the south does not negotiate cash trade. That is my number one issue for sustaining a healthy cattle industry. Producers that feed cattle in the south tell me they get more grid premiums than feeding cattle in the north. In my opinion, that extra incentive is keeping them from wanting to trade cattle as the packer is keeping them happy. We have better quality cattle in the north and are left to fight the battle with less premiums. That is what I would like to check in to for something to fix.
The cash market continues a slow increase with $108 live trade and some $170 in the meat as of the close on Friday. It is calming the fear that packers will pull from the many contracted cattle to start the month of October. Boxes are seasonally slipping as expected but maintain a healthy choice-select spread. This week, the December futures contract has a pivotal decision whether to continue the rally above the gap in the chart or correct. See you back here soon.
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.