Varilek’s Cattle Call: Funds Liquidate Grains
Grain futures survived a big test with a large correction last week. Funds appeared to liquidate a chunk of their position in commodities. Everyone wants to know whether it turns around or not, but remember, nobody knows what it is going to do. The weather forecast keeps being talked about among farmer traders. I caution you that the prices got high based on inflation and a Ukraine invasion. Those two stories carried the weight when funds took to grain ownership. Weather has not played a large roll in this market in my opinion but may become a larger factor after Independence Day. Regardless, you can see the impact when funds do decide to liquidate. We saw a correction, but the risk is that we are still at historically high prices.
Cash cattle prices were still trading record differential between the north and the south. Texas took the first bid of $138 on Tuesday morning to set the base for their formulas. The north was able to see prices from $147-152 live. The south does not have the negotiating power to let the price rally while the north is still trying to hold on to independence. The futures market can not rally because it must stay near the southern cash due to delivery risk on cattle of lesser quality. It provides a good opportunity for basis now but makes it hard to make future marketing decisions with northern cash higher than board prices out to next April. July delivered cattle tend to be around a summer low making it hard for me to lock down October and December futures at a discount.
Erratic prices and the inability for the packer to ship cattle north with fuel and truck pressure are highlighting some of the issues the futures market faces. The long speculators have been chased away from trading cattle futures which keeps a lid on the price in my opinion. As always, stay involved with working on solutions for the long-term health of beef producers. 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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