Varilek’s Cattle Call: Futures Market Rally

The year is near an end and the cattle market is finishing strong. We have live cattle futures prices over $140 live and a rallying feeder calf market. There is a lot of optimism to start 2022, and I look for early feeder calf sales to start hot. Producers have some empty yards to fill with positive closeouts in their pocket to give incentive to keep feeding. However, there was a lot of money left on the table this year with packer margins getting out of control and producers only making good profits in the last couple months.

We know grilling season will come, and I project excellent demand once again. However, I am fearful of the number of cattle marketed in the spring time frame. Since 2018 the northern cattle industry markets more cattle in the first quarter than it does in the last quarter. More feeders are planning for market ready animals during the spring than in the past taking some of the boom potential off the cash market in my opinion. It may in turn be easier to market cattle during the fall run than in the past. Do not hear me wrong, if we have enough people stand up and negotiate a price, we could see a great spring. I am still leary of how much captive supply the packer holds and do not trust them to just pay us because they can.

One thing to keep an eye on is rain in cow-calf country this year. If grass is plentiful, I believe more heifers will be kept rebuilding a smaller cow herd. When heifer retention starts, it pulls those heifers out of the feedyards creating tighter numbers and a healthier live cattle trade during that time. In my opinion, we will see that happen in the next two years, and that is why we have great premiums in the deferred cattle contracts. Have a happy new year and be careful in 2022 with higher priced cattle and feed costs. Plan the trade and trade the plan.

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.