Varilek’s Cattle Call: Higher Cash but Economy Woes

Outside markets had too much spillover into the commodities this week to make it much fun. We have rising interest rates and a shaky world economy to put more risk in the cattle industry. The stock market had a rough week and was still looking for support on Friday. Funds will likely be less excited about holding long positions through weekends if these trends persist. The overall uncertainty is was creates the most havoc in the markets with the old trader quote being, “uncertainty is always bearish.”

We have made it through September which is seasonally a more challenging month. The cattle market can tend to rebound through the fourth quarter on tighter numbers, but we will need to see some easing pressure from the outside markets. Feedyards appear to be current, but the carcass weights are not sharing my optimism. Cattle are performing better than expected with dry yards and cool nights.

Packers seemed interested in cattle and only paid up on quality black cattle. The choice select spread is showing the desire for long day fed black cattle. The south was steady at $143 and the north saw a wider range from $144-147. With better grading cattle in the north, I would not see a reason the south should be gaining on the north other than the long-fought formulas versus negotiated trades. We are seeing decreasing quality grades industry wide, and my though is that the northern family feeder is not getting a big enough piece of the pie to grow their feedlot business. Some of the best quality cattle that walk are in the northern U.S., and I feel like they should be catching more of a premium. The grades across packing plants prove that as well. One of my points is that formulas are not the reason quality grades increased in the past. 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.