Varilek’s Cattle Call: Tale of Two Stories
To start the year, we have two stories affecting the cattle markets. Up front, the news is feeling a little rotten. Carcass weights are one pound higher week over week and twelve pounds over year ago levels. With the backed-up cattle in the first year of covid, it remains alarming to have larger weights this year. Weather is not a hindrance with gains on cattle with closeouts proving positive even with $6.00 corn.
Another compounding problem to go along with the weights is a slower chain speed for the packer. Worker shortages is an issue with covid and flu season in full swing. The lack of help is capping how many cattle an order buyer can purchase. Cash trade was slow with some early $140 trade in the north that decreased to as little as $136 in the south. Luckily, we feel current in the fed cattle sector to weather some of the issues, but if we see struggles to move cattle continue, that will make for tough sledding. January is usually sloppy seasonally for cash trade with slower demand as well.
Let us get to the other side of the story then for some good news. The cow herd is growing smaller and is looking to rebuild. If it rains in cow-calf country this year, I think an increased number of heifers will head for replacements and not to the feed yard. That makes a tighter supply of market beef with great demand and new packing plants coming online. Cow slaughter in 2021 was the largest since 2011 which was the year that started teeing up the ball for the 2014 rally. In my opinion, sometime in the next two years, the producer could be back in the driver seat when marketing cattle. Deferred futures are already pumping premium prices in anticipation to some of this data. 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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