Varilek’s Cattle Call: Uncertainty at the Highest

Cattle futures are sliding with outside markets on the move in all directions. World turmoil is shaking up the grains causing feed to be higher priced. Cattle feeders will be looking to move cattle quicker in the near-term with $8.00 range corn, but it will cause for better times later if we see the pendulum swing too far. It is sad to say, but producers are getting used to the feeling of not having leverage over the packer when selling cattle. It seems so few cattle are negotiated that the ability to get a higher price becoming difficult. We did see mostly $138 trade early with a few $140’s to regionals at the end of the week.

We have seen boxed beef reach record prices and cattle prices did not rally to the full potential they could have. With the packers holding all that leverage, less money trickles through the system on down to the cow calf producer. Input prices are one of the main stories in the world currently and cattle futures are unable to find a foot hold recently. The shrinking cow herd is the evidence I see for this argument. Tighter calf numbers are expected ahead in the beef industry with the increase in heifer slaughter over the past few years in my opinion.

Demand has not been a concern for beef in the recent past, but with high fuel prices, there is a worry of the spending ability by consumers. Nobody is certain how long some of these higher prices will last, and futures prices trade with large swings. If high energy costs sustain, that is when we risk dampening the spring rally. I know my grills are ready to roll, and I hope you think like me. When this nice weather hits, there are a lot of people ready for some stress relief and sunshine. 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.