Varilek’s Cattle Appeal: Staggering Margins for Packers


Live cattle futures sold off last week with a lower limit on Thursday. Cash was calm with light sideways trades around $ 119 live. June futures ended the week around $ 115 live with a base of $ 4 that matches the seasonal ones.

The biggest story in the beef industry has to do with packager margins. I have enlightened readers with many needed cash cattle changes over the past few years with increased formula trading being normal. The packers have talked about captive sourcing and few people are left to negotiate the price. Estimates for packers’ margins at the end of the week ranged from $ 900 to $ 1,100 per head, with canned beef charging higher. If the daily kill is about 118,000 head, that represents a profit of about $ 118,000,000 per day in the slaughter business. Each semi-load of fed cattle currently equates to approximately $ 35,000 in profit for the conditioner.

I wanted to share these numbers so that you can understand the magnitude of the problem facing producers. The beef producer is the last of the independents in the major meat sectors. It appears to be on the brink with the fundamentals disconnecting with the spot market. Many producers across the Midwest are what make up our small towns and bring community events to life by sponsoring small league teams and the FFA for example. With conditioning margins of this size, cattle could be trading at record prices at best, with room for all sectors.

Beef producers are in difficult financial times and the spotlight on this disconnection is more than ever highlighted. You might be able to make a few bucks more than your neighbor on a formula, but look what we just left on the table. The truth of the industry is hard to listen to, and I urge you to keep up the good fight to do what we love. Have a great week and GO JACKS!

Scott Varilek, Kooima Kooima Varilek Trading

The risk of loss when trading futures and options is considerable. Every investor should consider whether this is a suitable investment. Past performance does not represent future results.


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