As a cattle feeder and commodity broker for 45 years, Brad Kooima of Kooima Kooima Varilek in Sioux Center, Iowa, says he’s never seen a time like this, or even a close second, in the cattle market.
“I also know either you adapt or you get run over,” Kooima says. “I think we have to embrace the idea there’s going to be a lot of volatility.”
He encourages producers to figure out a way to use the extreme volatility to their advantage.
“Don’t forget, you can sell options,” he explains. “These deep-out-of-the-money calls are worth a lot of money.”
Feeder Cattle Migrate North
Cattle-on-feed numbers for the last year and a half have transitioned to Iowa and Nebraska at the expense of Texas and Kansas. Kooima credits the ethanol industry for supporting cattle feeding and dairies, thus impacting the markets.
“The ability to feed the byproduct has made [Iowa] extremely competitive when it compares to places in Texas and Kansas,” he explains. “It’s not unusual for the basis here to be anywhere from 70¢ to 90¢ better, just on corn. When you throw in that dynamic of the DDGs, and the ability to feed the byproduct here, it’s real.”
The lower cost of gains has contributed to the northern migration of cattle on feed as well as negotiated trade.
“I’m a big proponent and a big believer that it’s very important to maintain at least a certain percentage of negotiated trade,” Kooima said during a recent conversation with Chip Flory on AgriTalk.
“We’ve seen a consistent premium in the north ... but when you’ve got leverage, which is what we’ve had [in Iowa] for a long time, I believe the cash negotiator is going to get more money,” he explains.
In recent months, the shift in cattle on feed has accelerated because of the Mexico border closing and screw worms.
Kooima also points out there is an 87% correlation between the cattle futures and the stock market. The only commodity that is higher is crude oil.
He explains cattle are lower when the stock market breaks because of inflation, recession or an economic slowdown.
“Beef demand is viewed as being elastic, a discretionary purchase,” he says.
Short term Kooima says there will be more uncertainty in the cattle market.
“Be careful,” he summarizes. “I’m a supply side fundamentalist guy, too, and where I sit, we don’t have a lot of cattle. We don’t hardly have any cattle ready right now. In a few weeks, there’s a tremendous chance to rally this thing going into May, but I worry the uncertainty might take a little longer than that, and Washington, D.C., can pivot at a moment’s notice.”
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