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Cashing In On A Bullish Cattle Market & Low Corn Prices

The first week of September has proven to be a bearish week for grain prices and a bullish one for live cattle. Corn futures broke into new contract lows on their way to factoring in what will likely be a record crop. Cattle, on the other hand, continue to rebound after a recent sell-off on ideas that tight inventory and a drawdown on prices have provided a boost of demand. Cattle futures are trading at high levels, and the idea of expecting continued demand to develop as prices move higher may be far-fetched. Grain prices are cheaper than they have been in years. We expect cattle weights will be heavier into the fall and winter months. Therefore, the opportunity for livestock producers to capitalize on low-priced corn and high-priced cattle is at hand.

How can you capitalize? We suggest buying call options in the corn market. With what appears to be an abundant supply of corn available to the market this fall, you will likely buy only as needed and stay away from long-term buys. At least that may be your mentality. On the other hand, call options provide a safety valve against an early frost or general price recovery in the market. We would, however, contend that if the futures market provides a strong bottoming signal, you should look at booking at least one year (if not two) worth of feed inventory.

As for live cattle, prices have rebounded sharply in the last week, approaching contract highs. As of this writing, October cattle have reached a high of $158.42 after recovering from the recent sell-off which had this particular futures contract reaching a low of $144.25. On cattle price charts, we see a right shoulder of a head-and-shoulders formation forming which indicates downside potential. Buying a put establishes a flooring mechanism while leaving the top side open for future price advance.

In summary, if you're looking to shift risk in corn and live cattle, look to do so sooner than later. Be aware of what tools you can use and how to use them. If you have questions on how to implement, don't hesitate to give us a call.

If you have questions or comments, or would like help implementing strategy for the year ahead, please contact Bryan Doherty at 1-800-TOP-FARM ext. 129.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed here.

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