Surging Cattle Prices
Cattle futures have bolted higher, gaining more than $12.00 in two weeks, as strong demand and lighter weight cattle provide underlying support.
Perhaps just as important, managed money (speculative investment) continues to flow into the livestock sector, as noted by increasing open interest.
The most recent Commitment of Traders report indicated managed money is net long cattle futures, and approaching historically high levels. This rally is proving a great opportunity for cattle producers to shift risk. For grain producers, higher livestock prices suggest increased feed demand as the herd grows. Ultimately, this leads to higher grain prices.
As the world shrinks (at least from the perspective of increased shipping capacity of refrigerated shipping vessels), demand for U.S. livestock products continues to grow. Beef exports are up over 14% from a year ago. The U.S. dollar recently reached a two-year low. Stronger world economic conditions suggest higher demand, as consumers want more meat products. All-time new high prices for stock indices could imply consumers are willing to spend more money on food.
On a cautionary note, herd expansion continues. Tight and expensive feed supplies after the drought of 2012 contracted the herd. Since then, however, good crops for five consecutive years have led to ample and inexpensive feed. Currently, corn is priced at or near contract lows, and below the cost of production. This too suggests herd growth, particularly in the western Corn Belt. Our point here: Low-priced corn and high-priced cattle will lead to herd expansion. On a side note – if buying corn, purchase it now while it is a good value.
The recent surge in cattle prices is providing excellent opportunity to either forward sell, hedge through the use of futures, or purchase put options to provide a flooring mechanism. Puts act like insurance when purchased. They establish a price floor, yet leave your cash price unencumbered, allowing your cattle to gain in value should prices continue to move upward.
As always, watch for value, and be prepared to act when the market offers attractive prices. Cash tools, futures, and options are available and, when used properly, can protect you from unfavorable prices and take advantage of favorable prices.
If you have questions or comments contact Top Farmer at 1-800-TOPFARM, 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.
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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 in the email.