Stock Market Warning to Cattle?

[errolanderson]

Realize, I was booed off-the-stage for suggesting cattle prices are at dangerous levels, but . . . .

Amazing stock market gains are a key reason holding up the boot-straps of the cattle market (IMO). This rally is now more demand-driven than supply-driven. The consumer is king in any market.

Alberta fed steers have been reported above an amazing $1.60/lb this week. Today's uneasy equity market is either the start of a correction or another head-fake. But in either case, it's a warning to the cash cattle market (IMO).

Current bids are smoking-hot, but risk management should be high-priority for feeders given the current record-breaking cost and price of cattle.

[blackpowder]

Not booing. Perhaps like telling grain guy to presell some wheat at $9?

[T.N.T.]

Cattle prices should still be higher,and this should just be the average price and grain prices should be a lot higher to!This feeding the world for free is really getting old,they want all the toys but they don't want to pay for there food!

[Braveheart]

Errol, I understand your analysis. What risk management strategies are available to the smaller (100-200) head producer/rancher?

[kato]

We took out price insurance on the feeders we bought to background over the summer.

[grassfarmer]

The Western Livestock Price Insurance Program.

http://www.wlpip.ca

Looks good for now but my guess is when we do get a major price decline the private sector will bail on this program and it either becomes a Government funded one or it disappears.

[Hopalong]

Have long thought that livestock producers do not get the same level of governments subsidy support as grain growers.
Contrast the livestock price insurance program where producers pay all the premium cost with crop insurance programs where governments pay 60 per cent of premium cost.

[errolanderson]

Braveheart, you might want to consider purchasing Oct/Nov feeder cattle put options or put option bear spreads as an overall guard.

To me, the break, if and when it comes, may be more pronounced with feeders. Live cattle remain at a discount to the actual Texas/Kansas cash suggesting downside risk may be muted.

Spoke with an Amarillo broker and they are watching the Texas basis for a signal for a break. In their opinion, once the Texas basis breaks, we all break including the western Cdn cash.

But the equity is also another potential signal. If the S&P surges next week, forgetting about Portugal, the strongest signal may be the basis.

Given the overbought technical nature of the cattle board, a break may be quick 'n fast. Interesting market heading into August.

[Braveheart]

I like the strategy. Would the currency need to be hedged?

[errolanderson]

Not much a of bull when it comes to the Cdn dollar. IMO, the loonie is currently at the top of its current trading window.

BOC would likely want to see our spot dollar between 88 to 92 cents U.S. This is a good range for Canada to compete in global markets.

Personally, I'm bullish the U.S. dollar

[grassfarmer]

Errol, what do you see as the advantages following your strategy versus using the price insurance program?

[Braveheart]

Just talked to broker. He agreed strategy was sound. His advice on currency was spot on your analysis. He said buying the in the money put would be easy but, selling the out of money put on the same session might be hard depending on strike price.

[errolanderson]

grassfarmer . . . advantage of working with a broker versus government programs is 'flexibility'. You control the shots, not how the program was designed.

You set your own targets and you can modify at any time.

[ALLFARMER]

I see they are ripping out the Grande Prairie cattle auction mart this week.

[TOM4CWB]

Braveheart

You can put an order in to sell the put spread as a package, buying and selling the puts at your spread price... Both done or no order fill. Market Makers will usually tell your broker what they will do the spread for... Put the order in... And wait. The spread usually gets filled in a couple of days.

Cheers