Cattle Price Protection Opportunity

[TechAnalyst]

Strong cash markets in the US have resulted in a very significant rally in Live Cattle and Feeder Cattle futures over the last two months. From the lows posted on September 9th (following the post Tyson plant fire selloff), December Live Cattle futures have rallied over $21 US/cwt while January Feeder Cattle futures gained over $20 US.

This has provided an opportunity to protect at least a portion of these gains for anyone with unpriced cattle. Whether it’s directly (through a commodity broker) using put options or through the Western Livestock Price Insurance Program, some favourable prices can be protected.

The December Cattle futures have been running a larger than normal premium to cash for quite some time now which encouraged feedlots to add extra weight while waiting for the cash price to catch up. That extra production along with a forecast increased production for the 2nd quarter of 2020 could be the catalyst for an eventual pullback in the April futures. In the meantime, profit taking after such a significant rally could be expected. As such, this may be an ideal time to get some protection in place.

In the event the rally does continue, all you are out is the premium paid (to be deducted off the higher price).

Just a thought…

[bucket]

I own my cattle , feed the calves cheaply until march into the 600lb to 800lb range and sell them to the same place as usual....get in the better priced pens usually and compare to guys using mixers and silage...if I am within a penny of the top lot ...I can live with the results...do I need to spend money on options??????

[TechAnalyst]

I own my cattle , feed the calves cheaply until march into the 600lb to 800lb range and sell them to the same place as usual....get in the better priced pens usually and compare to guys using mixers and silage...if I am within a penny of the top lot ...I can live with the results...do I need to spend money on options??????

It sounds like you do an excellent job getting a good price compared to the prevailing market at the time. The various forms of price protection try to limit the downside risk for the prevailing market (that your price is based on).

As far as whether you need to spend money on insurance, that is a personal choice. Everyone has different risk tolerances and views on whether insurance is a waste of money or a necessary cost of business.

[GDR]

I own my cattle , feed the calves cheaply until march into the 600lb to 800lb range and sell them to the same place as usual....get in the better priced pens usually and compare to guys using mixers and silage...if I am within a penny of the top lot ...I can live with the results...do I need to spend money on options??????

You wont know till you sell them. Last year guys that backgrounded calves got the same dollars per head in March that they would have got in October, that's not cheap either. I'm not a hedger kinda guy either but easy to see looking back sometimes.

[bucket]

You wont know till you sell them. Last year guys that backgrounded calves got the same dollars per head in March that they would have got in October, that's not cheap either. I'm not a hedger kinda guy either but easy to see looking back sometimes.

I do the same most years , and I think a lot of calves moved to market this year because of feed...herds were not getting bigger in June of 2019....and had the rain not come there would be a lot of cow herds gone....I think there is some upside going into the february march 2020 time frame....

2018 was a bad calving season equals less calves in the fall of 2019,..... 2019 had a lot of cows dumped to good prices equal smaller herds into 2020 calving...and some guys will have to buy back because of deferrals ....still looking positive ...

Besides I am cheap and do things that a small change in price won't hurt me to much cattle wise....its not the the main income...just sort of enjoyable hobby ....

[bucket]

If I had bigger balls I would take on some more cattle and use up the tough feed grain i have on the farm....But the cost of machines and the potential for death losses as well as phucking up the base herd doesn't make it worthwhile....

My pastures are OK for a few years yet without building the herd until the rest is in shape for a build....I hate to hold the reigns on the young guy but there will be an incredible opportunity yet....smartest cattlemen sell down in good times and slow build for the next opportunity

I like a marathon growth pattern rather than a sprint.....I think slowly....

[TechAnalyst]

This break is absolutely horrible, I struggle with even bringing this up.

That said, it is a lifelong occupation and this winter is an unfortunate example of the benefits of price insurance.

May be worth considering in the future.

[GALAXIE500]

I've been keeping track of the premiums and the price coverage of the WLPIP program , and the premiums are rising and the coverage out into November is dropping daily. From the first part of March , roughly a 20 cent / pound drop in coverage. I am glad I took it a week ago!

We only run about 60-70 cows , but at least I know I am covered for something.

[DaneG]

At $12+/cw for $2.00 coverage its a no go for me, on the optimistic side there is still time for an improvement in premium and coverage.

[TechAnalyst]

Just to be clear, I'm not suggesting trying to put on protection now, we should be near a bottom soon.

The original post was from earlier this winter when it looked like it wasn't needed.

If anything, I would be watching for signs of a bottom in the stock market to buy cattle call options (for those that have to market animals soon due to production cycles or spring yard conditions but aren't content with the current price).

[TechAnalyst]

I wanted to share a bit of good news for any of you out there calving and too disgusted to look at the markets.

Cattle futures are locked limit up for the second day in a row now that the panic liquidation has run it's course and concern over food security has taken over.

May feeder cattle are limit bid at $129.50 US/cwt this morning compared to a low of $107.475 last Wednesday. It still has a way to go to get back to January levels of $150 but at least it's on the right path.

With the break in the Can$, the Canadian equivalent of US futures are almost back to the Jan levels already.

Good luck with calving and keep up with the social distancing! (Who knew we were so far ahead of our time)