- Cash Cattle last week averaged $125.95 on steers in the 80% + Choice, heifers $1 back
- Limited trade this week so far at $124 in the South and some $127.50 in the North
- Choice Boxed Beef ended 9/8/21 at $334.86 with Select at $298.17
- Slaughter last week estimated at 624,000 hd vs 651,000 hd the prior week
- Average Live Slaughter weights estimated at 1356, up 4 pounds from the previous week
Source:QST
All battles are fought by scared men whod rather be some place else.-John Wayne
Do you think The Duke was talking about men at war? Or do you think he was talking about the cattle industry? It could relate to both right now, in my opinion. The last several weeks have been tough, no doubt about it. We are all asking the same question- wheres the bottom? Luckily most of us have other things going on right now such as chopping silage, getting equipment ready for harvest, or preg-checking cows. You have so many things going on that you give the markets a quick listen on the radio, and maybe check in to see how it closed on the day. Not a lot of time to pay attention to one of the biggest factors in your operations profitability. Understandable though, it is that time of year.
Many of these letters are written with what may seem a bearish bias, simply because I believe in risk management. Afterall, it is the cattle business. But have a little faith. There are times when doubling down, or Texas Hedgingcan be warranted. Of course, this is fully dependent on your specific tolerance to risk. The December Live Cattle contract has sold off more than $8 in the last eleven sessions. To say this correction is overdone would be an understatement. Some perspective here- September and October are normally negative basis months. With cash trading this week at $124 and Oct futures just under that- whats going to give? We, most likely, wont have a positive basis for long. Another point being that the Dec contract is almost at par with cash this week. This wont go on forever either. We are in the time of year, after Labor Day, that traders get a bit nervous as weights seasonally rise, and grilling starts to slow. I can talk risk management until Im blue in the face but buying a put during a sell off like this, often ends up being a waste of premium. Look at the fundamentals of the market. Why is the slaughter pace slowing down? Forward sales of meat typically slow down as retailers usually get to realize some cheaper offerings. Why are weights going up? Because of the cooler weather, and feedyards typically push for higher cash as we work into the fourth quarter. They might not take the first bid, but wait for a bit higher cash, which happens to be working in the south this week.
Before I step off my soapbox, I want to mention call options. We are, in my opinion, in between some major volatility. For quite some time, corn, soybeans, cattle, and hogs have been wedging.Almost trading sideways for more than a month, most of these commodities have seen option premiums drop drastically compared to the prices traded just 4 months ago. Volatility is going to come back into all of these markets at some point. Can you handle the risk in playing with futures? If so, go with your gut and enjoy the ride. But maybe a call option is better suited for you. Look for the value, and a 9 weight steer at $1.60 has less value than December Live Cattle futures.
Looking to Trade or Hedge Cattle? Please reach out and let’s chat…
Dan Gerhold
319.320.4774
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