- Cash Cattle last week averaged $1.24 FOB for 80%+ Choice
- Light cash trade this week floating between $123 and $126, with limited packer interest so far
- Choice Boxed Beef ended 9/15/21 at $319.82 and Select at $283.89
- Slaughter last week estimated at 577,000 vs. 624,000 the prior week and 581,000 same week last year, mostly because of Labor Day. Slaughter levels this week could struggle to hit 630,000
- Last Weeks Slaughter weights still on the rise, ending last week at 1357 estimated average
- Black Swan #2 for the year 2021
Source: USDA AMS
What are they thinking?
There is a ton of suggestions coming from brokers and industry expertsthis week about what to do with hedges after the recent 3 week free-fall in the livestock markets. They all look at the data, fundamentals and technicals, and make their best recommendations. Many of them are bullish, from what Ive seen. Technically, their right. Were due for a bounce. And some are calling for $150 spring fat cattle. (I heard $10 corn earlier this summer too). In the two charts above, youll notice the red line, 2021, is at or above the dotted 5-year average. I must admit, that does give me hope, especially comparing to the blue COVID year lines. But shouldnt we have beef production below the 5-year average to legitimately have a big bullish break out?
Ronald Reagan said once, Surround yourself with the best people you can find, delegate authority, and dont interfere as long as the policy youve decided upon is being carried out.With that in mind, why are these experienced professionals recommending people pull their hedges, or take profits? Dont interfere as long as the policy youve decided upon is being carried out.You put that hedge on, hopefully where the cattle have some profit. Keep it on! That recommendation doesnt mean Im bearish, but what if the high is in for the year? What if JBS in Grand Island decides to pause slaughter to repair the fire damage next month? Or what if the governments vaccine mandate compels enough workers at these plants to go on strike, or worse quit? With what has been paid for yearlings in the last 60 days, and what cost of gains are running, can you afford to take a hit for the 3rd year in a row? Dont change the policy halfway through because you think youre finally going to out-smart the market. Stick to the plan!
The million-dollar question is- what is the plan? A month ago, we recommended hedging spring fats off the December contract. Then 2 weeks later, we recommended lifting that hedge and rolling into a simple February or April put, to set a floor with the premium mostly paid for by that December spread trade. The market continued to free fall, but without worry as the put gained substantial value. Also mentioned then was waiting to sell an option against that put, to add a little jingle in your pocket. This isnt a bad time to consider doing some of that. A person could look at selling a $122.00 Feb put for ~$1.50/cwt, while still protecting the top 12% of this market. I would also keep my eye on calls in the coming weeks. Might get a chance to set a ceiling for some good premium.
Feeder Cattle have not been able to escape the sell-off either. For grow yards and grazers, this decline has not hit the cash market as hard as futures. Which leads me to believe the high may be in for the fall, speaking to futures only. That is big call to make, but next weeks cattle on feed report is likely going to show placements higher than August of 2020. No that doesnt mean were going to run out sooner. Combined with corn working up a bit, we could see some sideways trade, and eventually a break lower on our winter contracts. Keep those Dec through March hedges on feeders, you never know what the grains will do next.
Going to start one new thing for this weekly newsletter. At the end of the letter each week, were going to list a cash feeder quote that we feel is worth a look. Our goal is to show you that week after week, there is an opportunity waiting to be snatched up. Give us a call if youd like to know where that quote came from. Or better yet, call your Check-Off representative and ask them to buy these slaughter houses some fire extinguishers with our money.
58 Head of 878# Steers at $152.60 Returns >$100/HD
Looking to Trade or Hedge Cattle Please reach out and let’s chat…
Dan Gerhold
319.320.4774
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