- Cash Cattle Average on steers ended last week at $125.74 and $123.71 on heifers
- Yesterday had a few trade at $127-$128
- Boxed Beef Afternoon ended at $338.45 Choice and $307.57 Select
- Going to be tough to get to 660,000 head kill, as plant slow chains with Labor Day demand coming to an end
Source: QST
Takes Money to Make Money
We all know that the cost of feeder cattle is based on the Crush with Live Cattle and Corn. So, it is easy to say that if corn goes down, feeders could go higher if Live Cattle stays or works higher. The chart above shows that the trend since May has been lower corn prices, mostly because the fear of a short crop is diminishing. We all know of the often talked about gap at $4.80, and how those gaps love getting filled. We also know that harvest has begun, and Im hearing people are pleasantly surprised overall. This may be another year where the price goes up during harvest, but often, we see a decline in the price over the next couple months. With Cost of Gains changing as we come into new crop, much to do with much weaker basis, cattle feeders might be willing to spend a bit more on yearlings to hit that April-May market. Happens nearly every year coming into November as fewer are available.
What do we do with this though? Will that gap, if we get there, act as a support level? That is my thought. I am looking at 3 ways on corn to protect against rising cost of gains. We all felt the pain last year with a counter seasonal rally in corn. I dont want that again. Look at buying a March 540 call and selling a March 630 call, while selling a 480 put. For 10 cents, is it worth trying to pick the bottom?
In a recent blog, I wrote about spreading April cattle against the December. That play worked out thus far. But I would consider pulling that hedge and buying a put or LRP against the April here. The gains off the December should pay for at least some of the premium, and then your top side is open once again. We could see a bounce in fat cattle if our seasonal dip comes to an end, and I would like to see you capitalize on that. Down the road, there might be an opportunity to sell another put and call to build some premium back into those cattle, but Id let that put work alone for a bit. I would not recommend running naked with everything going on in the world right now. But I am cautiously optimistic at this point.
One last thing for this late in the week letter- Grow yards, wheat grazers, and cow/calf producers should take a hard look at late winter-early spring feeder cattle prices. When is the last time you saw those prices in January-March? If corn makes a normal winter-spring rally, are feedlots going to pay $1.60+ against July, August, and Oct Live Cattle futures? For your sake, I hope it happens, but look at some coverage just in case.
Have a great weekend and enjoy some time with family and friends if you can!!
Looking to Trade or Hedge Cattle? Please reach out and let’s chat…
Dan Gerhold
319.320.4774
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