WHY MARKETING IS A YEAR ROUND EFFORT

yearlings-on-good-pastureOctober feeder futures are off another limit move today after having tried 3 times in the last month to push towards the $2.25/lb range and failing to do so. October feeder futures would be the closest market to the cow calf producer’s calf market from a hedge perspective. A market that can’t go up will often fall off in exasperation when speculators leave the market, some of them exited today. It may be that we have seen all we are going to see for highs this year, time will tell.
This is the reason why Cows in Control is encouraging ranchers to look at marketing as a year round effort. Whether buying insurance, hedging with futures/options, or forward selling, these are exceptional prices right now for our feeder cattle, and the market is starting to slip, a great time to be looking at these options.
Marketing can be a speculative gamble waiting to see what calf prices will be by the time you go to sell them. Or, you can premarket or hedge now at historic high prices and rest easy until the date of delivery. One of these options makes it alot easier to sleep at night, the other is roulette.

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SELLING VS. BACKGROUNDING

calfMany ranchers are sitting on $6-700 or more profits per cow depending on your operating costs. Backgrounding will likely add $50-100 more profit for another $2-300 more costs. When you look at it in terms of Return on Investment (ROI), to make a $700 profit now on a calf costing $700 to raise is a 100% ROI! Show me a better return out there. To background that same animal, you will have an animal costing likely $1000 4-5 months from now with an $800 profit or an 80% ROI. So you are actually earning a lower return for taking on a longer risk of ownership and added costs. Sometimes best to sell the calves and buy breeding cattle that will grow the factory. Just sayin’…

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COW-CALF PRODUCERS BEAMING WITH RECORD PRICES

articleIt’s not something that’s been said often in the last decade, but now is a great time to be in the cow-calf business, as cattle producers are seeing all-time record high prices.

“We’re running about 60 cents to a dollar a pound higher than we were last year at this time,” says Rick Wright, the Virden, Manitoba-based head buyer for Heartland Buying Order Company. “If you’re in the cow-calf business, you’re a very happy farmer. If you own some inventory on the grass, you’re extremely happy, because yearling prices are also strong.”

As he explains in the interview below, nobody expected prices to soar this high.

“When cattle surpassed a dollar a pound, that was a new threshold. Then we passed two dollars a pound in spring and that was a new threshold. Now we’re seeing 900 pound cattle bringing $2.10 a pound. Good killing cows have surpassed a dollar a pound. We’re seeing live fed cattle getting live what we used to get for them on the rail,” says Wright.

Not only are cattle supplies tight, but the value of the Canadian dollar is also making Canadian animals more attractive to American buyers. Low feed prices have also improved margins for feeding cattle.

Any expansion of the cattle herd in Western Canada will likely be delayed by the high prices, he says.

“We’re seeing a lot of guys in the 50′s plus exiting the business,” notes Wright. “When we start seeing two dollars for 800 pound heifers, it’s pretty hard to maintain those heifers and keep them in the herd.”

And it’s a scenario that likely won’t be changing soon, says Wright.

“Unless we see grain prices go up or the dollar surge back up, we’re probably going to see this (high prices) stay for two to three years.”

Thank you to Real Agriculture for the article

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CATTLE FUTURES CORRECT AFTER LAST WEEK’S SURGE

cattle-futureCME Cattle futures joined practically all other commodities, ag or otherwise, this morning and sold off, beginning to correct the overbought condition last week’s enormous rally created. Interestingly enough, Oct LC has put the brakes on within a stone’s throw of its contract high, begging the question, is the market making a double top?

The Question Behind the Question

Isn’t the real question though, whether the cash fed cattle market is ready to establish itself above $160? Sure the market traded above $160 a couple of times in July, even as kills shrank, and last week prices averaged around $163. Bears say it’s a check of the highs. Bulls say there are not enough cattle around to satisfy packer needs easily, week in week out, in spite of them having access to a few more contracts and formulas in September and October.

If boxed beef movement the last 3 weeks hadn’t been so spectacular, above the last 2 years and the 5 year average, and packer margins near or exceeding triple digits, then maybe packers wouldn’t have started adding to kills back in August. That’s right, week ended August 23 the estimated kill was revised up to 596,000 head from the estimated 590,000 head, a 13,000 head increase in fed cattle slaughter from the second week in August. The 596,000 head kill by the way, was the largest since the 4 +600,000 head, back-to-back weekly kills we had in June.

This week the kill is estimated to be 590,000 head but it will just as likely be closer to 600,000 head. And one thing the market is trying to tell us is kills near or above 600,000 head stimulates demand for market-ready fed cattle. In order for packers to own enough inventory to cover kills this size, they are required to compete, aggressively for available supplies, beating the bushes in fringe cattle feeding states to top off plant needs.

Boxes Bottom

USDA choice boxed beef prices rebounded $2.37 by last Friday from the prior week, after breaking $17.55 off its high reached the last day of July. Talk was widespread that the big rally in futures sent a tremor of “inspiration” through end users, who stepped in to extend purchases. As is true for all participants in this current bull market, the knowledge that ample supplies of beef won’t be available for years, not months to come. And the November through February time frame could see the greatest beef shortages yet.

Thank you to The Beef for this article

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