This Week In Grass Cattle

Quite a bit of ground has been lost in the futures market since last week. However, breakevens are still in the black on the SEP '10 with most weight classes of calves.

Look for the futures market to continue to slide this week as the market looks anxiously at the European economy and the fact that the seasonal demand has reached its peak (or is close to it).

It is hard to say if the cash market will respond accordingly. I expect it will to some degree the question is will we have an over-reaction in the cash market this week? I expect there will be for the most part, but I don't think it will be a blood bath.

I would be looking for some really under-valued cattle in the market this week as we could easily see a $5/cwt slide in the cash market from last week in response to the sagging futures.

Examples:

Market Reaction Scenario #1

Buy steers, medium 1 675# @ $120.00
Lock 'em in on the board for SEP 10 @ $112.05
Run on grass for 120 days @ $0.72/day
Allow $20/hd for operating costs
Sell 903# in September
Breakeven $101.48
Profit $95.41/hd less basis and commissions.

Market Reaction Scenario #2

Buy steers, medium 1 755# @ $116.00

Sell 959# in September
Breakeven $102.41
Profit $92.35/hd less basis and commissions.

Market Reaction Scenario #3

Buy steers, medium 1 830# @ $107.00
Sell 986# in September
Breakeven $100.86
Profit $110.31/hd less basis and commissions.

If there is not a reaction in the cash market we could be looking at this:

No Market Reaction Scenario #1:

Buy steers, medium 1 675# @ $126.00
Lock 'em in on the board for SEP 10 @ $112.05
Run on grass for 120 days @ $0.72/day
Allow $20/hd for operating costs
Sell 903# in September
Breakeven $105.96
Profit $54.91/hd less basis and commissions.

No Market Reaction Scenario #2:

Buy steers, medium 1 755# @ $122.00

Sell 959# in September
Breakeven $107.14
Profit $47.05/hd less basis and commissions.

No Market Reaction Scenario #3:

Buy steers, medium 1 830# @ $114.00
Sell 986# in September
Breakeven $106.75
Profit $52.21/hd less basis and commissions.

If the cash market over reacts this week, look for some good deals and substantial potential profits if you can get them locked in to the SEP '10.

If the cash does not react much to the losses on the futures board, margins will be a little tighter than last week.