This Week In Cattle

The big fall run on cattle coming off grass is currently underway. There are some crazy things happening in both the cash and futures markets that are creating a perfect storm for guys that are willing to jockey for positions in the futures market to protect their investments.

I'm not really going to speculate much on the reasons that this cattle market has gone out of it's mind because I really don't know why and furthermore it doesn't really matter. There are two things that I think matter right now, 1) This market is very volatile and is not really supported by fundamentals so it could tank as fast as it took off and 2) There have been millionaires made in the last week so look for the cash market to respond next week.

What does that mean? For #1, the money right now is in the futures positions, not in the cattle themselves so if you get into any cattle, short hedge them now!! Better yet, with the volatility in the market, option puts or Livestock Risk Protection (LRP) might be a good choice to protect the bottom side and let the top side ride. Avoiding margin calls could be the name of this game for awhile.

For #2, if you have cattle that are finishing up on grass, get them to town. I don't forsee this market insanity lasting much past mid-September so you've got a couple weeks to market unprotected calves. This is pretty much what we saw happen last year at this time during the grass cattle run.

If you have your grass cattle locked in on a SEP 10 contract, don't get jittery and dump your position thinking it may go higher. It may go higher, but not much so you aren't going to gain much since you've already paid the margin calls.

I had a marketing professor when I was in college tell me that "bears make money and bulls make money, but hogs always get slaughtered". Hold your position and market cattle as planned, you locked in a profit in May and the profit is still there.

It appears as though there is some real potential in some quick turns on backgrounding some of these calves coming off grass for 60-75 days this fall. The key will be cheap cost of gain. I think this type of program will build some flexibility into your system because come January you may decide to dump your position on some of your contracts in the feeders market and get back in on the fat market and go ahead and finish them out. You'll have to pencil it for yourself, but I think that possibility exists.

Let's look at some examples:

Buy steers medium 1, 668# off grass @ $127.00
Lock 'em in the JAN 11 @ $116.60
Feed for 75 days with a COG of $0.70
Weight out: 855#
Breakeven: $114.50
Profit: $17.90/head less basis and commissions

Buy steers medium 1, 777# off grass @ $120.18
Lock 'em in the JAN 11 @ $116.60
Feed for 75 days with a COG of $0.70
Weight out: 964#
Breakeven: $110.42
Profit: $59.55/head less basis and commissions

Buy steers medium 1, 870# off grass @ $116.36
Lock 'em in the JAN 11 @ $116.60
Feed for 75 days with a COG of $0.70
Weight out: 1057#
Breakeven: $108.14
Profit: $89.46/head less basis and commissions

Buy heifers medium 1, 695# off grass @ $117.86
Lock 'em in the JAN 11 @ $116.60
Feed for 75 days with a COG of $0.70
Weight out: 867#
Breakeven: $108.34
Profit: $71.62/head less basis and commissions

Buy heifers medium 1, 780# off grass @ $115.28
Lock 'em in the JAN 11 @ $116.60
Feed for 75 days with a COG of $0.70
Weight out: 937#
Breakeven: $107.67
Profit: $83.69/head less basis and commissions

Buy heifers medium 1, 874# off grass @ $110.24
Lock 'em in the JAN 11 @ $116.60
Feed for 75 days with a COG of $0.70
Weight out: 1016#
Breakeven: $104.45
Profit: $121.99/head less basis and commissions

I would probably stay away from the light steers as demand for them is driving the price through the roof as has been the case all summer. The medium and heavies are probably the best bet right now with heifers returning a little better than steers. These breakevens are calculated on a sliding 2.5#/day ADG so I would leave them un-implanted and keep your COG to $0.70/lb or less if you can. I think selling un-implanted 10 wts. in January will keep you near the top of the market when you take them to town. It shouldn't be too much trouble to reach that COG goal with a little management. If you decide to finish some of them out, stick an implant in them and go.

Thanks for stopping by and have a great day!!