This Week In Cattle

There is a lot of feed in the country this year with record levels of precipitation and pretty good growing conditions throughout the summer. With abundant feed and really decent cattle prices, I have received a lot inquiries from ranchers about bringing in calves to feed on a short turnaround to burn some extra feed and make a little cash on the side.

It's a pretty good idea, although getting them bought right is going to be a pretty tall order right now. The cash market is still pretty hot and it doesn't look like it is going to cool off anytime soon. Furthermore, the feeder futures are taking a beating from the big gains corn has made in the past month or so.

Over the short-term, I think there is some money to be made in some short turnarounds on some lightweight feeder calves. The big thing right now is to stay away from the real lightweight steers. High 4 wts. are running nearly $140.00 and I just can't make that pencil for most situations. Even mid-5 wts. are a little nip-and-tuck, so a person is really going to have to get them bought right to make them work. I think 6 wt steers and most classes of heifers are going to work pretty well.

A really good option for some guys wil be to find some mid-weight 7-8's. There aren't a lot of them around as most of them were placed in September and October, but there are a few stragglers out there if you can find them.

Buy steers, medium 1, 566# @ $128.00
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.65 @ 2.5#/day
Weight out: 753#
Breakeven: $113.02
Loss: -$16.74/head less basis and commissions

Buy steers, medium 1, 606# @ $122.40
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.65 @ 2.5#/day
Weight out: 793#
Breakeven: $1.08.83
Profit: $15.57/head less basis and commissions

Like I said, it's nip-and-tuck on the steers, getting them bought right is going to be the difference.

Heifers look a little better:

Buy heifers, medium 1, 558# @ $118.51
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.65 @ 2.5#/day
Weight out: 745#
Breakeven: $105.05
Profit: $42.85/head less basis and commissions

Buy heifers, medium 1, 631# @ $112.00
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.65 @ 2.5#/day
Weight out: 818#
Breakeven: $101.12
Profit: $78.30/head less basis and commissions

The alternative is to try to snag some heavier cattle that will look like this:

Buy heifers, medium 1, 753# @ $107.21
Protect JAN 11 @ $110.80
Feed for 75 days
COG: $0.75 @ 2.5#/day
Weight out: 940#
Breakeven: $100.78
Profit: $94.15/head less basis and commissions

These cattle are going to have a little higher cost of gain to get the performance out of them but you can see that pencil pretty nicely...if you can find them in large enough quantities to make them work.

The other thing to watch for is to hang on to some of these light to mid-weights for a little longer and cash in on the price slide:

Buy steers, medium 1, 566# @ $128.00
Protect MAR 11 @ $111.60
Feed for 150 days
COG: $0.65 @ 2.5#/day
Weight out: 941#
Breakeven: $103.45
Profit: $76.66/head less basis and commissions

So on that same set of 566# steers, we improved from a $16/head loss to a $76.66/head profit, just by hanging on to them a little longer. By using moderate performance goals at a pretty reasonable COG, we can catch the price slide advantage on the MAR 11.

Heifers look even better:

Buy heifers, medium 1, 558# @ $118.51
Protect MAR 11 @ $111.60
Feed for 150 days
COG: $0.65 @ 2.5#/day
Weight out: 933#
Breakeven: $97.00
Profit: $136.19/head less basis and commissions

So we jumped these heifers from a $42.85/head profit to a $136.19/head profit by holding down performance, keeping COG reasonable and catching the MAR 11.

If this strategy looks good, you might consider an LRP or option put rather than a short hedge so you can protect your bottom side and let the top side ride. It will probably save you a lot of margin calls we get closer to MAR.

Thank You and Have a Great Day!!