Feeder Cattle Futures Advance to All-Time Highs

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The following article is from Troy Applehans with CattleFax:

Numerous items have advanced the feeder cattle market, includingthe premiums in the April and June live cattle futures, which will catch the bulk of feeder cattle being placed now.  April has advanced roughly $4.50 and June roughly $3.50 since mid-November.  In addition, December corn fell nearly $1 a bushel from November 9th to its most recent low on November 23rd.  Overall market psychology has been high the past few weeks as fed cattlehave rallied to levels not seen since the 2003 surge.  The money flow buying into the futures is apparent.  Fund managers have bulked up open interest levels in both live and feeder cattle with some of the sharpest increases in history over a two week period.

This in addition to the currentness situation in feedyards, a healthy export market, net beef supplies indicative of higher prices and a long term favorable supply situation helped push daily highs in spot feeder cattle futures to new all-time highs of $120.15 the 30thof November.  This price broke through what has been historically stiff resistance just below $120 that has been unable to be surpassed since first being tested in 2005.  Deferred feeder cattle contracts (March through August) have all gone above this level to make new all-time highs as well.

So what does it all mean?  What the market typically tells us over the last several years is that feeder cattle futures and cash typically make their highs sometime from July to October and the lows typically occur between January and April.  Timing wise the rally has been unexpected if comparing against the seasonal. 

 


All the questions presently revolve around what do I need to do to protect myself on price?  Not just now but for cattle being winter grazed, in a background yard, summer cattle out on grass, etc.  The bottom line is the trend of the market is still going up.  But picking the highs and lows of the market should not be the sole objective as there are simply too many variables and moving parts to be able to do it with any consistency.  A solid, realistic profit objective is the key.  If you can attain your objective, act upon it.  No one, least of all yourself, is going to argue with you if you hedge a portion or all of your cattle, if you use the options market, get a basis contract or forward contract at a respectable profit.  Particularly on cattle between now and May.  History would indicate that from July through September higher highs are attainable.  But just as the present contra-seasonal trend is telling us now, the seasonals are not always 100 percent.  Nearby futures are now below the $120 level, it is still resistance near term.

Bottom Line:  This is a very difficult environment in which to try to pick the highs or lows in the market.  Instead, look to use the available tools to lock in profits and reduce your risk in what is likely to continue to be a volatile marketplace.

Source:  Troy Applehans, CattleFax

 

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