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| Hello all. I usually hang out in the machinery posting area, but once in a while I like the market area. I just wanted to throw out my marketing thoughts on feeder cattle. Today, November Feeder Cattle are trading a touch above $2.20. I just purchased a $2.20 November Feeder Cattle Put Option for a little over $5. Here in my area, we work with a positive basis on FC, so using a +$.80 basis, I locked in a $2.95 floor price on our feeder cattle. My thought process was the following: Right now, feeder cattle are at all time, record highs driven in large part by commodity fund buying. Yes, the fundamentals are bullish, but I asked myself "How high can cattle really go until we lose demand for the product?" I believe we may be close to that point. This put option strategy allowed me to lock in a floor price higher than I have ever sold my feeder calves for. I feel the market is giving us an opportunity at record profits and it is our responsibility to take that profit. It is similar to corn the last few years, and at some point, this ride will be over in cattle just like in corn. Also, I believe that it would not take much of a weather worry to have the commodity funds take their profits in the cattle market, liquidate some long positions, and return to the grains given these low grain prices. These are just my two cents, but I would be curious to see what others think as far as cattle go. I sincerely hope everyone out there reading this has a great day! | |
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Feeder Cattle Strategies
