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Ridgway, IL | How about just buying puts on feeder cattle futures?
Ky and tn yearlings are currently trading about -10cwt the cme. That's a normal basis.
Are you a fall calving heard that weans in spring and uses a summer grazing program to sell yearlings? If so, look at the September option month. For about 40$ per head on an 800lb steer, you can buy a 1.40$ strike sep put. For 100hd consider buying 2 contracts. With the ky-tn basis that should get you a cash floor of around 130cwt plus you get 100% of the upside. Plus no margin calls. Just sell back these puts when you actually establish the cash price of the cattle.
Or, another way to do it might be to sell April futures, in which case you will have to put up margin money to start, and more of the market goes up. Whatever margin money you have to put in, should mostly be offset in gain in value of your physical inventory, just need to make sure you can keep writing the checks till you get the cattle sold in the cash market. This is a lower cost way to establish a price now. With sep futures at 143, this should bet you about 1.33 cash in Tennessee.
Yet another way would be to call some livestock brokers in your area (maybe jeff Riley ?) and ask him what kind of forward contract they would offer you. The price might be a little softer than the futures method, but this way you can lock in a cash price and not worry about basis or margin calls or cost of hedging.
Or another way might be to put them on superior livestock video auction for future delivery. I think they charge 2%, you can sell private treaty where you have an asking price or live auction method.
There are lots of ways to do it, none of them are perfect every time, nor without cost... but when the shtf, all of them are better than nothing.
Edited by LKM 5/26/2016 19:57
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