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Rn Co KS | First off I am comfortable with my understanding / experience with grain futures/options. I have no experience with cattle futures.
We raise and sell about 80 head of 8-900lb feeders directly to a feedlot in March and that has been a positive experience for 10+ years. I know the buyer's bid is based off June or August Live cattle futures.
The question is how to protect price sometime soon?
My limited understanding of LRP insurance is that you are left exposed at the end. Maybe I don't understand it well enough??
In my mind--since the feedlot buyer is using fat cattle futures I need to be using those futures also even though we are selling feeders. Is this correct? I don't think I am comfortable using straight futures just yet so I am considering options.
Hypothetical situation --
80 hd at 850 lbs = 68000 lbs.
June fats (LEM24) at $178.
June 178 put at 5.675 = $2270 per contract = 28.38 / hd
June options expire 6/7/24. So if my understand is correct--We would have at least some price protection till the feeders are sold in March. It seems to me that the question becomes how much do we want to spend per head? Meaning what strike and/or number of contracts to purchase.
How would you protect price?
Please educate / correct / advise. THX
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Using cattle futures/options for learners
