Market outlook

[jcissell]

Ok I kind of see what you are talking about but not really. Can you explain what I would do in my situation. I have 58 head and 15 of them are calves I will sell in the spring. The others are cows and bulls.

Josh

 

[Craig-TX]

Ag futures and options are widely traded on the Chicago Mercantile Exchange... please visit www.cme.com.

Who trades 'em... the futures market is hugely larger than the NYSE and it's common practice for financial insitutions and commercial giants (Post, General Mills, Armour to insure themselves against price fluctuations and supply shortages. We 'little guys' are mere drops in the bucket.

i.e. If you were to get a bank loan on your cattle, most likely they'd either sell a call against them or buy a put to protect their investment in you via the loan.

I don't believe in any kind of formulas or get rich quick schemes... Writing a book geared towards farmers and ranchers is my way of spending the winter in Tucson, AZ and filling an obvious need in the marketplace.

I didn't ask how futures markets work or about the CME. I think most of us here understand that. I asked you to explain your advice that producers write (and deliver on) options against their own calf crop on their own places.

If you borrow money on cattle the bank does not hedge their risk with options. They file a lien on your livestock with a UCC Financing Statement and will mitigate their risk by only loaning a percentage of the value of stock or other collateral.

Craig-TX

 

[Rod]

Whew, almost as much contraversy as my friendly bull post.

Richard, I never knew anything of the such about your post so maybe you could explain to me exactlly what you mean with my given situation.

I've got about 25 calves 500-550lbs and about 30 that are 200-350lbs. My thought behind my question was I've got these 25 @ selling weight, but I was looking for a little insight as to when might be the best month to sell them. As for the other 30 it looks like I've got to choose the spring,summer, or fall market.So......if anyone has any theroies I'd love to hear them.

Thanks,
God Bless

Rod

 

[ManyHorses]

Craig-Tx...

I've never suggested that "producers write (and deliver on)" their cattle. Most producers are not large enough or close enough to a terminal to engage in that kind of activity.

I may from time to time suggest writing against their cattle, but never with the intention of delivery... What this does is help manage price risk by transferring that risk to a CME contract.

If you look at CME delivery receipt records, you'll find that few cattle are actually delivered vs the number of contracts traded... Lots of cattlemen are managing their risk on undeliverable cattle by CME hedging.

As for the banks mitigating their risk on a partial basis, that's probably true on a 1:1 basis with producers... But when they're 'out on the limb' on a partial basis with a lot of different produces, and unbeknown to the producers, they often times lay off the unmitigated portion of their risk on the CME... that's one of the purposes of the CME.

Thanks for asking... Richard

 

[G&L Cattle]

God bless you Rod!
Im sure you would appreciate an answer to your question! Here's mine.
We sell our calves at a special pre-conditioned calf sale. We enjoy getting the calves ready and are pleased with the rewards. Also, at this type of sale, the prices vary much less from season to season. We are blessed to have this sale in East Texas.

G&L

 

[Craig-TX]

I've never suggested that "producers write (and deliver on)" their cattle. I may from time to time suggest writing against their cattle, but never with the intention of delivery

I must have misunderstood when above you said

I'd sell a 'Call' against your cattle

and

deliver your cattle against the Call price you sold

Richard, as you know a futures option is a legally binding contract. If a rancher sells a call he is not only committing himself, he is betting against prices going up. He is also increasing his risk beyond that of holding a long position in livestock. If prices go up substantially (which he would normally desire) he could be facing margin calls and have to throw good money after bad. If they go up a lot he could be in a world of hurt because the clock is ticking and he's going to owe somebody a contract of cattle that will cost a lot more to buy than his contract will bring.

It can be categorically stated with 100% certainty that the only people who consistently win in futures are the people in the trading pits.

Even the big corporations occasionally loose on their hedging bets. But they have those losses built into their profit models and they also have the capital to absorb an occasional anomaly. That's a whole different world than us ranchers. Cow/calf producers typically don't have the extra cash laying around to roll the dice in Chicago. If they have extra money they will typically put it into the things they know and will have some degree of control over – namely land and cattle.

Sincerely wishing you a Merry Christmas.

Craig-TX

 

[Texan]

Richard, I never knew anything of the such about your post so maybe you could explain to me exactlly what you mean with my given situation.

I've got about 25 calves 500-550lbs and about 30 that are 200-350lbs. My thought behind my question was I've got these 25 @ selling weight, but I was looking for a little insight as to when might be the best month to sell them. As for the other 30 it looks like I've got to choose the spring,summer, or fall market.So......if anyone has any theroies I'd love to hear them.

Rod, it seems that you keep getting overlooked in your efforts to get a simple, straightforward, no HS answer to your question. Since Richard seems to have overlooked it, I'll take another stab at it if you don't mind. Maybe when Richard formulates a strategy, he can add to it or correct me where I'm wrong. Keep in mind that I'm telling you exactly what I would do in your situation with real stock, not keyboard cattle. My advice may not be good enough for the experts, but it is good to me in most cases. Like many cattlemen, though, I've made some decisions that I wish I could do over. ;-)

A lot of the answer depends on how much grass you've got or expect to have. Right now, you probably don't know for sure. Assuming you will have enough room through fall, this is what I would do......As soon as markets straighten back out after the first of the year, I would sell the cattle that are big enough. When I say 'straighten back out,' I mean get over some of the large runs that often happen right after the New Year because of guys holding back cattle for tax purposes. If the market is still acceptable then, sell your big calves. Put them in the bank. Sometimes, its often a lateral move to take calves that size on to 6 plus weights. Even with steady markets, they sometimes don't bring much more per head than they will as 5 weights.

Take your 30 light calves and be prepared to wean them and have them straightened out when Spring greenup gets here. Castrate, dehorn, vaccinate, pour and be where you can kick them out on grass and forget about them until fall. A fall yearling is almost always a scarce commodity. Sometimes you can almost name your price for them! By Fall 2005, you will have some of these.

Is there some risk, here? :roll: Well, duhhhhh! If you can't stand any risk, you're in the wrong business! My idea of hedging and controlling risk is to put some cattle in the bank when they're ready, and keep some that can't really hurt me. If you've got enough grass, 30 fall yearlings usually won't hurt you.

 

[Caustic Burno]

Another interesting post I am waiting to read the reply to.

 

[Craig-TX]

Richard, I never knew anything of the such about your post so maybe you could explain to me exactlly what you mean with my given situation.

I've got about 25 calves 500-550lbs and about 30 that are 200-350lbs. My thought behind my question was I've got these 25 @ selling weight, but I was looking for a little insight as to when might be the best month to sell them. As for the other 30 it looks like I've got to choose the spring,summer, or fall market.So......if anyone has any theroies I'd love to hear them.

Rod, it seems that you keep getting overlooked in your efforts to get a simple, straightforward, no HS answer to your question. Since Richard seems to have overlooked it, I'll take another stab at it if you don't mind. Maybe when Richard formulates a strategy, he can add to it or correct me where I'm wrong. Keep in mind that I'm telling you exactly what I would do in your situation with real stock, not keyboard cattle. My advice may not be good enough for the experts, but it is good to me in most cases. Like many cattlemen, though, I've made some decisions that I wish I could do over. ;-)

A lot of the answer depends on how much grass you've got or expect to have. Right now, you probably don't know for sure. Assuming you will have enough room through fall, this is what I would do......As soon as markets straighten back out after the first of the year, I would sell the cattle that are big enough. When I say 'straighten back out,' I mean get over some of the large runs that often happen right after the New Year because of guys holding back cattle for tax purposes. If the market is still acceptable then, sell your big calves. Put them in the bank. Sometimes, its often a lateral move to take calves that size on to 6 plus weights. Even with steady markets, they sometimes don't bring much more per head than they will as 5 weights.

Take your 30 light calves and be prepared to wean them and have them straightened out when Spring greenup gets here. Castrate, dehorn, vaccinate, pour and be where you can kick them out on grass and forget about them until fall. A fall yearling is almost always a scarce commodity. Sometimes you can almost name your price for them! By Fall 2005, you will have some of these.

Is there some risk, here? :roll: Well, duhhhhh! If you can't stand any risk, you're in the wrong business! My idea of hedging and controlling risk is to put some cattle in the bank when they're ready, and keep some that can't really hurt me. If you've got enough grass, 30 fall yearlings usually won't hurt you.

Very well thought out.

Craig-TX

 

[G&L Cattle]

Texan,
What do you mean by saying that fall yearlings are a scarce commodity?

Thanks, G&L

 

[Texan]

What do you mean by saying that fall yearlings are a scarce commodity?

Richard can probably answer this better than me since that is his field of expertise. Maybe he can help me out if I can't explain it. What I was trying to say is that there are always plenty of yearlings in the Spring because most cowherds are Spring calvers. Less yearlings in the Fall because fewer calves were born the previous fall.

There are always big runs in the Fall, but they are mostly calves. Fleshy, soggy, milkfat bawlers. A lot of those come off the truck looking for momma. Yearlings come off the truck looking for a trough. The real demand in the Fall is for something straightened out and ready to go to work and finish in time to hit the best fat market. That is normally early Spring.

Hope this helps......

 

[G&L Cattle]

Thanks!

 

[fit2btied]

Hey Texan, did you ever think about writing a book? Might have a best seller on your hands!

 

[Campground Cattle]

Hey Texan, did you ever think about writing a book? Might have a best seller on your hands!

Would be a good book, wouldn't be able to his picture on the cover.

 

[Rod]

Thanks G&L and texan for actually getting to my question.

Texan...I was thinking along those lines myself. An old-timer here told me anything you still have in the spring you might as well keep till fall, pasture permitting that is. But.. he's also told me of the days of .50 cent cattle too. As I am still somewhat still new to this business I really dont know that much about the marketing end of it, supply,demand,imports, and exports so your advice is very well appreciated. The Canadian market, Mad cow scares, and volital foreign market buyers have really kept me guessing as what to do, and Lord knows that we need to get as much as we can for our stock for what we put in.

Thanks Again

Rod

 

[ManyHorses]

Richard can probably answer this better than me since that is his field of expertise. Maybe he can help me out if I can't explain it. What I was trying to say is that there are always plenty of yearlings in the Spring because most cowherds are Spring calvers. Less yearlings in the Fall because fewer calves were born the previous fall.

There are always big runs in the Fall, but they are mostly calves. Fleshy, soggy, milkfat bawlers. A lot of those come off the truck looking for momma. Yearlings come off the truck looking for a trough. The real demand in the Fall is for something straightened out and ready to go to work and finish in time to hit the best fat market. That is normally early Spring.

IMO Texan is absolutely right in all respects...

The reason most producers do what they do when they do it is because it's always been done that way, or their pappy did it that way, or that's the way their neighbors are doing it. But don't you see that this crowd mentality is what's keeping you 'down on the farm'... 'buying too high and seeing too low'... Not that you're not making money but rather you're not making the money you could be making with the capital investment and experience you already have.

So here's the way my mindset works... Oh, Oh... I'm gonna get some flack on this one....

Look at yourself looking forward on yourself looking back at yourself...

In other words, taking Texan's observation, look forward at yourself next fall and wishing you had fall calves for sale... and kicking yourself for not having 'em... Ask yourself why when you had the chance earlier in the year, that you didn't set up your operation to achieve that end.

Now a lot depends upon that market area you're in... because producers in Montana have a lot different set of circumstances than a producer in say Georgia... meaning Montana weather conditions produce more spikes in the calf and yearling cycles whereas Georgians may have year-round cycles. This tends to offer the Montana producer more 'opportunity' in terms of greater price spikes, but the Georgian more 'opportunity' in terms of greater available time.

So anyway, I'd suggest working my on my endgame first... and then figure out how to get there from where your are....

Now you can see why some folks accuse me of doin' things kinda 'ass-backwards... :lol: :lol: :lol:

Hope this helps... Richard

 

[brokenmouth]

Look at yourself looking forward on yourself looking back at yourself...

the only way that can be done is to have your head up your butt

In other words, look forward at yourself next fall and wishing you had fall calves for sale... and kicking yourself for not having 'em... Ask yourself why when you had the chance earlier in the year, that you didn't set up your operation to achieve that end.

maybe he didn't have the cash. or the grass . lots of things could play into it. Maybe he thought the market was too rich to load up at the time and maybe he was right

Now you can see why some folks accuse me of doin' things kinda 'ass-backwards... :lol: :lol: :lol:

most bassackwards bunch of doublespeak on these boards right about now. And who is your publisher youve been on here today and didnt answer that! name your books

 

[jw]

Brokenmouth - that was a very illiterate response. Are you any kin to BP?

 

[HandB]

ManyHorses, I have been trying to educate myself as much as possible about the cattle futures market. I understand what you mean by running them cows from the keyboard. I would like to know where a I could learn more about this practice (books, schools....) or how you got so knowledgeable. I'm just another rancher trying to diversify into the 21st century and make a dime from my computer. Any leads is greatly appreciated.

 

[ManyHorses]

HandB,

There are lots of books and courses and 'stuff' being offered out there... but in my opinion 80% of it is 'hogwash' written by guys who may be good writers... but are short on real trade experience. What may appear to work in the Orange Juice or Copper markets has little to do with the cattle market... kinda like you raising hogs and deciding to change over to cattle and then over to sheep.

One of few books I would recommend is 'The Option Secret' by David L. Caplan... It's roughly written but really 'meaty'.... Read and reread and reference and rereference this book about 10 times to understand the nuances. You can get it on eBay for about $40-50 bucks.

Stay away from ANY KIND of trading system, black box, charting software, data system, or other 'hocus pocus' because IF THEY WORKED EVERYBODY BE RICH!!

The best advice I can give you is...
"Whenever you put on a trade, think of your opponent as being the wealthiest, most experienced, luckiest trader that ever lived"... because that's who you're up against and only one of you can be the winner."

Richard