csmfutures
Member
Hello, new to to board. Happy to answer any futures/options/marketing/price related questions, privately or on the board
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Mahoney Pursley Ranch
Well-known member
Me thinks someone is lookin to drum up a little business ;-)
OldTex
Well-known member
I have to agree with you for sure on this one.Mahoney Pursley Ranch":3dit63ds said:
csmfutures
Member
txshowmom":dy8rxvyg said:
Feeder supplies are still marginal and prices look to drift for a while. There are a couple of marketing holes in the coming months which may boost prices along with any winter issues in KS or NE. We're doing hedging, although careful with outright contracts or futures, consider maybe long term options for feeders or fat cattle.
csmfutures
Member
Mahoney Pursley Ranch":h0jr1elh said:
Hey, can you blame me?
Running Arrow Bill
Well-known member
"If you have time to spare...go by air"
"If you have $$ to spare...play the futures"
"One in the pot is worth two in the lot"
"One in the hand is worth two in the ???"
Hey...a "CD" doesn't pay much interest any more; however, you always get ALL your money back plus a modicum of interest...and NO broker's fees"
"If you have $$ to spare...play the futures"
"One in the pot is worth two in the lot"
"One in the hand is worth two in the ???"
Hey...a "CD" doesn't pay much interest any more; however, you always get ALL your money back plus a modicum of interest...and NO broker's fees"
Texan
Well-known member
But how much money do we get back from our "investment" in insurance premiums, Bill? Hopefully none, right? We don't have to use the Merc and Board just to speculate. Hedges have saved the tail of many a cattle feeder in this country. That represents capital that is still available to the cattle industry!Running Arrow Bill":g6wi5q45 said:
csmfutures
Member
Actually, bill is right. Hedging is a practical and effective business tool. IF you have the dicipline to treat your business as exactly that, a business.
I have more cattleman and farmers who "play" the market with grain in the bin or cattle in the field and complain about losing money on futures. Many farmers appear to be experts in the gold and crude oil market......... ????
It is not hedging, it's speculating and it's perfectly fine, there's plenty to be made or lost, but only do it if your not going to complain that you lost money on your hedge.
Hedging is simple risk protection, with the main risks being cash to futures basis and cash for margin. I had customers put hedges on last fall and ride them all the way up, understanding this is a business decision. They were happy as could be when BSE came around and they were still on.
I have more cattleman and farmers who "play" the market with grain in the bin or cattle in the field and complain about losing money on futures. Many farmers appear to be experts in the gold and crude oil market......... ????
It is not hedging, it's speculating and it's perfectly fine, there's plenty to be made or lost, but only do it if your not going to complain that you lost money on your hedge.
Hedging is simple risk protection, with the main risks being cash to futures basis and cash for margin. I had customers put hedges on last fall and ride them all the way up, understanding this is a business decision. They were happy as could be when BSE came around and they were still on.
csmfutures
Member
Sorry, TEXAN is right. I said bill, sorry bill
Craig-TX
Well-known member
Texan and csmfutures each used a two key word but it's important to know and understand the difference between them because the difference is enormous. Cattle in the pasture are an investment that will hopefully (and usually) give a return. The potential return is smaller but so is the risk. Holding a position in the futures markets is speculating, even if it's for hedging purposes. The potential return is much greater but the risk of loosing is greater still. Buying a hedge position is just like paying an insurance premium – you hope you never need it. I don't play the futures markets because I'm conservative and don't take long positions in stockers. Not knocking it, just pointing out that the difference between investing and speculating is not to be taken lightly.
Craig-TX
Craig-TX
csmfutures
Member
Craig - A position in futures is speculation, unless it's a hedge. If you have 70 feeder cattle, say 700 lbs, and you sell 1 CME feeder contract (50,000lbs) you have locked in the price in the Major Market. Not the local market. Therefore the risk has gone from a market risk to a basis risk. You are therefore protecting against major price shifts which inevitably hit the local market. Your upside is also gone, because the feeder contract will take away any price gain excepting cash basis and gains in weight price (ie:feeders vs fats).
This is where the option market comes in so handy for hedges because it applies a floor or base price in the Major Market without the upside price elimination, excluding the premium paid for the option. There are numerous strategies using options as well to reduce risk or premium, but the key is to be diciplined at hedging and avoid speculation.
Being conservative is the idea, not getting extreme, using diversifcation. Hedge portions of the herd, etc. Being victim to the market with no defense is the definition of speculation.
If you know agriculture, you know that it's all purely speculation, not an investment. A CD as bill said is an investment, a cow is speculating. Your average bank CD doesn't jump fences, get sick and run up bills, just drop dead or have the market price crash from BSE. Hedging offsets that speculation to a certain degree.
This is where the option market comes in so handy for hedges because it applies a floor or base price in the Major Market without the upside price elimination, excluding the premium paid for the option. There are numerous strategies using options as well to reduce risk or premium, but the key is to be diciplined at hedging and avoid speculation.
Being conservative is the idea, not getting extreme, using diversifcation. Hedge portions of the herd, etc. Being victim to the market with no defense is the definition of speculation.
If you know agriculture, you know that it's all purely speculation, not an investment. A CD as bill said is an investment, a cow is speculating. Your average bank CD doesn't jump fences, get sick and run up bills, just drop dead or have the market price crash from BSE. Hedging offsets that speculation to a certain degree.
Arnold Ziffle
Well-known member
csmfutures --- I was just wondering, since about the mid to later part of 2003 have you seen much more than usual cattle feeders just going naked without a hedge, since they didn't want to limit their upside so much? One of my clients usually feeds about 3,000 head all year long and, as I recall, towards the last quarter of 2003 was counseled by his hedge advisor to just drop the hedges. ( Christmas 2003 wasn't as joyous for him as it otherwise would have been, but with the passage of time it seems to have all worked out for him )
csmfutures
Member
Yes, it's remarkable actually. Everyone is a bit skeptical after having to cough up some margin last winter, but reality is, if they stuck with it, it worked out for the best to have the hedges. Those who got hurt the most where buying stocker/feeders in fall and winter of 2003, with no hedging.
When you stop hedging or second guess the market, is when it typically hurts. When it's not going to go down, it will. When it will never go up, it does. It's the nature of the market. Look at the $15 Soybeans we were supposedly going to have this year. We're just above $5.
Hedge well and consistantly.
When you stop hedging or second guess the market, is when it typically hurts. When it's not going to go down, it will. When it will never go up, it does. It's the nature of the market. Look at the $15 Soybeans we were supposedly going to have this year. We're just above $5.
Hedge well and consistantly.
Craig-TX
Well-known member
csmfutures":1tl4ch22 said:
You're still speculating, it's just that you're speculating against your own long position. Or to put it another way, you're speculating from a defensive stance. I'm not questioning your definition of a hedge position. But it's still a bet on something where you have zero control over the outcome.
csmfutures":1tl4ch22 said:
Ranching is not speculating.
csmfutures":1tl4ch22 said:
Any form of business entails risk. Investing is taking part in business where you control at least some of the critical factors (e.g. management decisions and/or timing) and therefore have a direct impact on the potential for return. Speculating is betting on where a price will be at a certain time in the future with no control over critical factors. They are two entirely different strategies with radically different risk/reward ratios.
This is what I was trying to make clear in my original post above. Speculating is not investing and investing is not speculating. There is a huge difference. Too many people fail to distinguish between the two, at their peril.
Craig-TX
csmfutures
Member
Craig - Well, we can sit and argue till the end of time the difference between the two. A 1250lb steer has a limited time, out of your control, before the "investment" begins to sour from market price deductions, weight, etc. So, in essence your control over timing is limited here as well.
Sure, if you're cow/calf you have better control or even running stockers you may have some limited control over market timing, but the clock is ticking just as it is with a futures contract.
The point is, without arguing semantics, hedging is a reduction in business price risk. Short and long term. I have friends in Canada who will never go unhedged again, BSE is a real issue for them and the effects of it will not go away for years.
How many producers you know that at some point have sat at the sale barn, coffee shop, whatever.....talking about the $100, $200 a head they just lost. Prices are good right now, so it's easy to forget 5 years ago and the .50 fat cattle.
Atkins diets will fade, beef will once again cause high cholesterol, disease will come and go, and your costs to produce are going up. What will be the benefit of your control over timing when the chart tilts and we have 11 months of lower closes instead of higher? The usual is "Oh, it'll come back" until the clock runs out, cows have got to go and bang a loss.
I'm not saying there is no risk in hedging, there's risk in all trading, business, and producing. It's a business decision to offset the downside risk of your "long" position. You have insurance on almost everything on the ranch in one way or another, why leave the price un-insured, so to speak.
Sure, if you're cow/calf you have better control or even running stockers you may have some limited control over market timing, but the clock is ticking just as it is with a futures contract.
The point is, without arguing semantics, hedging is a reduction in business price risk. Short and long term. I have friends in Canada who will never go unhedged again, BSE is a real issue for them and the effects of it will not go away for years.
How many producers you know that at some point have sat at the sale barn, coffee shop, whatever.....talking about the $100, $200 a head they just lost. Prices are good right now, so it's easy to forget 5 years ago and the .50 fat cattle.
Atkins diets will fade, beef will once again cause high cholesterol, disease will come and go, and your costs to produce are going up. What will be the benefit of your control over timing when the chart tilts and we have 11 months of lower closes instead of higher? The usual is "Oh, it'll come back" until the clock runs out, cows have got to go and bang a loss.
I'm not saying there is no risk in hedging, there's risk in all trading, business, and producing. It's a business decision to offset the downside risk of your "long" position. You have insurance on almost everything on the ranch in one way or another, why leave the price un-insured, so to speak.
Craig-TX
Well-known member
csmfutures":1iytsn74 said:
We're not selling fats. I don't know a single rancher who hedges in the futures market unless they are backgrounding. In those cases they are hedging their backgrounding operation, not their cow/calf operation. I guess the thing I'm not clear on is that it seems like you're recommending a hedging strategy for ranchers. You're not, are you?
As far as forgetting those low prices, they aren't so easy to forget if you lived with them year in and year out over many years. Besides, for the rancher it was a lot more recent than 5 years ago.
Craig-TX
csmfutures
Member
A rancher is no different than feeders or the backgrounding ops. You have inputs and outputs equivallent to a cost per cow. The little ones should be figured on a cost per lb weaned, whether retained or marketed.
Hedging comes in based on the weaned weight and the CME feeder contract. 50,000lbs. If you don't have 50,000 lbs, then a delta hedge is appropriate based on weight or numbers.
I read recently that only 10% of cow/calf ops know there cost structure and cost per cow and weaned lb. That's scary.
Hedging comes in based on the weaned weight and the CME feeder contract. 50,000lbs. If you don't have 50,000 lbs, then a delta hedge is appropriate based on weight or numbers.
I read recently that only 10% of cow/calf ops know there cost structure and cost per cow and weaned lb. That's scary.
