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What market should I shoot for?
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<blockquote data-quote="ManyHorses" data-source="post: 59364" data-attributes="member: 1016"><p>You've got to understand that your cattle are only worth what they're worth to others to make a profit on... and your cattle sale prices are at the mercy of the 'big boys'... so <u>indirectly</u> you've got to trade your cattle where the 'big boys' trade.</p><p></p><p>Begin by watching and learning about Live Cattle prices on the Chicago Mercantile Exchange and working with a cattle savy broker who can advise you what and when to do it - and is in the form of MANAGING YOUR RISK... NOT SPECULATING IN THE MARKET.</p><p></p><p>Right now Live Cattle prices are maybe maxed out, but assume you're not ready to sell from a finishing standpoint. YOUR RISK is in the danger of having lower prices <u>come about the time you are ready to sell about 30 days out from now</u>... So <u>manage that risk by transferring it to an options contract.</u></p><p></p><p>My reports coming in show packers in the Texas Panhandle area paying $90/ctw so let's assume that's the local cash market price in your area.</p><p></p><p>But let's say you're not happy with that price and want to set it at $94/ctw.</p><p></p><p>Sell a February 91 Call for 3 cents/lb... For the next 43 days you've now established your price of 94 cents (91 plus 3 cents) on 40,000#. If cattle go down in price, you keep the 3 cents ($1,200.00) and the Call option expires worthless to the buyer and you go on about your business.</p><p></p><p>If cattle prices go up, you'r fat and happy 'cause the you still have your cattle at the higher prices. You buy back at a higher price (loss) the Call option you sold offsetting it with the $1,200.00 premium (profit) paid to you by the Call buyer... </p><p></p><p>End results... You still have your cattle at a lot higher prices than $90/ctw on Dec 22nd, unlimited price protection on the downside for 43 days, and it cost you nothing except the brokers commissions. YOU MANAGED YOUR RISK BY TRANSFERRING IT TO THE CALL BUYER AT 94 CENTS.</p><p></p><p>The Call buyers breakeven is 94 cents - 91 cents contract price plus his 3 cent premium paid to you. If futures price approached 91, you'd probably buy back the 91 Call and resell a 92 or higher Call to keep following the market upwards... Ultimately with good management, the market would top out and you'd be able to keep the premium and still have your cattle to sell at maximum price locally.</p><p></p><p>Anyway, as you can see, like anything else there's a lot to it... but that's how it's done.</p><p></p><p>Hope I didn't miss anything and hope this helps... Richard</p></blockquote><p></p>
[QUOTE="ManyHorses, post: 59364, member: 1016"] You've got to understand that your cattle are only worth what they're worth to others to make a profit on... and your cattle sale prices are at the mercy of the 'big boys'... so [u]indirectly[/u] you've got to trade your cattle where the 'big boys' trade. Begin by watching and learning about Live Cattle prices on the Chicago Mercantile Exchange and working with a cattle savy broker who can advise you what and when to do it - and is in the form of MANAGING YOUR RISK... NOT SPECULATING IN THE MARKET. Right now Live Cattle prices are maybe maxed out, but assume you're not ready to sell from a finishing standpoint. YOUR RISK is in the danger of having lower prices [u]come about the time you are ready to sell about 30 days out from now[/u]... So [u]manage that risk by transferring it to an options contract.[/u] My reports coming in show packers in the Texas Panhandle area paying $90/ctw so let's assume that's the local cash market price in your area. But let's say you're not happy with that price and want to set it at $94/ctw. Sell a February 91 Call for 3 cents/lb... For the next 43 days you've now established your price of 94 cents (91 plus 3 cents) on 40,000#. If cattle go down in price, you keep the 3 cents ($1,200.00) and the Call option expires worthless to the buyer and you go on about your business. If cattle prices go up, you'r fat and happy 'cause the you still have your cattle at the higher prices. You buy back at a higher price (loss) the Call option you sold offsetting it with the $1,200.00 premium (profit) paid to you by the Call buyer... End results... You still have your cattle at a lot higher prices than $90/ctw on Dec 22nd, unlimited price protection on the downside for 43 days, and it cost you nothing except the brokers commissions. YOU MANAGED YOUR RISK BY TRANSFERRING IT TO THE CALL BUYER AT 94 CENTS. The Call buyers breakeven is 94 cents - 91 cents contract price plus his 3 cent premium paid to you. If futures price approached 91, you'd probably buy back the 91 Call and resell a 92 or higher Call to keep following the market upwards... Ultimately with good management, the market would top out and you'd be able to keep the premium and still have your cattle to sell at maximum price locally. Anyway, as you can see, like anything else there's a lot to it... but that's how it's done. Hope I didn't miss anything and hope this helps... Richard [/QUOTE]
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