A Preview of What May Lie Ahead
What’s Happened…
On Tuesday, May 27 (the first trading day after a three-day Memorial Day weekend), cattle futures plunged more than $4 on a story that screwworm had been found in Missouri cattle. As it appeared this was fake news, the market quickly reversed course. However, the damage was done. Imports of cattle from Mexico are currently banned, as screwworm in that country was recently reported. While the market reacted to news that turned out to be untrue, it also provided a glimpse as to how quickly prices can deteriorate on unexpected negative news.
Why this is Important…
The cattle market has been in an extended upward price trend for multiple years. Tight supply and good demand have continued to fuel higher prices, reaching all–time new high price levels this past month. In theory, high prices create an environment where consumers eventually begin to back away. There are many who believe the live cattle market is at such a level. Producers need to be keenly aware that, when futures are vulnerable to a sharp break, a strategy or plan should be in place to act. In other words, prepare for potential moves. Had the news of screwworm in Missouri been accurate, it could be argued that the price of cattle may have moved dramatically lower.
What can you do about it?
Preparation for dramatic price moves due to events that no one can know or imagine is part of the planning process for good marketing. Because they are at such an elevated level, a 10% or 20% drop in live cattle prices should not be a surprise. Risk management begins with scenario planning, which lays out different potentials. More importantly, it shows you how you can manage them. Farmers need to wear two hats: one as a producer and one as a marketer. As a marketer, continuous monitoring of the market and development of strategies never goes out of style. Make sure you talk with the right people to help with your approach, and then make sure you execute. It is one thing to think about what you might do and quite another to follow through.
Find out what works for you…
Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally–charged responses to market moves, which are always dynamic.
About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
Author
Bryan Doherty