Summer may seem like a memory, but there are opportunities in 2019 summer futures contracts for cow/calf producers.
Andrew Griffith, Extension ag economist with the University of Tennessee, says most producers are thinking near-term rather than long-term.
“The minds and thoughts of many cattle producers are focused on calf and feeder cattle prices through the end of the year and maybe into January,” he writes in his weekly market outlook. “However, it is not too early to be thinking about summer feeder cattle marketings for 2019 and capitalizing on a strong price.
“It may be difficult to forward contract feeder cattle for the third quarter of 2019, but the futures market can be used to protect a strong price.”
Griffith says the August feeder contract topped out at $157 per hundredweight and is still over $152. He says while November 2018 futures are trading in the $154/cwt. range, it may be a hard sell getting producers to lower prices for late summer.
“However, if one looks back to the August 2018 contract, the 2018 contract traded in a range of $136 to $159 over the entire year,” he says. “Additionally, the range for the August 2018 contract from June through expiration was $143 to $155 with an average daily close just shy of $150/cwt.
“With that understanding, a price of $152 for August 2019 would seem fairly strong. One could easily purchase a put option or sell a futures contract today and likely come out on the positive side because prices are likely to fluctuate above and below the current price between now and expiration.”
Griffith says lower prices may signal producers to exit the futures market, relying instead on cash prices.
Fed cattle prices were sharply higher last week, with the five-area weighted average price ending Thursday at $112.25/cwt. on a live basis, up $1.29 from the previous week.
“The finished cattle market finally broke out of its six-week stagnation, but it is yet to be determined if this is a violent surge or a moderate price increase as mentioned last week,” Griffith says.
“If the market has follow through next week with strong gains, then a violent surge it is. However, market participants have been waiting on this positive price movement in the finished cattle market for several weeks, and it is adding $40 to $50 of value to each head. The market will wait in angst to see if this week’s higher prices can be sustained and improved upon moving into November.”