Feed Lot Magazine Online, Market Notes

The September cattle on feed report indicated 112 percent on feed, 100 percent marketed and 108 percent placed compared to a year ago. The initial reaction in the trade was bearish and once again the cattle futures closed about unchanged the following trading day.

Since January of 1999, placements have been higher than the previous year 16 times out of those 20 months. We believe this increase is a product of drought and cheap corn prices. The problems is, the increased feedlot inventories gives the market the idea that cattle supplies are plentiful when in actuality, the supplies are simply in the feedyard as opposed to being on pasture as normally would be the case.

We tend to be bullish on the cattle market over the next few months because retail price is continuing its uptrend while enlarged slaughter weights are keeping beef production at near year ago levels. Beef exports are up 20% year to date (June) which is a further indication that beef demand is on the increase.

In previous articles, we've shown that cash cattle prices tend to drop around $10 from the spring into summer. The cash market has accomplished this seasonal tendency since the cash high of $74.50 the week of April 17 to the cash low of $63 the week of July 31. We think the cash low may be in for the year and we can look forward to increasing prices into the fourth quarter. Our cash projection for the fourth quarter is $68 to $70 and $70 to $74 for the first quarter of 2001. This assumes no surprises of increased captive supplies, which are on the rise.

We sound like a broken record at times but we flat out believe that put options should be bought on all cattle being fed even when we think price will increase. This prudent and affordable hedge strategy allows the producer to have some price insurance on their cattle investment. On the input side, we think you should consider buying December and March corn call options to cover your feed needs for the next six months.Watch for drastic changes in the October grain supply and demand report. We think the USDA will make major changes to harvested acres in the U.S. which will reduce production to 10 billion bushels. If the supply and demand indicates only a 10 billion bushel crop, corn price should rally significantly.

Schwieterman, Inc. is a Registered Commodity Trading Advisor in Garden City, Kansas.The information herein is based on data obtained from recognized statistical sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to the accuracy or completeness.Past results are not necessarily indicative of future results. The risk of loss in trading commodity futures contracts can be substantial.You should therefore consider whether such trading is suitable for you in light of your financial condition. You may visit their web site at http://www.upthelimit.com .