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by Luke Schwieterman, President of Schwieterman, Inc. I'm bullish cattle despite recent events. You will hear plenty of news about restaurant and tourism being down. And that seems to be true since most folks are staying close to home and family. But, the public has not stopped eating. The volume of demand is not decreasing, as some would lead you to believe. Demand is "shifting." Shifting from a meal out on the town to eating at home as the public watches the unfolding events in the Middle East on television. Oddly enough, it doesn't appear that retail or box beef price has dropped appreciably in response to reduced demand we are supposed to be experiencing at the grocery stores. That tells me that demand is still alive and well especially when we sell almost 600 loads of beef one day this week. I agree that demand of the more expensive cuts sold in hotels and restaurants is probably less than we'd like but I argue that demand of the lesser cuts have increased and the balance of the two is about the same as before the attack if not greater. The cattle on feed report indicated fewer placements. This report may indicate the end of the trend of putting very small cattle in the feedyards. Losing $50 to $100 a head has the tendency to do the same thing. In my opinion, the marketplace has misunderstood the increased placements over the last two years. Just because the cattle are in a feedyard doesn't mean there are more cattle. It simply means the cattle aren't on pasture. The only way the US cattle inventory can increase is to import more cattle, which we've done for decades to meet a domestic demand that outstrips the domestic supplies of cattle. If the US did not import cattle and beef from Canada, Mexico and Australia, there would be a shortage of beef. The December Live Cattle contract lost nearly $7.00 during the price plunge that took place after the tragic events of September 11, 2001. Agricultural producers along with other areas of the economy have taken it on the chin as investors, hedgers and the public react to the terrorist attack. Not only do we need to protect ourselves from people who are determined to do us physical harm; we must protect ourselves from people who are determined to put us in financial ruin. But, I see positive things happening in the marketplace and continue to be bullish - not only livestock but the grains as well. However, as we begin to understand the reactions of the marketplace since September 11, we are quickly learning that rather than wanting to own the physical product, people prefer to own nothing. "Get out while the getting is good." Others seem to be eager to not only sell what they have but sell America in general and take advantage of a very unfortunate event. That became obvious when the Dow Jones Industrial Average lost 1400 points in only five trading days after the attack on the WTC and the Pentagon and cattle prices followed suit. My point is that things will never be the way they used to be. As we become more of a global market the more producers must protect themselves from the unexpected. Starlink corn seemed harmless when it was introduced but turned out to be a price-depressing product. Foot and Mouth disease in the UK devastated a livestock industry in an instant. The terrorist attack put a market anticipating a recession into a tailspin in seconds. I believe that if agriculture is to survive the uncertainties, we as producers must learn how to protect our financial well being - something we have taken for granted for a very long time. I suggest that producers begin to educate themselves about how to use options as a tool to protect themselves from the unexpected because the financial world is now uncertain about stability and will continue to be for some time to come. All in all, I believe cattle price will improve as time goes by and the American public becomes less depressed and begins to feel more secure. Obviously, if there is another terrorist attack within our shores, our worst fears will materialize - we are not yet in control of our own fate. Therefore, in this uneasy market climate, I suggest that you buy put options on all cattle being fed and put options on all feeder cattle on pasture. We want to expect the best and protect ourselves from the worst. Put options allow us to do that. 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 www.upthelimit.com |
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