by Luke Schwieterman, President of Schwieterman, Inc.

The February cattle on feed report indicated that tight supplies would continue for awhile yet. Marketing's at 97 percent of last year appeared on the surface to be negative. However, last year was a record large marketing number for January (12 years of data). In fact, to put things into perspective, the marketing's for January were only one days kill less than a year ago.

We have been bullish cattle price prospects and look forward to price remaining firm into the spring. However, we are aware the markets simply do not just go up or stay flat for long periods of time. Seasonally, cash cattle tend to drop about $10.00 from the spring high to the summer low. This seasonal trend will probably hold true for this year as well even though the fundamentals will lead traders to believe prices are headed higher. We think futures will rally into the first to mid part of March, giving producers an excellent opportunity to hedge June and August cattle at prices higher than currently posted.

Market reaction to recent terrorists events in the world have shown us that long traders exit the market setting the futures market into a downtrend. We feel that producers would be well advised to buy price insurance in the form of put options on all cattle being fed regardless of time or price. That way, should an unexpected violent price move occur because of a world event, you are protected from the downside over reaction.

Retail beef prices at $3.378 are on the rise, but are still below the all time high of $3.477 posted in June 2001. We believe beef retail prices will increase further but competitive meats at much lower price levels could keep beef retail prices at levels less than seen in 2001. What the cattle industry does not need is sticker shock to set in at the retail meat case and decrease beef demand. The cattle industry needs retail price to stay at levels that encourages demand and hopefully that will happen.

The corn market appears to be carving out a "base" and we think that should the market break out to the upside, a rally into the $2.60 to $2.70 area between now and July is likely. We would suggest that producers consider buying May or July corn calls to offset the higher feed costs should they occur. Increased usage from the ethanol industry and a shortened supply from last year's drought are supporting the corn market. The USDA, in their monthly supply and demand reports does not seem to be giving consideration as to just how large this new demand will be by the end of this crop year and beyond. Increased ethanol production is an exciting additional use for corn that is not being given the attention it deserves in the marketplace either. The US is using more corn for ethanol production than it exports yet more attention is given exports. We believe this new demand could propel corn prices higher as the market realizes the true effect ethanol production has on domestic corn demand.

In general, many markets are moving to extremes such as the energies, cocoa, sugar and financials. It seems to us that over the last few years, the markets are over reacting violently to oversupply, shortages and rumors. This increased volatility provides opportunities as well as difficulties. We suggest that producers plan market strategies that help reduce risk in this very nervous environment. ©

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 .