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by Luke Schwieterman, President of Schwieterman, Inc.
The situation involving Canada and BSE has been the concern of the market since May. The border closing between Canada and the US has devastated the Canadian cattle industry. We've heard of cash cattle prices in Canada as low as $25.00. Japan and South Korea have not caved into pressure from Canada to allow resumption of beef exports either directly or indirectly (via the US). In fact, Japan and South Korea gave the US until September 1 to guarantee that beef exports to them would not contain Canadian beef.
The markets nowadays are different from those of the past. It seems to us that events tend to cause large reactions in the markets.
That incident set the industry back. We believe that many in Canada and the US thought business would return back to normal after Canada made some effort into finding additional infections. However, Japan and South Korea do not appear to be satisfied with either the US or Canadian efforts and reassurances.
What amazes us is how the markets have reacted. The conventional wisdom was that cash cattle prices would go up because of the shortage of supply and wholesale and retail prices would probably rise higher yet. Only half of the conventional wisdom has become evident. Wholesale and retail prices have reached all time record highs yet cash cattle are selling for $75! Granted slaughter weights have dropped dramatically and feedyards are staying current which has "filled" in the Canadian beef and cattle import gap. The question now becomes "What happens when the border is opened?" Current conventional wisdom seems to be that cattle prices will drop. We have to wonder though since cash prices were not necessarily supported during the shortage of supply when this debacle began. We hope that the US listens to its export customers and satisfies their demands. All to often, US industries attempt to muscle their foreign customers into something they don't want (i.e. starlink corn) only to find out later that they (the customers) have all the power they need to get what they want. Lately there has been some discussion about a partial lifting of the ban on Canadian beef and cattle. We're not very confident that Japan or South Korea will buy into a backdoor effort to open the border. Supposedly the US would import only minimal risk meats. We are of the opinion that we don't need any meat that carries a "risk." From a market stand point we are concerned with the downside risk of the unknown and suggest producers buy put options on all production. The markets nowadays are different from those of the past. It seems to us that events tend to cause large reactions in the markets and producers should protect themselves. The most recent supply and demand in grains indicate additional production and increased use. The futures market has nearly taken all of the weather premium out of the market and maybe close to a bottom. We would suggest buying December corn call options should December futures trade below $2.10. There is a lot of weather in front of us before this crop is harvested. 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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