The average trade estimates for the August cattle on feed report are 92.7 percent on feed, 91.6 percent placed and 108.4 percent marketed. If these guesses are close that would mean the fewest cattle on feed since 1999 and the lowest placements since 1996. Marketed at 108 percent would be huge and a record and we question whether it will be that high. Regardless, the trade expects and the trend of previous on feed reports indicates fewer cattle in the fourth quarter, which should encourage prices higher. We would anticipate that sometime in the fourth quarter cash price will trade in the $70's should placements continue to be smaller than a year ago. The USDA projects average price for the fourth quarter in a range from $69 to $73.

Lower placements however, may be met with increased cattle and beef imports from Canada and Mexico. We worry that tightness in domestic supply will be met with increased imports. It may be that packers find that imports can be useful to keep domestic prices lower than they should be just as captive supplies have done.

Other than the drought stricken pastures, the big news this month is rising grain prices. We've watched the December corn rally from the low in May to the most recent high in August almost 70 cents based on planting difficulty in the spring and drought conditions this summer. The USDA shocked the trade with their August corn production estimate of 8.9 billion bushels that ignited the next leg of this bull market. What this means to cattle producers maybe short-term bearishness and long term bullishness. When corn price gets high, cattle producers start to pay attention. Instead of packing on a few more pounds hoping for dollar higher bids next week, producers tend to sell cattle quickly and keep showlists current. This shift tends to increase slaughter temporarily, which takes away from available cattle later. Also when corn price is high, feeder cattle tend to stay on grass longer and away from expensive corn. Few cattle in feedlots means fewer available supplies of slaughter ready cattle. The flip side of this coin is the ongoing drought has pasture in short supply and the prospects of plentiful wheat pasture at this point are questionable - which may force feeders into feedlots despite the expensive corn. Higher corn prices have bullish implications for cattle as it all adds up to the possibility of increased supplies near term and shortened supplies long-term.

We have been advising producers for months that they should buy put options on all cattle being fed and buy corn call options to cover feed needs. We stand by that advice and if you have done nothing to date, we would suggest you consider catching up. The corn market may go higher than anyone imagines simply because bull markets tend to go higher than necessary. That aside we were amazed that after the supply and demand report came out, analysts were predicting tighter supplies yet in the September report. In our opinion, the grain bull market is about to take on a life of its own - buy those call options. ©