The issue of BSE testing of some cattle or “all” cattle seems to be in the news daily. A US delegation is being sent to Japan next week most likely to convince the Japanese that testing of all cattle slaughtered is unnecessary. It appears that the US is becoming more active in getting this issue resolved so that exports can resume and imports from Canada can begin again. It would be negative price if the Canadian border were opened before the export issues are resolved. Many in the marketplace are suggesting that imports of Canadian cattle will begin in May or early June.

The next cattle on feed report is expected to be bullish with the report showing 107 percent marketed and only 95 percent placed. Cattle on feed are estimated at 102 percent from a year ago. The battle between feedlots and packers to establish cash price has been interesting to watch over the last few weeks. Packers are apparently short bought but are trying to appear otherwise. However, it seems packers may have lost the large captive supplies they’ve been able to garner in the past and have less leverage to influence the cash market. This market has undoubtedly responded to lack of Canadian supplies, fewer captive supplies and improved domestic demand.

The question becomes, “Can we maintain these price levels into the summer.” As pointed out above, if the Canadian border opens before the export issues are resolved, a price decline would be inevitable. Should the export issues be resolved at the same time that the Canadian border is opened, the price decline would probably be less severe. In either case, the market will probably react negatively to the news because it seems that if there is any hint of extra supplies, the market sells off.

Should the border remain closed however, we could see prices staying firm until the issues are resolved. The Japanese so far have shown that they are resolute on the issue that the US test all cattle being slaughtered and exported to them. If they continue to demand 100 percent testing, the export door to Japan will remain closed.

We continue to suggest that cattle producers buy put options on all cattle in inventory. Cattle producers will be very lucky if prices do not collapse when the Canadian border opens. The best protection would be price insurance in the form of put options. That way if price falls, you are protected. If price increases, your risk is the option premium plus commission costs.

Feed costs are on the rise. Estimates are that the US needs an additional two million acres of corn to meet the demand during the next crop year. Part of the bull market rally is an attempt to buy those acres away from soybeans. But, whatever the reason, corn price is probably headed higher into late spring or early summer. We suggest cattle producers cover feed costs by buying corn call options on all cattle being fed. ©
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