Livestock Prices Dont "have" to do anything

Discussion in 'Commodity Futures' started by Brandonf, Jun 17, 2008.

  1. Brandonf

    Brandonf ET Sponsor

    I keep reading about how livestock prices have to go up even more because its getting more and more expensive for farmers to feed their chickens, their pigs, cattle etc. Farmers are losing about 75 cents to $2.00 on poultry, and about $40 to $70 per head of hog. I dont know any cattle farmers so I dont know how they are doing, but I'd assume they are losing as well. Anyway, lately I keep seeing people writting about how the prices of meat has to go higher because farmers wont take the current prices. This is BS and a misunderstanding of the economics farmers work under. These people assume farrmers make price, when the opposite is true. Farmers are first of all the worst speculators in the world, they almost always end up piling up at exactly the worst time, but most important...FARMERS ARE PRICE TAKERS, NOT PRICE MAKERS.
  2. bighog

    bighog Guest

    Farmers are producers. Supply and demand determines price. Farmers are NOT speculators. If the farmers costs of production gets high enough where they can not make a profit on the product produced then they lower the production and costs will indeed rise as long as the demand is there.

    You do not understand the production cycles of meats. Just like you said you do not know any farmers. get out once in awhile and smell the roses (or in this case some cowshit) and quit badmouthing a wonderful group of people that you know nothing about by your own admission.

  3. good call.

    I know some ranchers that are doing phenomenolly right now despite feed cost. Also farmers are going to make alot of money on crops such as hay, sunflowers, beans, corn and wheat. A huge wheat farmer in my area contracted about 200 k bushels of wheat at 9.50. so he will do alright.
  4. Brandonf

    Brandonf ET Sponsor

    My entire family is made up of farmers. I grew up on a farm. I dont know any cattle farmers, lots of other farmers. As far as farmers being speculators, I may have stated it incorrectly..but what I mean is that they have a tendancy to get in and out at the wrong time. They will expand their hog operations right near the top of prices, or they will plant a lot of corn acres right near the top of that cycle and be in trouble for it later. I'm not blamming farmers for anything at all, far from it. I'm simply saying farmers dont make the price, they take the price that is given to them. The notion that they will just take everything off the market all of the sudden and prices will skyrocket or dive is silly, its a cycle that takes some time.
  5. ahh thank you for clarifying, i definitely agree with your last post a little more. Farming and ranchingare very very cyclical, But hey what isn't?
  6. Does anyone actually trade cows here? Whats the difference between feeders ( baby cows ) and Live cattle futures--- shouldnt they be the same price? if they are different, arb situation will exist to exploit. what could be easier?? seems like a super super easy market to make a fortune trading--unsophisticated traders, farmers and nice trends. Gotta get over the inherent meanness of the market-- killing cows for gods sake, and PROFITIGN from death--but as traders we shouldnt care about that--its all about the benjamins. But just look into that cows eyes, very cute. just gotta get over the "death for profit" and this market is wide open.

    The billions and billions of Hamburgers served by the McDonald's burger empire, the millions of steaks that will be grilled during the upcoming July 4th celebration and the various forms of beef found in your local supermarket all have one thing in common: it was all once part of a live cow.

    Beef is a staple of the American diet and a commodity that savvy traders can use to profit. Beef in the form of live cattle futures has been actively traded on the CME since 1964.

    Cattle is broken into two forms for trading purposes, Feeder Cattle and Live Cattle.

    Feeder Cattle are the young cows in feed yards being fattened up in preparation for slaughter. Feeder Cattle Futures are a derivative of Live Cattle Futures which are the focus of this article.

    Let's first go over the basic facts about Live Cattle Futures then talk about why right now appears to be a good time for traders to take a look at this often overlooked commodity.

    Live Cattle Futures are traded on the CME in units of 40,000 pounds with the symbol LE on GLOBEX and LC ticker. The futures are listed in the 9-month even cycle of February, April, June, August, October, and December. The minimum price move or contract tick is .00025/pound or $10.00 per contract. The CME imposes a daily price limit of .030/pound or $1200.00/contract governed by exchange rule 1502A. The price limits are the same on the floor and GLOBEX trading. Here is a snapshot of the trading book for Live Cattle from the CME:

    Cattle feed on grains primarily. Therefore, there is a direct correlation between grain prices and cattle prices. The higher grain prices go, the higher cattle prices will follow.

    As you can see from the chart, Live Cattle Futures hit a high earlier in the month, right when the RSI moved into overbought territory.

    Price has pulled back off of this high, and appears to be consolidating........
  7. Isn't that how tops are formed -- when farmers in aggregate start to increase production or prospects for future production?
  8. J-Law


    Is anyone famailar with what is going on in hogs lately?

    I understand that the 2 front months Aug & Oct are trading at a discount to cash or the cash hog index and running up, while Dec 08 thru Aug 09 are getting sold off.

    You guys mentioned cycles and how they play out in the Ags. Does anyone know are we in the cycle w/ hogs and is this year different from years past?
  9. im so tempted to sell front month piggies right here this area has killed demand several times look at a chart of aug hogs sorry i dont have one
  10. Keep in mind that bean meal and corn are mainstays in swine diets. You can't run pigs out in an open pasture and expect to
    get efficient feed conversion, large volumes, and good tasting meat. So the cost of producing hogs is tied extremely tight to what bean meal and corn are doing.

    Cattle can put on cost of gain by just eating grass. Granted, quality finishing of the beef involves feeding some grain, but farmers can "stretch" out the time on grass and alternative feeds to cheapen up the cost of gain, before putting the grain to them.

    I've never traded it, but you may want to consider looking at the red meat "crush spreads" for a play. Basically playing the profit margin of feeding livestock.

    Oh yeah, forgot one major thing....banks control farmers. Like right now, banks are trying to run from hog farmers (because hog farms have been bleeding red ink for two years) Give them some renewed prosperity though, and the banks will be ready to lend. Like you said....most likely at the wrong darn time (when the cycle is peaking).
    #10     Aug 12, 2008