I am thankful that I had the foresight to buy the APR13 134 Live Cattle puts back in late-November of last year. These were financed by selling the 140 calls and have been a huge life saver. With the APR13 contract set to expire next Tuesday, I am now left with another round of decisions, just like you. Do I simply bank the profits and try my luck going uncovered or simply with no protection in place, or do I roll my shorts out into the June or August contracts??? My fear is the "cash market," because of the historical weakness often seen in the basis moving forward, may suffer much greater downside risk than the June or August live cattle contracts on the board. I would absolutely hate to see flat-price rally while the basis weakens. If I had hedges on the board, I would not be able to realize the benefits of the flat-price rally while at the same time being fully exposed to the downside risk associated with a weakening basis. With the board seeming as if it has less downside risk than the cash market I am thinking it is going to be smarter to simply market the cash cattle and look for some limited-risk bullish strategy to re-own the board. Bottom-line, be smart, take advantage of the seasonal strength in the basis, bank your hedge profits...and jump to another ship. Below are a couple of highlights from yesterday's USDA "Livestock Slaughter Annual Summary."
Total red meat production for the United States totaled 49.6 billion pounds in 2012, slightly higher than the previous year. Red meat includes beef, veal, pork, and lamb and mutton.
Beef production totaled 26.0 billion pounds, down 1 percent from the previous year. Veal production totaled 125 million pounds, down 8 percent from last year. Pork production, at 23.3 billion pounds, was 2 percent above the previous year. Lamb and mutton production totaled 161 million pounds, up 5 percent from 2011.
Commercial cattle slaughter during 2012 totaled 33.0 million head, down 3 percent from 2011.
The average live weight was 1,302 pounds, up 25 pounds from a year ago. Steers comprised 49.8 percent of the total federally inspected cattle slaughter, heifers 28.6 percent, dairy cows 9.6 percent, other cows 10.3 percent, and bulls 1.7 percent.
Commercial calf slaughter totaled 772,100 head, 9 percent lower than a year ago. The average live weight was 260 pounds, down 3 pounds from a year earlier.
Commercial hog slaughter totaled 113.2 million head, 2 percent higher than 2011.
The average live weight was unchanged from last year, at 275 pounds.
There were 806 plants slaughtering under federal inspection on January 1, 2013 compared with 867 last year. Of these, 627 plants slaughtered at least one head of cattle during 2012 with the 14 largest plants slaughtering 55 percent of the total cattle killed.
Nebraska, Iowa, Kansas, and Texas accounted for 49% percent of the United States commercial red meat production in 2012, similar to 2011.
Follow the link to receive my free daily report.