Corn and soybean meal prices are near four year lows making feed prices less expensive for livestock producers.
However, are there also hedging opportunities on the futures board for cattle and hog producers?
Kent Beadle, Paradigm Futures, says for cattle producers prices are just off of record highs from a cash and futures perspective.
However, futures are well under cash which has made hedging and locking in a profit more difficult.
Yet Beadle says, “The cattle crush margins are actually quite good and obviously corn futures are very very cheap. They’re well underneath the cost of production and I believe that very very soon the industries that use corn as an input will start to buy.”
So he recommends cattle producers get their feed needs locked in.
Plus, feeder cattle prices have come down significantly he says. “So, I like locking in feeders and corn prices here and taking a look at that margin.”
He thinks there is still upside in cattle so he also suggests some sort of a fence to protect the downside with a put and sell a call above the market.
For hogs, Beadle says futures are also at a discount to the cash index but hog profit margins look different than cattle.
He says, “The hog crush is okay but not great. There’s really not margin being shown for October through February. April is okay, June has profitability but its not historically good profitability.”
Beadle still thinks the feed component of the crush margin should be locked in.
“If you don’t want to buy the futures, call are very inexpensive right now. And then you’re going to want to take a look at rallies and think about a similar strategy long put, short call giving yourself some upside,” he says.
