What I expect to happen is a sudden, crazy, massive seismic explosion in the price of beef happening once A) adequate rains soak the plains, B) So much herd liquidation occurs that it can happen no more.
I expect the shape of the chart on this to be a long plateau we presently have, meeting a cliff upwards, followed by a long plateau. I expect the cliff phase to last about a month or two. I expect it to be too violent to join unless you are already in. The longer the drought persists the higher the cliff will go.
Meat is the only commodity I can think of that during a supply collapse observes a price decline. We are eating the seed-stock and have for a long time.
Over most of my lifetime (40 years) one 5 weight angus steer bought at least two acres of central SD pasture land. In that same time frame stocking rates (pasture efficiency) remained identical. The same acres stock the same herd. Today it takes 3 such steers to buy one such acre of grass. It takes less big-round bales of prairie hay than ever in history to buy one steer. Every other commodity rose a bunch the past decade, beef is the laggard because we are slaughtering cows fast enough to supply demand.
Here's some food for thought, during then2008 credit crunch/liquidity trap, every commodity I can think of saw it's price collapse.... Except one. Buffalo quadrupled in price during the credit freeze. From 2001 to 2007 the West (where ALL buffalo are grown) had a drought. It was brown for 6 years. In 2008 it rained and the bison herd was decimated.
The beef consumer will be the 1%. Life is going to be harder for the rest of the people. Just the way it is.
Because I expect the beef price surge to be sudden and violent, I will buy call options 6 months out the day i sell calves, which is about March 1. I calve in the fall and my doggies are 325 lbs, black-baldy, and roughing it on cornstalks. I expect dryness to remain the theme and calf prices to remain crap through then. I expect the inevitable to happen by Sept.
I must buy another 200 cows before June 2014 for some grass I have then and I expect to get raped as I buy those 200 head because I expect liquidation to finally end. I prefer to not get raped. Thus I'm thankful the futures market is a tool for me to manage that risk.
I expect the govt will use the CFTC to regulate the futures exchanges out of existence when commodity scarcity has folks living in poverty. I hope that don't happen before I really need this critical tool.
Oh, and the other commodity that didn't crash.....tomatoes.
You do have your backup plan. And it is a good one, you are buying calls. You know your risk. What happens if they expire worthless, do you let it go or buy again?
Your charts didn't go back far enough to show the ethanol price drop at the end of the BTC. I will try to post it later.
Probably. Depends on the weather pattern I spose. That's about a year out so tough to say. In general when it comes to re-owning bushels I like calls. Sure they normally expire worthless and the exception is when you have a sudden price surge.... But isn't that the only scenario when you care about the post-physical-sale price action? I mean, who cares about a slow moving market after you dumped physical? Honestly there are more important things to attend to.
You are right on your last sentence. Well may be the whole post but the last sentence is what I wish to address. I made money on hogs puts over the year and I also lost money. In the end it came out about a wash. The trouble always was that as you got near expiration or deliveries the futures price and the cash price seemed to move in opposite directions. That is why I quit messing with futures, you got killed on basis. Probably even worse today because of volume. You're not "gaming" with fellow producers, you're in the house with the sharks.
I drop in Ethanol futures and the BTC tax credit happen more as Z rolled to F . Dec 1st E traded 2.55 as F became the front month it traded to 2.05 in the same period of time corn was FLAT in about the 5.85-90 range. Ethanol futures pretty much mirror corn futures EXCEPT as the BTC went off line...
The thing is with re-owning any grains right now,,,is your fighting the long term proven history of the "Short Crop,,,Long Tail"...........