Beef is getting more expensive. The October feed lot placements came out in November and it was the lowest October on record (started keeping track in 1996). This is the second year that cattle worries have hit the market. In 2011 there was a horrible drought in the plains and southwest. Texas ranchers had to make a choice: import hay at a very high expense or to sell their cattle…they sold out. This pushed prices up because the future has less cattle in the feed yards. This year, the ranchers bought new cows and did not send them to the feed yards, and hence the low feed lot placements.
Below is a daily chart of February cattle with a 3, 21, and 65 day average. Notice back in November when the 3 period average broke above the both the 21 and 65 day average. It then came back and tested the averages in early December and now has risen on a stronger move. The second move up was confirmed with the 21 period average breaking above the 65 period average. Until cattle closes back below 130.50, it will remain strong. It will show a little weakness below 131.70, which may be a good buying area. You could sell the 131 puts that expire on 1/6/2013 for around 0.50 ($200 per contract), with expectation of a bounce if it gets there. Below 130.50, all bets are off. Good luck trading!
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