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  • Cow Prices Start Seasonal Slump

    Cow Prices Start Seasonal Slump

    Fall is here and cow prices have begun to decline from their summer seasonal highs.  Cull cow prices in the Southern Plains that hit $64 mid-year have given back about 22 percent of that price as of last week.  Over the last five years, cow prices have declined by about one-third from mid-year to November.

    Cow prices normally decline this time of the year because culling picks up across the country.  Beef cow culling normally hits its annual peak in October-November each year.  This year, beef cow slaughter remains well above last year (up 10 percent), likely encouraged by drought in the West.  Dairy cow culling normally peaks in January-February and again late in the year.  Beef and dairy cow sales, increasing at the same time in the Fall, combine to force lower cull prices.

    A couple of good questions remain for the Fall.  Did the surge in beef cow culling over the Summer pull ahead cow slaughter so there are fewer to go to market this Fall?  Will high feed costs and struggling milk prices push more dairy cow culling?  A long-used strategy has been to buy cows (or keep some cows) at depressed prices in the Fall to take advantage of seasonal price increases the next Spring.  A smaller beef cow herd will likely support higher cow prices in 2022, but it will be important to consider high feed costs in this strategy.

    Anderson, David. “Cow Prices Start Seasonal Slump.” Southern Ag Today 1(42.2). October 12, 2021. Permalink

  • Cotton Prices Above 90th Percentile of the Historic Range

    Cotton Prices Above 90th Percentile of the Historic Range

    Since March 2020, cotton futures prices have climbed from below 50 cents per pound to north of 95 cents. The current outlook for cotton prices remains bullish; however, prices are currently above the 90th percentile (89.02 cents; Figure 1) of the historic price range going back to January 2000. Cotton producers may want to consider removing some additional price risk – depending on production costs, current price protection levels, and year-to-date sales. Over 83% (15.5 million bales) of 2021 US cotton production is projected, by USDA, to be exported. As such, prices will be reactive to events overseas that can be unpredictable but potentially have dramatic ramifications domestically (for example, recent events with Evergrande). To manage price risk, producers have a vast array of marketing tools — cash sales, futures, options, forward contracts, marketing pools, and the USDA Loan Program. The effectiveness of the marketing tools will vary based on current market conditions. 

    In addition to price risk, there is still substantial production risk for many US producers, which needs to be considered when factoring how much production to price and the marketing tool utilized to mitigate risk. One marketing tool that producers may want to consider is buying December or March put options to set a futures price floor. Using put options allows producers to participate in upward movements in cotton futures while establishing a price floor on the protected production. Additionally, put options define the potential loss (the amount of the put premium), do not have margin calls, and do not require the physical delivery of cotton. For example, on September 13, 2021, a December 2021 put option with a 94-cent strike price could be purchased for 4.63 cents to establish an 89.37 cent futures price floor or a March put option with a 93-cent strike price could be purchased for 6.69 cents to establish an 86.31 futures floor (always check futures and options markets for updated premiums for different strike prices). Both options would secure a futures price above the 85th percentile of the historic price range in Figure 1. More complex option strategies can be considered to offset premium cost. Producers need to understand the risks and rewards for all strategies so working with a qualified professional is recommended. Current prices will result in profitable outcomes for many cotton producers; as such removing some price risk or protecting against the downside should be strongly considered. 

    Figure 1. Monthly Nearby Cotton Futures Prices, January 2000 to August 2021

    Smith, Aaron. “Cotton Prices are Above the 90th Percentile of the Historic Range.” Southern Ag Today 1(42.1). October 11, 2021. Permalink