Two weeks ago, the average was USD$94.44 cwt, an increase of USD$3.32 over the previous week. Translation: Prices for cattle in the cash market are climbing fast and they will most likely continue to do so. Demand is the driver. As more countries reopen their markets to U.S. beef, demand will increase. Meat packer margins are hovering at break-even levels. Right now, tight cattle market supplies and plentiful inexpensive feed will likely result in a firming up of the cattle price. This holds true especially for cattle producers and feedlot operators.

Then, of course, there’s avian flu. If one case of bird flu migrates to the United States and infects one person, people will swear off poultry and head right to the meat aisle in the supermarket. In reality bird flu is not actually spread by eating poultry, but often in trading perception is reality and just the threat of bird flu is enough to get the general public to shun poultry. Even though eating it isn’t the cause of the illness, the general public won’t differentiate. And who would want to bite into a chicken of death when they could opt for a nice juicy steak?

What mad cow? Typically, market participants have a short memory, so it’s important to act on fear while it’s still in full swing. The cattle and meat markets in general are the butt of many jokes in the investment world - Hillary Clinton’s infamous cattle market trade comes to mind, as does the aforementioned question about pork bellies. Truth be told, the meats are a good agricultural market with solid fundamentals and can be a great learning market for the novice trader - just make sure no one knows you’re a novice.

In 2006 I carried October live cattle positions and made some very good profits on the 86 call options, and later on the 88 call options. The cattle market is a volatile one and relatively illiquid, so it can be a difficult market if you’re just starting out. You may want to avoid it until you get some experience.

Source: Daily Reckoning