Lower cattle inventories early next year could see live cattle futures prices move to new all-time highs, especially if a weak U.S. dollar keeps beef exports robust. Some traders who are expecting higher prices for cattle next year may possibly wish to explore the purchase of a bull call spread in February live cattle futures.
The historic highs for live cattle futures may take a much needed pause this fall, as Labor Day holiday demand begins to wane and the large number of young cattle currently placed in feedlots finally comes to market. The most recent USDA Cattle on Feed report released this past Friday showed cattle placements increased by 22% from year ago levels. The reason for the sharp increase in young cattle placed in feedlots has to do with the severe drought in the Southern plains, which has devastated pasture land and forced producers to reduce the size of cattle herds by either moving lighter weight cattle to market or putting them in feedlots despite record high corn prices. This sets the stage for higher beef supplies this fall, as the cattle in feedlots comes to market but will result in much fewer head of cattle being available in 2012.