INTL FCStone Financial Inc. – FCM Division shared their latest economic figures and projections with members of the Montana Farm Bureau during its Keeping the Montana Farm Profitable in 2020 – Market Outlook & Educational Webinar. The webinar featured INTL FCStone market experts who talked about price risk management tools and how to start thinking more strategically about crop and livestock marketing including knowing when your operation is profitable, where it is, and how to protect it.
Matt Snell, senior risk manager, INTL FCStone Financial Inc. – FCM Division, said, “Nobody has ever seen stranger trade than with the recent trade in feeder and live cattle markets. Eighty to ninety-percent of the cattle market is controlled by speculators and there has been a massive downturn in prices. The one positive thing about these algorithm traders is they provide liquidity. On the other hand, they move markets more in one direction or another where they should.”
Boxed beef is being bought low but sold high, and there is heavy demand at the grocery store. When the meat packing plants started to close because of COVID-19, it brought prices to their lowest level.
“The meat packing plants had no other option than to close shop because of their workers becoming sick. When livestock producers saw this happening, they started rapidly culling their herds which meant there was a large kill. Remember about supply and demand—that meant live and feeder cattle contract futures were brought to their contract lows and beyond.”
Snell noted that packers bought cattle on the futures contract board for very low prices and sold that product to stores at an incredible markup. “We saw this margin go like it never has before but we have also seen that demand at the grocery stores has really bumped this up.
“We are starting to see prices correct off their lows. We are going to see a little bit of a pop and get back to averages given that going forward, we are going to see a beef shortage. Prices should gravitate more towards the upside,” Snell said. “As risk managers, we don’t speculate on where the price is going. We do believe that if we see upward trend it will be towards the end of 2020 and into 2021.”
As for wheat prices, Snell noted that with the U.S. dollar and hearty wheat supplies worldwide, the U.S. is pricing themselves out of the global market. “However, there have been less crops acres for spring and winter wheat planted, and we don’t know what’s going to happen with demand in the United States and Canada.”
He added that it’s important to look at the risk management information. “Don’t just wait for prices to go higher. Right now, the markets are giving you an incentive to store your grain.”
Rich Jelinek, vice president - global education, INTL FCStone Financial Inc. – FCM Division, noted that success favors those who are prepared and willing to change. “Always keep your eyes and ears open to learning new methods of price risk management,” he noted. “Volatility can be considered the measure of market risk. What comes with risk is reward.”
Jelinek said it’s important to know the price and basis, explaining that the “local cash basis” is your cash market price relative to futures. “There are four markets to manage your price risk including Futures, Cash, Options and Over-the-Counter (OTC). First, accept the fact that you have market risk exposure. Then learn all of the risk management alternatives, including how to evaluate and compare them. With this information, you will be prepared to choose the best alternatives that meets your needs in the current market environment.”
INTL FCStone is a new membership benefit for Montana Farm Bureau members. For more information, visit https://www.fb.org/programs/fcstone.
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