Is Now The Time For LRP (part 1)

When prices reach an extreme, our human nature kicks in.  Fear and Greed drives any market, and when it comes to the markets, it usually drives us to the wrong conclusions.  Large speculators know this, and use this against us.

I have been asked a few times lately about hedging cattle.  I have always promoted hedging cattle, but not at bottoms.  The problem is that when prices are high, most farmers don't wish to spend the money to hedge because everything is fine.  Their greed kicks in because prices are expected to remain high forever.  When prices look like they are going to zero, everybody wants to know how to put in a floor.  I doubt I would be having conversations about hedging cattle if farmers were not feeling bearish.  THAT is a good sign that a bottom is in!

EVERY strong rally comes when sentiment reaches extreme levels, and cattle are at an extreme.  The chart below shows we have extreme bearish levels.  Insurance is easier for me to sell to people when there is extreme bearish sentiment.......when the blue line on the sub-graph is below the green dotted line on the chart below.  I can hardly give it away when the blue line is above the red dotted line, and that is when everybody needs to be buying this protection.

Hedging cattle with prices stretched this far below the 200 day moving average and sentiment this low is not managing risk.  It could be locking in a loss, but it is definitely limiting the upside.