This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on Monday June 06, 2016.
Weekly Cattle Commentary 6/3/2016
Waking up this morning and seeing corn over 420 doesn’t create a bullish feeling for the open. If the correlations hold, cattle futures are going to have a difficult time gaining on the open this morning. I know this is a broken record but the strength in feed grains is baffling going into the July delivery contracts. Regardless, it makes a difficult to form a bullish story in Feeder cattle markets if the main ingredient to making feeder cattle bigger goes up 20% over a 7 week period. The fact that cash values and front month feeder contracts have maintained these levels is somewhat encouraging. Choice box beef cutouts remain above 220.00 while Select dropped below 200.00. The spread between the two is at 2 month highs.
A client of mine was involved in sales this weekend at the Joplin stockyards last week and he came away from the event pretty satisfied with the bids that were out there. He said some of the producers suffered from small amounts of sticker shock but in the end the 4500 head of cattle he had to move were sold at satisfactory prices to the feed yards. I expect the cash is the place to be in the feeder trade for the time being, futures are probably not going to reflect news like this until we get help from the USDA or cheaper grain prices over the short run.
Fundamental commentary contributed by John Payne (email@example.com)
Live Cattle: I still am hopeful that the market will make a run at the March highs before the spring beef market has concluded, but seasonally we are starting to run out of time. The market is trying to decide if the rally off of the contract lows is corrective, or the establishment of a bottom and the start of something bigger. The market achieved last week’s goals of back filling the gap and closing through the top of the old channel, but not convincingly yet. With June at 122 we are below resistance at 124 and above support at 116. Seasonally we have a small window of bullish bias left before the market seasonally weakens prior to the end of June. All and all, that leaves me very much still neutral and waiting for the market to choose the next path. We let the 119 June puts expire worthless, hoping to make sales (Friday reported 128 to 132) taking advantage of the positive basis plus remaining profits from the original 126 puts. Depending on the timing of cash sales it may be wise to have June sell stops under the market to protect against an unexpected failure of June futures. Hopefully they will not get filled.
Feeder Cattle have a good amount of seasonal upside left to them (June-technically out to August but in my opinion less reliable after the 4th of July). That’s relative to time, not necessarily to price. As of today, Feeders appear to be moving counter seasonal, but time will tell.
August Feeders: Monday August feeders completed the task of filling the gap left on the break out lower. Unfortunately, they could not close above the wedge apex to cancel the sell signal, or push through the 50 day moving average. The 50 day Moving average that initially turned the rally off the April lows, still remains unchallenged. Given the weak emotional state of the cattle market, any weakness in the upward trend will allow time for doubt to develop and the bears to retake the initiative. Technically and seasonally, there is a solid argument that Feeders have established the spring lows, with beef’s best months directly in front of us. At this time the market has not confirmed that, but establishing an up-trend line and penetrating top side resistance at 152 would certainly add credibility. The first baby step in establishing a yearly low would be rejecting a challenge of that low. In the coming days it will be extremely important for the bulls to take a stand, defending the yearly lows and pushing the market up and through the weight of the technical resistance sitting over the market. Mr. Payne feels that the corn market may ultimately decide the feeder market’s fate. That logic appears to fit the pattern the feeder charts are displaying.
Short term trend is neutral.
Moving averages are marginally negative.
Down Side Targets (May)
First support at 140
138.575 is the yearly low established 4/29/2016
The next level of support sits in the low 130s, established in 2012 and 2013.
Topside Targets (August)
Given the extent of the selloff from resistance at 164, our first goal will be to get back to minor resistance at 156 and then major resistance at 164.
We can now add another level of resistance at 152.
Adding layers of resistance over the top of the market is not bullish.
In the Money May hedges were exercised at expiration on May 26
We recommended purchasing August puts on a downside breakout of the wedge. Unfortunately, we gapped out of the wedge and our fill was not as good as one would hope. I ended up buying 141 August puts for 5$ on the open Monday (5/23). On 5/31 we rolled 141 puts up to 144 puts, utilizing the aggressive 1:3 ratio mentioned last week. I am also in the process of trying to forward contract my 2016 production for October delivery. I have not had any luck so far. I will now leverage the protection offered from the 144 puts to wait and see which way the market decides to break. If it breaks higher I will be looking to forward contract if possible, and if not rolling puts up at 1:5 or 1:6 ratios. If it breaks lower, we will let the puts work.
Of note, my initial goal was to obtain 144 puts for $5 on the break out lower. At the end of the day, I ended up with 144 puts for a combined $6.05.
Contact one of the listed Daniels Trading brokers below for ideas on where to initiate hedges if your 2016 production is not already covered .
August Feeder chart sourced from Futures Source as of 6/6/2016
June Live chart sourced from Futures Source as of 6/6/2016
For more information or to sign up for current updates contact:
- Donna Hughes (firstname.lastname@example.org)
- Kirk Donsbach (email@example.com)
- John Payne (firstname.lastname@example.org)
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