The Cattleman’s Advisory 8/05

This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on August 08, 2016.

---

Weekly Cattle Commentary 8/05/2016

Fundamental commentary contributed by John Payne (jpayne@danielstrading.com) will continue next week.

Cash sales took place between 118 early in Texas and Kansas, to 120$ late in Colorado. That puts cash 2.5$ over August futures and 5$ over October futures. It will be interesting to see if the Futures market is willing to bet cash is going to continue to improve, or that it simply was not willing to bet that cash was going to continue to weaken. The narrowing basis suggests it is at least the later. The week ending July 23rd showed carcass weights holding at 880#, 4# below last year’s weights.

August Live Cattle had a great week. Technically the chart looks great, but it is also evident that August live has a lot of resistance stacked above the market. Starting with 119 and 120. Closing above the trend line around 117 and the 50 day Moving Average was a good start. Quite honestly, this is where the technical indicators abandon me. I need more information to determine if a solid up trend can be developed, or the market simply wasn’t comfortable with the historically large negative basis. I do know that Put options seem like an awful good idea right here, and hope they are a waste of money.

We rolled August puts up and out to September (based on October) and October.

Feeder Cattle have very little seasonal upside left to them. Feeders are moving counter seasonal. It is unknown if feeders will continue counter seasonally as that indicator turns negative this month (rally when they normally decline). I am more skeptical of the rally in feeders as the buyers of feeder cattle have not recouped their losses from past purchases. That is not the case in Live cattle as Packers have been profitable for some time now.

Technically

August Feeders
August feeders also had a great week, closing just short of the high for the week on Friday. Monday aggressively closed through the 50 day moving average, and Wednesday saw the same for the 100 day Moving average. I would advise caution going forward as the market is overbought and due for at least a correction. The technical impediments at 152 look quite intimidating with the 200 day moving average, May 152 resistance, and a 61.8% Fibonacci retracement for the year all commencing on this point.

Short term trend is Positive.

Moving averages are mildly positive with the 10 day over the 50 day.

Stochastics are still giving a buy, but are close to crossing over to a sell.

Down Side Targets

Support at 139.2

The yearly low of 134.125

Topside Targets

The nearest top side resistance sits at 152.20

Hedging Strategy

In June Superior Video had Montana’s first big auction sale for fall delivery calves. The cash basis was much weaker than I was expecting or hoping for, coming in at about plus 4$ to plus $6 on a 625lb calf. The basis appeared to weaken some more last week. Probably not to surprising giving that it is August and the 10$ rally in futures.

For aggressive hedgers we rolled 144 August puts up this week, spending 1$ and staying in August. The bulk of the rest of our clients used this opportunity to roll out into September or October.

Some of our clients and myself re-owned 2016 sold production with August calls. As August calls are nearing expiration, I was forced to aggressively protect profit in those positions, and with the market at 148 I recommended a “sell stop” to short futures at 147.5. Unfortunately, the stops were hit before the market rallied to 150. Presently I have .35$ of time value in the 141 calls at risk and have decided to let the position ride (long 141 calls and short 147.5 futures). This position is marginable and now functions as a synthetic put. I am cautiously looking for a signal to roll the calls up to increase the effectiveness of the position, but have not done so as of yet.

Contact one of the Daniels Trading brokers below for ideas on where to initiate hedges if your 2016 production is not already covered, or to transfer risk out of the cash and into calls.

August 2016 Feeder chart sourced from RJO Vantage 8/5/2016

September 2016 Corn chart sourced from RJO Vantage 8/5/2016

August Live chart sourced from RJO Vantage 8/5/2016

For more information or to sign up for current updates contact:

• Donna Hughes (dhughes@danielstrading.com)
• Kirk Donsbach (kdonsbach@danielstrading.com)
• John Payne (jpayne@danielstrading.com)