This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on September 19, 2016.
Weekly Cattle Commentary 9/16/2016
I’ve been following these markets for the last decade. Picking trend changes in especially difficult but I have found that changes come from two different ways. 1) Around major reports and 2) at the end of fiscal quarters. Both of those are upon us this week as Q3 2016 wraps up just as we get cattle on feed on Friday. Am I hopeful we will get data to adjust this? I would be surprised if we get it in this report but there is a chance. Front month cattle started quarter around 115 (Aug) and is trading at 107 for Oct delivery. It feels like this Q has been way worse than down 7% but the numbers are what they are. Speculative length does exist in the live cattle while its nonexistent in Feeders. Based off the high prices folks are paying for calves, I would bet feeders catch some wind here after fall deliveries and folks reinvest what they are selling on the fat side.
Commentary contributed by John Payne.
Friday cash sales topped out at 110 live and 170 dressed. That puts cash about 2$ over October futures closing price. I understand some sellers even turned down 110. We will see Monday if they were able to do any better over the weekend. The week ending Sept 2nd showed carcass weights up 2# at 898#, 16# below last year’s weights.
Seasonally the cash market generally starts to work higher through the cooler months.
October Live had pretty significant follow through strength following last week’s weekly reversal. Major bottoms are often marked by a reversal of some sort, but not all reversals are major bottoms. For now, I would consider the psychological 100$ level and supporting trend line to have been defended by the bulls. Relative to the charts, I like this markets chances to get to the 114.5 area where we run into the top of the channel and the 200 day moving average. What happens there will determine if the worst is behind us or not.
Feeder Cattle have a minor seasonal bottom the first part of October. September, October and November feeders put in reversals two weeks ago, with very moderate follow through this week.
September feeders chalked up a bare minimum extension higher following the reversal. Unlike Live cattle, feeders have not been able to penetrate the downward sloping short term trend line. It is not surprising that feeders are lagging live cattle as every instance of bullish optimism in live cattle has been followed by new life of contract lows. However, if Live can continue to build optimism that this time the low “really” is in, feeders will surely follow. Even if the feeder rally is somewhat lethargic.
With the losses in Feeder Country over the past year or two, one should not be surprised to see the feeder/live spread narrowing.
Short term trend is negative (feeders, bullish in live cattle).
Moving averages are negative, but the 10 day is turning up.
Stochastics gave a buy signal.
Down Side Targets (September)
The yearly low of 129.875
2011 low (September contract) of 121.375
Downward sloping trend line at 137 (approx)
The nearest top side resistance sits at 143.375
We aggressively rolled down Oct puts to 132, most of them close to a 1:2 ratio. In doing so, we gave up a little protection but financed, or came close to financing the October hedge. We will be watching for opportunities to roll the 132s higher if given the chance. Ratio’s will be 1:4 or 1:5, regaining the protection we gave up.
For long hedges we recommended placing orders above Mondays high (8/29 – 133.1 Nov) to buy Nov out of the money calls. Tuesday (8/30) our trigger was hit and I hedged a future bred heifer purchase with 138 Nov calls for 2.7$. With hindsight as our guide, that was obviously a little early. On 9/6 we added 1$ of hedge expense and rolled the 138 calls down to 134 calls. I am willing to roll them down again if I have to, but I probably would be more passive, looking for 1:5 or 1:6. Options are not about being perfect. They are about being close. If the momentum in Live cattle can continue to build, we will have been close enough.
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.
September Feeder chart sourced from RJO Vantage 9/16/2016
December 2016 Corn chart sourced from RJO Vantage 9/18/2016
October Live chart sourced from RJO Vantage 9/16/2016
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)
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.