This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on September 26, 2016.
Weekly Cattle Commentary 9/23/2016
Cash sales this week ranged from 105$ to bids of 108 being passed after Fridays late rally. Dressed prices Friday look to be 166 to 168$. It is expected that significant trade will take place after reporting has concluded for the week. It is difficult to determine the basis on such a crazy day, but I would guess it about 1$ to 2$ over October futures.
Seasonally the cash market generally starts to work higher through the cooler months.
October Live had some significant selling pressure ahead of the Cattle on Feed Thursday and Friday, only to close higher on the day Friday. Most of the chatter on the internet is calling the COF “as expected” or neutral. For me, it confirms that the market is aggressively working through the (over?) supply of cattle. This, in addition to US beef being allowed to export to China is bullish. The question is, WHEN? For now, I 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 the first week of September, with very moderate follow through so far.
Unlike Live cattle, October feeders have not been able to penetrate and close above the 2 month old, downward sloping trend line. Fridays huge tail is constructive to the market sustaining above the yearly lows. The action over the past several weeks has developed into a channel working up against the down trend line. If the market can break out the top side of the channel, I would expect a nice pop in the feeder market. Live cattle and cash must not weaken to have a chance at upward movement.
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, but just barely.
Moving averages are negative, but the 10 day has turned up.
Stochastics are in a buy.
Down Side Targets (September)
The yearly low of 129.875
2011 low (September contract) of 121.375
Top of the channel at 134.20
The nearest top side resistance sits at 143.375.
We aggressively rolled down Oct puts to 132 some time ago, 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 and out to November if given the chance (if needed). We will start looking to make this move when/if the advance in futures will pay for the additional premium of rolling to November.
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.
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.
October Feeder chart sourced from RJO Vantage 9/23/2016
December 2016 Corn chart sourced from RJO Vantage 9/25/2016
October Live chart sourced from RJO Vantage 9/23/2016
For more information or to sign up for current updates contact:
- Donna Hughes (email@example.com)
- Kirk Donsbach (firstname.lastname@example.org)
- John Payne (email@example.com)
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.