The Cattleman’s Advisory 9/30

This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on October 03, 2016.

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Weekly Cattle Commentary 9/30/2016

John’s Thoughts

Cash sales this week ranged from 104$ early to 100$ Friday. Dressed prices Friday look to be 160$. Basis appears to be 1$ over October futures.

Seasonally the cash market generally starts to work higher through the cooler months.

Commentary contributed by John Payne.

October Live set new yearly lows below the psychological 100$ level and supporting trend line. The charts all point lower. I fundamentally don’t understand this market being this weak, with the profit margin for the packer and retailer being what it is. Clearly this is an issue of leverage, and the feeder has none.

Feeder Cattle have a minor seasonal bottom the first part of October. All indicators point to a slug of calves yet to be sold in October and November. On a positive note, futures will build this into the market before the calves start to show up. Feeders do not have a chance until Live finds a bottom.

Technically

October feeders never penetrated the down trend line and failed the bottom side of the channel I mentioned last week. In the process, they canceled the key reversal from early September and closed at new yearly lows on Friday. The charts all point towards another significant leg lower.

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.

Moving averages are negative.

Stochastics gave a new sell signal.

Downside Targets (October)

2011 low of 121.375

Topside Targets

Top of the channel at 134.20

The nearest top side resistance sits at 140.32

Hedging Strategy

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 working orders to take profit on the 132 Oct puts and buy November puts. That recommendation is based on rolling down at a 1:4 ratio.

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, but I am going to be more passive, looking for 1:6 at a minimum.

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 9/30/2016

December 2016 Corn chart sourced from RJO Vantage 10/3/2016

October Live chart sourced from RJO Vantage 9/30/2016

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)