This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on October 11, 2016.
Weekly Cattle Commentary 10/7/2016
Cash sales this week ranged from 102$ to 103.5$. Dressed prices Friday look to be 158 to 160$. Basis appears to be between even and 1$ over October futures.
The week ending Sept 24th showed steer carcass weights up 1# at 906#, 16# below last year’s weights.
Seasonally the cash market generally starts to work higher through the cooler months.
November Live set new yearly lows below the psychological 100$ level and supporting trend line Monday. Live cattle then spent the remainder of the week working higher, closing the week at the high end of the week’s trading range. The charts all point lower. Of course they always do in a market trying to find a bottom, until they don’t. Still waiting and hoping for now.
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.
The general consensus in the country is feeders will never stop going down and many of the cow/calf guys have given up on any type of rally. The contrarian in me recognizes this as one of the signs of being close to a bottom. The question is not if, but rather when.
November feeders penetrated the major down trend line on the charts Monday. As with Live, they spent the rest of the week trying to recover. Friday closed in the upper middle part of the weekly trading range. The charts point lower unless we can penetrate and close above the 2 month old aggressively negative down trend line. Looking for a bottom in here somewhere, but getting frustrated with the failed attempts.
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 buy signal.
Downside Targets (November)
2016 low of 118.10
2010 low of 106.6
Top of the down trend line at 124
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. Tuesday (10/4) we rolled the 132 Oct puts out to 121 – 122 Nov puts, with 2$s of hedge profits left over. We will be looking to spend this 2$ aggressively rolling the 121 – 122 Nov puts higher if given the chance.
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$. With hindsight as our guide, that was obviously a little early. Early last week we rolled them down a second time, utilizing a ratio of 1:5. I now have 4.5$ into 130 Nov calls and will wait for the market to work lower or the calls to start making money.
November Feeder chart sourced from RJO Vantage 10/7/2016
December 2016 Corn chart sourced from RJO Vantage 10/10/2016
Nov Live chart sourced from RJO Vantage 9/7/2016
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