This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on October 18, 2016.
Weekly Cattle Commentary 10/14/2016
Cash sales this week ranged from 94$ to 99$. Dressed prices looked to be 153 to 155$. Basis appears to be between even and 1$ over October futures.
The week ending Oct 1st showed steer carcass weights up 5# at 911#, 15# 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 again on Thursday. Friday had some profit taking as the shorts exited before the weekend. The charts all point lower, but are at or nearing oversold readings.
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 remain in an aggressively negative down trend, with Thursday posting another yearly low. Friday showed a little strength, probably due to the shorts taking profit. The charts point lower unless we can penetrate and close above the aggressively negative down trend line. The charts are at or near oversold levels. 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 are in a sell.
Downside Targets (November)
2010 low of 106.6
Top of the down trend line at 123
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. If the 121 – 122 Nov puts add a few more dollars of value we will start to look at rolling them down.
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$. With hindsight as our guide, that was obviously a little early. Late last week we rolled them down a third time, utilizing a ratio of nearly 1:8. We now have 5$ into 124 Nov calls and will wait for the market to work lower or the calls to start making money. Relative to overall position, we have a 5$ hedge cost with the future cash purchase price locked in 12$ cheaper than when we initially thought we had a buying opportunity.
November Feeder chart sourced from RJO Vantage 10/14/2016
December 2016 Corn chart sourced from RJO Vantage 10/17/2016
December Live chart sourced from RJO Vantage 10/14/2016
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