The Cattleman’s Advisory 10/21

This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on October 25, 2016.

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Weekly Cattle Commentary 10/25/2016

Apologize for being late with the weekly newsletter. I spent the weekend looking for lost calves to make my shipping party Tuesday. Thank goodness my Daniels’ team is here supporting us.

Cash sales this week ranged from 100$ to 102$ Friday. Dressed prices looked to be 160$. Basis appears to be between even and 1$ over October futures. I consider cash prices to be a bullish surprise.

The week ending Oct 8th showed steer carcass weights steady at 911#, 17# below last year’s weights.

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

I also consider the COF out last Friday to be a bullish surprise, showing aggressive marketings at 105% and low placements at 98%. October Cattle on Feed came in at 100%.

Technically

November feeders also only had one negative day last week. Friday topped out just under the down trend line. Monday gapped up and through the down trend line with the market presently backfilling the gap. If we can close at the upper end of todays’ range, I like the odds that the market has established its low.

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 neutral..

Moving averages are negative, but the 10 day is turning up.

Stochastics gave a buy last week.

Several other indicators are also showing divergence over the past two months. An indication of a bottom approaching.

Downside Targets (November)

2010 low of 106.6

Topside Targets

50 day moving average at 127.50
Major resistance at 131.4
Top of the channel at 133

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. 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 hedge’s, 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 my overall position, we have a 5$ hedge cost with the future cash purchase price locked in 14$ cheaper than when we initially thought we had a buying opportunity. (you may have noticed the 14$ cheaper used to be 12$ – mental slip on my part – 138 minus 124 is 14$, not 12)

For those not presently hedged, who need to buy cattle this fall, we recommended initiating new long hedges again today.

November Feeder chart sourced from RJO Vantage 10/24/2016

December 2016 Corn chart sourced from RJO Vantage 10/24/2016

December Live chart sourced from RJO Vantage 10/24/2016

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)