This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on November 1, 2016.
Weekly Cattle Commentary 10/28/2016
Large volumes of cash sales occurred Friday at 105$, 3 to 5$ higher than last week. Dressed prices looked to be 164$. Basis appears to be 1$ over October futures. I consider the cash prices to be mildly bullish.
The week ending Oct 15th showed steer carcass weights increasing 4# to 915#, 15# below last year’s weights. Last year’s weights declined rapidly from this point due to weather. That doesn’t appear to be in the forecast for this fall.
Seasonally the cash market generally starts to work higher through the cooler months.
Except for Friday, December Live had a week of positive days. Friday showed some weakness with political news maybe helping to accelerate weekend profit taking. All in all, action in Live Cattle looks supportive with the down trend line and the 50 day Moving Average being penetrated. Not with standing an unexpected surprise, I like the odds of the market reaching first resistance at 108, and then maybe, the top of the channel at 112.
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, November Feeder’s had a good week with what looks to be weekend profit taking Friday. Buyers re-entering the market Monday will confirm Fridays action as profit taking. Several technical points are converging around the 130 to 133 area.
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. IF we take out Thursdays high I will switch to bullish.
Moving averages are negative, but converging.
Stochastics are in a buy.
Several other indicators are also showing divergence over the past two months. An indication of a bottom approaching. (Relative strength Index)
Downside Targets (November)
Yearly low of 114.65
50 day moving average at 126
Major resistance at 131.4
Top of the channel at 133
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$s of hedge profits left over. IF the market tracks higher, we will be looking to roll out to January at a higher price. If the market trades lower, we will look for a level that finances the roll to January. (for those that need January)
For long hedge’s, we recommended placing orders above Mondays high (8/29 – 133.1 Nov) to buy Nov out of the money calls. Tuesday (8/30) our trigger was hit and I hedged a future bred heifer purchase with 138 Nov calls for 2.7$. 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 last week.
November Feeder chart sourced from RJO Vantage 10/28/2016
December 2016 Corn chart sourced from RJO Vantage 10/30/2016
December Live chart sourced from RJO Vantage 10/28/2016
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