The Cattleman’s Advisory 12/02

This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on December 05, 2016.

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Weekly Cattle Commentary 12/02/2016

Cash sales topped midweek at 115.50$ but ended the week at 114 in Texas, 112 for heifers. Dressed prices held at 175$ with no trades reported after 12/1. Basis appears to be 6$ over December futures. Most of the Christmas buying may be done, and it is not an accident that seasonals turn lower the first of December. The December Live chart took some fairly significant technical damage Thursday and Friday. A test of the up trendline around 105 seems likely. Given the new longs entering the market above Fridays lows, and now holding losers, an early week extension lower could become violent. I am expecting the yearly lows to hold, but 2 to 3 weeks of weakness would not be a surprise.
A market that sells off in the face of bullish news (115.50 cash) is a market that wants to sell off.

The week ending Nov 19th showed steer carcass weights at 915#, 5# below last year’s weights.

Seasonals turned mildly bearish the end of November. The rising dollar and interest rates are concerning. December also brings year end book squaring.

Right now, it appears both retailers and processors are maintaining good margins, even with the high slaughter rates. That is bullish over the long term, but we may have come a little too far too fast.

December Live faded and then broke in the face of great cash news on Wednesday and Thursday. The chart had a major key reversal Thursday, and then an aggressive extension lower on Friday. Friday closed below the nearest support and 10 day moving average. It also created a weekly key reversal lower. Those are all pretty substantial sell signals. One more valiant try higher is possible, but the odds have decreased substantially.

Feeder Cattle have been reluctant bulls this entire rally. As soon as Live cattle showed real weakness, feeders capitulated.

January Feeders posted a daily key reversal Thursday, and confirming 3$ extension lower Friday. It also closed below nearest support, the 10 day MA, what now appears to be a exhaustion gap, and “short” term up trend line. Feeders also created a weekly key reversal. A correction back to the primary up trend line around 120, or 50 day MA seems probable. If the new losing longs in Live Cattle feel trapped and bail, that negative influence will also be felt in the feeders. Another “leg” higher is still technically possible, but as with live cattle, much less likely. Something to hope for, but not bet on.

Short term trend is bullish, but conflicting with the nearly 10 month old major down trend.

Moving averages are bullish, but the 10 day is threatening to roll back over.

Stochastics gave a fresh sell signal.

Down Side Targets (January)

First support at 123.1

Up trend line around 121

Topside Targets

Major resistance at 129.6

Top of the channel at 131

200 day Moving average also at 131

Hedging Strategy

At 126 January feeder’s we initiated January puts for individuals that will be selling cattle the first of the year. At this level, we had increased the equity position in the cattle enough to pay for the January hedge. Given the limited amount of time before a cash sale has to be made, we wanted to stay pretty aggressive. We are working orders to roll them higher, but they have not been filled.

For those selling next spring or later, we got a major reversal Thursday and confirming extension lower on Friday. We initiated hedges when the market filled the bottom of the gap at 125.12 and extended below 124.50. I would love to see the market give it one more go at higher, to roll up into. However, the technical damage Friday cannot be ignored. We will hope our hedge is a loser and look to roll up at a 1:4 ratio if given the chance.

It may be of interest that the aggressive hedgers appear to have gotten more favorable positions. For those keeping track, that often seems to be the case.

Spring sales of Live cattle are 100% hedged with about 40% of total cash sales at Feb 106 puts, and the rest with Feb 110 puts. We are working orders roll the 106 puts up, but as of this moment, even our 1:4 orders did not get filled. Remember when rolling up, a 1:2 ratio means ½ of the increase in strike price is your money. Bragging rights at the coffee shop is about all that gets you.

Contact one of the Daniels Trading brokers below for more trading ideas.

January Feeder chart sourced from RJO Vantage 12/2/2016

December 2016 Corn chart sourced from RJO Vantage 12/4/2016

December Live chart sourced from RJO Vantage 11/25/2016

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)