The Cattleman’s Advisory 12/16

This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on December 19, 2016.

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Weekly Cattle Commentary 12/16/2016

Cash sales ended the week at 112$ in Wyoming. Dressed prices at 175$ in Nebraska. Basis appears to be about even with December futures. With the winter weather holding over cattle feeding country, weather may become a market driver, although the cold front is forecast to break this week.

The week ending Dec 3rd showed steer carcass weights 3# lower at 913#, even with last year’s weights.

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. The strong box buying last week should be for post Christmas shelve restocking. That is all bullish over the long term, but we may have come a little too far too fast. 115 February futures may be disappointed with 112 cash.

February Live continued their march higher. Top side resistance sits at 116.2. I don’t rely too heavily on wave theory, but it should be noted that we have a clear 5 wave move off of the lows. It is probably prudent to hedge up and hope for a major break out higher.

Feeder Cattle will likely follow Live’s lead. Local cash sales have been surprisingly optimistic.

January Feeders rallied off of last week’s correction, right up to the down trend line and 200 day Moving average. Technically, 140 is quite possible, but I am very concerned that live will have to exceed last August’s high in order for feeders to see 140. I think the cattle markets have turned the corner, but I question whether fundamentals support that kind of a move just yet.

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

Moving averages are bullish.

Stochastics are giving a buy signal.

Down Side Targets (January)

Minor up trend line around 128

First support at 122.92

Up trend line around 123

Topside Targets

Major resistance at 139.4

Major Down trend line at 130

200 day Moving average also at 130

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 got filled on the orders to roll them higher late last week.

For those selling next spring or later, we got a major reversal Thursday (12/1) and confirming extension lower the next day. We initiated hedges when the market filled the bottom of the gap at 125.12 and extended below 124.50 (12/2). The technical damage done that Friday could not be ignored. I personally have until June/July and got filled late last week at a 1:5 ratio. That’s 1$ cost locking in 5$ of value.

Spring sales of Live cattle were 100% hedged with about 40% of total cash sales at Feb 106 puts, and the rest with Feb 110 puts or higher. All of our orders to roll the 106 puts up have now been filled. All of our clients sit with 110 puts or higher. At 116 we should be able to roll the 110s to 114s for about 1$.

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

January Feeder chart sourced from RJO Vantage 12/16/2016

March 2016 Corn chart sourced from RJO Vantage 12/19/2016

February Live chart sourced from RJO Vantage 12/16/2016

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)