This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on January 09, 2017.
Weekly Cattle Commentary 01/06/2017
Cash sales held steady this week at 118$ and 188$ dressed. Basis appears to be 3$ over February futures. Beef demand has been excellent, but showing some post holiday decline with some calling for a 5$ decline in the cutout next week. Choice lost 4$ this week.
The week ending Dec 24th showed steer carcass weights 11# lower than the prior week at 897#, 9# below last year’s weights. Weather is, and will continue to be, a big weight driver.
The rising dollar and interest rates are concerning. January usually shifts beef demand away from ribs and loins, with chucks and grounds gaining. Often supplied by the heavy run of fall cows.
Hogs have basically held steady since the bearish pig report.
Right now, it appears both retailers and processors are maintaining good margins, even with the high slaughter rates. For the first time in a while, many Fed cattle are also showing good margins.
February Live confirmed Fridays major reversal after touching the 118.50 resistance and set a low for the week at 113.975. 118.50 is as high as Feb live cattle got the entire summer of 2016. RJO’s Bullish Sentiment Index is presently representing 100K Managed Money long positions vs 8K shorts. IF those 100K longs decide to leave at the same time, we could have a very accelerated sell off as they all try to find a lower market to get out with. It is probably prudent to buy puts and hope for a major break out higher. Extreme cold weather is the wild card.
Feeder Cattle will likely follow Live’s lead, but I am concerned that they are lagging Live Cattle’s very impressive rally. More correctly, they now appear to be leading the cattle complex lower.
January Feeders posted a major reversal Friday morning (12/30) and then confirmed the reversal Tuesday. By Fridays close they had penetrated the major uptrend line. I am very concerned that February Live Cattle will have to substantially exceed last summer’s highs in order for January feeders to see 140. I think the cattle markets have established their lows, but it appears we are going to get our Winter correction after all.
Short term trend for feeders is neutral.
Moving averages are bullish but rolling over.
Stochastics gave deep into a sell signal.
Down Side Targets (January)
Minor up trend line around 128
50 day MA at 125
First support at 122.92
Key reversal high at 132.925
Major resistance at 139.4
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 want to stay pretty aggressive. We got filled on the orders to roll them higher 4 weeks ago. These clients should be making cash sales and exiting the hedge shortly.
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. That reversal was cancelled shortly after and I rolled the January puts up at a 1:5 ratio. That’s 1$ cost locking in 5$ of additional value. I got filled at 1:5 a second time the last day of the year. I now have 131 Jan puts with about 5$ of expense into them. I started with 121 Jan puts with 3$ of expense. We will look to take value out of the Jan’s to move to March, its just a matter of when and how much. IF the market rallies, we will look to move to March at higher prices.
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. We rolled the 106 puts up to 110 for 1$. All of our clients sat with 110 puts or higher at that point. Three weeks ago (and again Thursday 1/5) we rolled 110 Feb puts to 114 Feb puts for 1$. If we can get through the 118.50 resistance we will start working orders to roll to 118 or 119 puts. IF the market corrects deep enough, we will look to take some cash out of the hedge, using a 1:3 or 1:4 ratio. Some clients may use that opportunity to move to June.
Contact one of the Daniels Trading brokers below for more trading ideas.
January Feeder chart sourced from RJO Vantage 1/6/2017
March Corn chart sourced from RJO Vantage 1/9/2017
February Live chart sourced from RJO Vantage 1/6/2017
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