This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on February 21, 2017.
Weekly Cattle Commentary 02/17/2017
Cash sales for the week ranged between 119 and 120, and 188 to 190$ dressed. Lower than last week, but not as much as Futures were fearing. Basis was between 2 and 3$ over February futures. I cannot explain Nebraska cattle not getting better than a 116 bid on the video auction, then bringing 119/120 by Friday.
The week ending Feb 4th showed steer carcass weights increasing 3# versus the prior week to 887#. Warmer weather across much of the nation has weights back on the gain, but may also inspire additional retail interest in beef.
Managed Money liquidated another 6200 contracts Friday, bringing the total to 97K net long.
Right now, it appears retailers are maintaining good margins, with processing margins struggling. That is expected to impact slaughter rates again this week. Fed cattle are showing profit margins over 100$ a head.
April Live spent the week basically range bound within last Thursdays high and low. The June contract shows the market pinched into a wedge formed by the down trend line and possible neck line of a head and shoulder formation. At this time the market has marginally penetrated both the top and the bottom of the wedge. An aggressive move through the neckline (orange line) probably confirms 121.02 as the near term high and in my opinion, expedites long fund liquidation. Follow through buying Tuesday probably lends itself to another try at completely filling the gap left above the market.
Feeder Cattle will likely follow Live’s lead. Keep an eye on corn and the assumed large supply of feeders coming to the market in March. Given January’s positive basis and relatively high prices, I expect the upcoming January placement number to be quite large again. COF will be released this Friday, 2/24.
March Feeders spent the week range bound between 125 resistance above and the neckline (in orange) below. The 20 Day MA also creates overhead resistance, with the 100 Day MA providing support. March feeders have not yet filled the gap that sits over the top of resistance. An aggressive break and close below the 100 Day Moving average and the neckline, possibly initiates selling pressure with long liquidation. If confirmed, Wave theory and head and shoulder projections point towards the 113 to 109 area. The chart read for feeder’s looks toppy. Seasonally, weakness through March is expected.
Corn The rally in the grains should be monitored. Feed is still relatively cheap. High feed costs have not been a concern, or even a thought, for some time. I do not have an informed opinion on corn, but the chart clearly shows a market stair stepping higher. “Higher” feed costs are a short term downward pressure cattle feeders do not want to be burdened with at the present time. Long term, higher feed costs could very well be the fix that truly turns the meats bullish.
Short term trend for March feeders is bearish but not yet defined.
Moving averages are the definition of neutral, stacked 20, 10, 100 top to bottom.
Stochastics last signal was a buy.
Down Side Targets (March feeders)
Support at 120.50
Topside Targets
Overhead gap between 125.20 and 126.10
Hedging Strategy
Most of our clientele left Jan puts expiring worthless and moved to March 127 puts. We also rolled some 120 and 122 March puts up at 1:5 or 1:6 ratios. The last of them were done 1/25 as feeder futures slipped in the face of a 124 Fed Exchange cash highs and then again as the 128.65 support level was penetrated. We will maintain these positions until we start to run out of time, or the math works to roll them higher or lower.
We salvaged a little over a dollar of value out of the Feb Live puts and moved the rest of our clientele to June 104 puts. This contract should get our clients out to their kill dates, with no further need to buy additional time. From this point on we will be working the ratios to either retrieve some of the expended cash, or lock in higher cash prices.
Contact one of the Daniels Trading brokers below for more trading ideas.
March Feeder chart sourced from RJO Vantage 2/17/2017
March Corn chart sourced from RJO Vantage 2/17/2017
April Live chart sourced from RJO Vantage 2/17/2017
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)
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