This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on March 20, 2017.
Weekly Cattle Commentary 03/17/2017
Brazilian meat Scandal – Federal police launched raids in five states against 40 Brazilian meat companies, including JBS SA. Charges are for bribing sanitation officials to pass meat inspection. This involves beef, pork, and chicken.
Odds that this meat got through the receiving countries inspections and the retailers inspections is very low.
There have not been any reported cases of Brazilian meat causing sickness.
There are indications that this investigation may be politically motivated.
However, the real damage to the Brazilian meat industry might not be the allegations of knowingly selling tainted meat, but rather a loss of trust in the system as a whole. I don’t believe that 40 companies were selling tainted meat on the export market, knowing it would be refused at the importing countries boarder. However, I do believe that some countries will probably think it easier to avoid the whole mess and do business some where else. That would be bullish for American exports.
Cash sales for the week were between 128 in Kansas and 132 in Iowa. Dressed sales occurred at 210$. Basis is between plus 9 to plus 13$ over April futures, depending on region.
The week ending Mar 4th showed steer carcass weights decreasing 2# versus the prior week to 876#. 12 lbs under last year.
Box prices have rallied 32$. The cutout is toppy both fundamentally and seasonally.
April Live is trending higher, but still not willing to close to cash. The board is waiting to fall apart and cash is racing higher. Cash won this week. The board could react bullishly to the Brazilian event.
Feeder Cattle are leading the cattle market higher. Keep an eye on corn and the assumed large supply of feeders coming to the market in March/April. With March feeder futures nearly equal to Live cash prices, the market is clearly expecting a very large Spring placement number. I am not in any way suggesting that is not the case, but if data would come out suggesting otherwise, March feeders are extremely undervalued. Of course, Cattle Inventory, 2 months of COF, and local sale barn traffic all suggest that in fact, the cattle are there.
IF the consequences of the Brazilian event are real and long lasting, the market MAY HAVE just found a slot for some of the extra cattle. Exports are already running 10% plus over last year.
April Feeders (switched to April) broke through the down trend line and yearly high this week. Friday closed near the high of the day, high of the week, and the high of the year. The trend is nearly vertical. Seasonally, weakness through March is expected, but not apparent. The chart read is very bullish. That can change in a second, but right now it is very bullish.
Superior video sale this Thursday.
Corn appears to be in a slow grind higher
Short term trend for April feeders is bullish.
Moving averages are bullish.
Stochastics maintain a buy signal.
Down Side Targets (March feeders)
Small gap at 129.025
August high at 136.52
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. We will be looking to roll out to May on this rally. Given the bullish momentum, presently targeting the 135 area in May. I am willing to lose money in the hedge as long as what we are making in the cash is close to a 3 or 4 multiple of our losses.
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. We are working orders to roll the 104 puts up at a 1:4 ratio. May adjust, depending on what the open looks like on Monday
Contact one of the Daniels Trading brokers below for more trading ideas.
April Feeder chart sourced from RJO Vantage 3/17/2017
July Corn chart sourced from RJO Vantage 3/19/2017
April Live chart sourced from RJO Vantage 3/17/2017
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