This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on April 3, 2017.
Weekly Cattle Commentary 03/31/2017
Cash sales for Friday were between 126 and 128. Dressed sales occurred at 200 – 206$. The lower prices were for a 2 week delivery. Basis is between 6 and 8$ over April futures. Last week’s slaughter was 593K head. The previous week’s very large kill and the seasonals are weighing on Box prices.
The week ending Mar 18th showed steer carcass weights falling 9# versus the prior week to 872#. 23 pounds under last year.
Box prices have lost about 8$ from the highs. The million dollar question is what the kill level needs to look like in order to stabilize boxes. The cutout looks to be rolling over. Seasonally one would expect an April correction lower, then another rally into May/June. The 35$ spike higher in March is not normal.
April Live seems to be narrowing the basis by slowly correcting lower as cash comes to it. The June contract posted a key reversal on 3/23. IF we work higher this week, the chart will show a perfect 3 wave correction followed by another leg higher. IF we break lower, it will have all the telltale signs of a seasonal top. Managed money is still increasing their long position, adding almost 10% this week. The market will react violently IF something spooks all those longs. Until then managed money will be supportive.
Feeder Cattle Green grass and positive feeder margins is supportive to the feeder market this time of year, especially light cattle. The CME feeder cattle index is at 132.77.
April Feeders posted a key reversal on 3/23 and broke the up trend line on Monday. As with live, we have either completed a textbook 3 wave correction lower, or established a seasonal top. A trade above 135.50 suggests to expect another try higher.
Notice the up trend line was nearly vertical. Whenever and wherever this rally comes to an end, it will probably retreat in a fashion similar to the rally.
Seasonal weakness starting anytime between now and first week of April, lasting through the later part of April
Short term trend for April feeders is neutral.
Moving averages are bullish.
Stochastics gave a sell signal.
Down Side Targets (March feeders)
Measuring gap at 129
Major support around 121
Topside Targets
2017 high at 137.42
Hedging Strategy
Most clients moved to May puts on 3/23 or 2/24. With May futures above 135, I personally spent 3$ on 132 May puts. Some clients chose to be less aggressive and went with the less expensive 130 puts. The additional cost of the May put is more than covered by the increase in protected cash value. I am comfortable with either choice.
We salvaged a little over a dollar of value out of the Feb Live puts and moved to June 104 puts a while back. On 3/23 we rolled June 104s up to June 108s, and June 106s up to June 110s. We added 1$ of hedge expense in both instances. Hoping to get a chance to roll them up again.
April Feeder chart sourced from RJO Vantage 3/31/2017
July Corn chart sourced from RJO Vantage 4/2/2017
April Live chart sourced from RJO Vantage 3/31/2017
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)
Risk Disclosure
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.