The Cattleman’s Advisory 03/31

This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on April 3, 2017.

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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)