This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on April 10, 2017.
Weekly Cattle Commentary 04/07/2017
China trade Negotiations: Twitter and the internet are a buzz about China offering concessions on Beef imports this weekend. Exposure to that market would open up American beef to many new consumers. However, before we get all bulled up, this concession was already made in September. The hold up, not including Mr. Trump pulling out of the TPP, was approval of rules on traceability. The latest negotiations specifically netted a “100 day plan to address trade imbalances” and a twitter post claiming “good will and friendship”, but “time will tell”. No news specific to traceability, yet.
Cash sales for Friday were mostly 126 with a few 125 and 127. Reported dressed sales occurred at 196 – 200$ (late Friday sales not reported). Basis is 6$ over April futures. Estimated weekly slaughter was 573K head. Box prices are still struggling, with choice down 15$ from the high and back below the 5 year average.
The week ending Mar 25th showed steer carcass weights falling 4# versus the prior week to 868#. 19 pounds under last year. That is about 4lbs above the 5 year average.
June Live contract posted a key reversal on 3/23 and then formed a downward trending channel that found support at the major up trend line (possibly a bull flag). Friday posted a major breakout of the channel higher. Managed money is still increasing their long position. The market will react violently IF something spooks all those longs. Until then managed money and trend will be supportive. The seasonals are decisively lower Monday through the 22nd. Boxes are weak.
Feeder Cattle Green grass and positive feeder margins is supportive to the feeder market, especially light cattle. The CME feeder cattle index is at 132.96.
May Feeders posted a key reversal on 3/23 and also formed a descending channel. Friday saw a breakout of the channel higher. A new yearly high early in the week suggest that the pattern was indeed a bull flag with projections up to 146. Failure below 129 adds credibility to the seasonal high being in, similar to last year.
Seasonal weakness gets decisively weak starting Monday lasting through the 22nd. May feeder futures topped in March or April five of the last 7 years. 2014 May feeders rallied through expiration. 2013 May feeders posted a high in January.
Short term trend for May feeders is neutral.
Moving averages are bullish but rolling over.
Stochastics gave a fresh buy on the breakout Friday.
Down Side Targets (May feeders)
Support at 129
Major trend line at 124
Major support around 121
2017 high at 136.225
Bull flag projections to 146.
Most clients moved to May puts on 3/23 or 3/24. 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. If this is indeed a bull flag breakout, and we see acceleration above 136, I will be looking to make cash sales around 146 and re-owning with calls. IF it is not, the 132 put is well positioned.
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. If we accelerate higher we may be passively using 1:5 or 1:6 ratios.
May Feeder chart sourced from RJO Vantage 4/7/2017
July Corn chart sourced from RJO Vantage 4/9/2017
June Live chart sourced from RJO Vantage 4/7/2017
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