This is a sample entry from Kirk Donsbach’s newsletter, The Cattleman’s Advisory, published on June 19, 2017.
Weekly Cattle Commentary 06/16/2017
The week’s cash prices ranged between 128 and 134$, with the higher prices coming early in the week. Dressed sales 200 to 217$. Basis is 5-7$ over the June Live board. Estimated weekly slaughter was 628K head, 22K larger than the same week last year. Box prices in the PM report where 249.84 choice, and 219.80 select. The 30$ spread is an indication of how difficult it is to buy a fully finished fat animal.
The week ending June 3rd showed steer carcass weights increasing 9# versus the prior week at 847#, 17 pounds under last year. The USDA has that close to even withthe 5 year average.
Weekly beef export sales were 8500 MT for the week ending June 8th. Down 38% from the prior week and 16% from the 4 week average. The weakening dollar is helping to offset the rise in box prices, but may have found some support.
August Live recorded a double top and key reversal on Tuesday (6/6). I feel the double top stalled the advance and retest of the low end of the range (117). I am not a strong believer in double tops and would expect more of a blow off top. That support held Thursday and Friday. Seasonals are generally supportive. The 5-7$ spread cash holds over June futures should be supportive. Failure of the 117 support could be quite detrimental. I have read several brokers keying in on that level.
Feeder Cattle; Positive feeder margins and seasonals are supportive to the feeder market, but future break evens using the 2017 Feeder boards and the April/June 2018 Live boards are tough. The CME feeder cattle index is at 151.07, down about 5$ on the week. The index is about 2.5$ over August Feeder futures. Keep an eye on the price of corn.
Feeders The yearly continuation chart has resistance at 165 and 170. My perfect correction failed on Monday. Major support at 145 held a significant test on Thursday. You will notice that the market is trading under the 50 day Moving average and a major up trend line now. A failure of major support around 145 would be reason for great concern with several brokers on the internet triggering off of that level.
Seasonals are strongly higher through June. However, last year saw a May 20th high that was not to be matched for the remainder of the year. For now the 2017 chart shows a yearly high on May 4th.
Short term trend for August feeders is neutral.
Moving averages are bullish.
Stochastics maintain a sell signal.
Down Side Targets (Aug feeders)
Major support around 145
Resistance at 163.50 and 165
Major resistance at 169
Hedging Strategy (no changes this week)
Our clients now have a large range of positions on, between rolling out to Aug Feeder puts to forward contracting the calves and re-owning with calls. We were able to cash flow the 144 May puts and higher into August puts for those that needed. The 144.65 support held and all of the May clients still needing August puts are still waiting. We missed an opportunity to advance the “math” and are now “hoping” we aren’t forced into buying August puts on a breakout lower.
I forward contracted my 630 lb calves for 8$ over the Oct feeder board Thursday (5/11), and placed long futures against my slightly in the money May puts. May expired and due to the risk structure of this trade, I made nothing, and lost nothing. I bought 160 August calls on the India news for 2.65 (5/31).
Aug Feeder chart sourced from RJO Vantage 6/16/2017
September Corn chart sourced from RJO Vantage 6/19/2017
August Live chart sourced from RJO Vantage 6/16/2017
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