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Home / Futures Blog / Cattleman’s Advisory Newsletter 7-3-17

Cattleman’s Advisory Newsletter 7-3-17

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The bulk of the week’s cash prices ranged between 119 and 120$, even with last week’s late trades.  Dressed sales 189 to 190$.  Basis by Friday was even with the June Live board.  Estimated weekly slaughter was 638K head, 33K larger than the same week last year.  Box prices in the PM report where 224.73 choice, and 208.42 select with a 16$ spread.   Seasonally that spread should be topped out and cash prices should stabilize through September.  The packers gave up some of their rather large profit margins this week.
The week ending June 17th showed steer carcass weights up 8# versus the prior week at 855#, remaining 12 pounds under last year.  The USDA has that even withthe 5 year average.
Weekly beef export sales were 11200 MT for the week ending June 22nd.  Down 33% from the prior week and 12% from the 4 week average.
August Live:  After breaking through the minor down trend line, August live has stabilized into a sideways pattern, building support around 113.  The first couple of weeks of July can be tough seasonally, but it would be encouraging if the market can hold support through the dog days of summer.
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 149.23, up about 2$ on the week.  The index is about 2$ over August Feeder futures.
August Feeders; after faking a collapse on Tuesday, have held together.  Similar to Live cattle, the break in the short term down trend line has developed into a consolidating pattern, waiting for the next big move.  140 support is critical, with a likely move to 130 if it fails.
Seasonals have a couple of weeks of weakness before they turn back higher into August.  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 bearish with the 10 day below the 50 day.
Stochastics are still in a buy.
Down Side Targets (Aug feeders)
Major support and the 100 day MA around 140
Topside Targets
Resistance  and the 50 day MA around 150
Hedging Strategy
For clients that will not be forward contracting any time soon, August 150 puts were rolled down last week.  Given the large premiums, the math didn’t work as well as we normally like.  However, given that “time value” has gotten so expensive we felt it critical to put some cash in the clients pocket’s.  We KNOW that by the end of August the nearly 7$ of time value an at the money put holds will be zero.  The 147 August puts will be “on deck” if we get a move below 140.
For clients looking to forward contract in the near term (recommend if possible) time value is not a concern because we can capture it when the cattle are contracted.
If you can not forward contract fall delivery cattle, 3$ buys you an August 140 put.  Thats pretty good insurance to ride the next couple of weeks of seasonal weakness out with.
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).   Clearly, they are not making money, but I feel really good about having the cattle contracted.  August is also a long way away, and with the cattle contracted, I am comfortable “hoping” for more.
Superior Livestock and Northern Video have established the basis for forward contracted fall calves.  I recommend forward contracting this year’s production and buying August calls if you can get a comparable basis.
I recommend feedlots leveraging August calls against future purchases at this time.  Call to discuss the details.
Aug Feeder chart sourced from WebOE 6/30/2017  
September Corn chart sourced from WebOE 6/30/2017   
August Live chart sourced from WebOE 6/30/2017   
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