Weekly Cattle Commentary 9/8/2017
This week’s cash prices saw late Friday sales of 105$, even with last week’s trades. Dressed sales topped out at 168$, 2$ higher than last week. Basis was plus 2$ the October Live board. Estimated weekly slaughter was 555K head, 26K larger than the same week last year. Box prices in the PM report where 191.88 choice and 189.97 select, with a 1.91$ spread.
The week ending August 26th showed steer carcass weights up 3# versus the prior week at 887#, still 9 pounds under last year. The USDA has that above the 5 year average.
We paid for the huge Weekly beef export sales last week with a lackluster 5900 MT for the week ending Aug 31th. Down 77% from the prior week and 67% from the 4 week average.
Live Cattle Open interest maintained its upward momentum. Open interest increased another 6000 positions from my last report, to 322796 on 9/7/17 .
October Live: Support at the 105 April lows basically held the first part of the week, and then rallied into Friday. We poked through the 200 Day MA, but still need a close above that MA to give confidence. The 5 year historical pattern for October, which we seem to be most closely following, shows strength through the 15th of September. Note: The April 2018 Live Cattle Contract is at 117.775, essentially 2$ away from the psychological 120$ level and life of contract highs at 120.625. This would seem like a very prudent level to place some hedges. Again, I believe this market is supported, but do not feel the current supply situation or the seasonal patterns will allow for a major break out higher (this fall).
Feeder Cattle; The CME feeder cattle index is at 148.24, up 5$ week over week. The index is basically even with September Feeder futures.
September Feeders look pretty strong. This week we broke up and out of the wedge pattern I mentioned last week in the “Hedging Strategy”. In the process taking out the 9, 50 and 100 Day MA’s. We did close Friday slightly under the 100 Day. Technically feeders remain in an uptrend, with a four month corrective channel. I am looking for follow through strength to 152-155. It is probably the wrong time of year to hope for a major break out of the channel higher. I do feel that is in the cards, but probably not in the near term.
Seasonals show strength through the 3rd week of September.
Short term trend for September feeders is Neutral, leaning bullish.
Moving averages are bearish, but the 9 day is turning back up.
Stochastics gave another buy signal.
Down Side Targets (Sept feeders)
Major support and Major Up Trend line at 138
Resistance at 152
The August 149, 147, 146, and 143 puts have now all been repositioned in October using the salvage value of the August puts. In most cases we tried to leave at least 1$ of cash to use to roll the new October puts higher at a later date. We now have placed orders to spend that dollar rolling the existing October puts higher. Ratios ranging between 1:5 and 1:7. Some orders have been filled
Cattle Feeders: Call profits can be leveraged to offset some of the purchase price for cattle that need to purchased yet. Calls that were placed against existing profitable short futures can be rolled up. Ideally taking enough profit out of the position to pay for the new call. This turns the position into a Synthetic Put that you have very little out of pocket cost in, and allows for additional profit if the market would continue to rally. If it doesn’t, you still have the original Short futures. Target a key reversal or the top portion of the channel for order placement. (or when profit will cash flow the higher call-ratio probably 1:2)
Sept Feeder chart sourced from WebOE 9/8/2017
Dec Corn chart sourced from WebOE 9/8/2017
Oct Live chart sourced from WebOE 9/8/2017
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