- $122-124 Cash Last Week, expecting steady this week
- Choice Boxes ended $286.62 yesterday, Select $262.91
- Slaughter Last Week estimated slightly more than 640,000 head
- Weights last week estimated 1363, compared to 1386 last year
- Rumors of cooler cleanings, I thought they were already empty
- Majors still buying for delivery 3-4 weeks out
What is happening here? Im a bit confused as to the situation in Live Cattle futures. Open interest is dropping, by more than 1,000 contracts per day this week. While this is happening, the market is slowly grinding higher. This action can lead to what is known as a Dead Cat Bounce.When the short covering ends, if no-one is willing to go long, the market likes to drop a bit more until we reach a level worth adding long positions. Maybe were slowly adding longs while the funds lay off some of their short positions. It is the time of year when basis likes to go negative. Usually that happens because futures make a run higher, while cash doesnt gain dollar for dollar. Maybe this is the beginning of that run higher in futures.
Your Uncle Joe likes to say, Cmon Man.With that attitude in mind, why should futures run higher when supposedly cash is propped up by these charity bids? Cash near $1.10 is the normal for this time of year. But there are plenty of recent closeouts clearing a $100 bill and better. Look at it a different way. When you go to buy a car, is the salesman not at your mercy? Cattle feeders are the used car lots currently, with a car that has to leave the lot soon. We all have a product, where unfortunately the buyer of our product can decide what it is worth to him. That is the situation were in, for now. The point is, next time you see April Futures approaching $140, maybe think about marketing a few. You have so many tools available to keep margins from disappearing- contracts, futures, put options, & LRP(my favorite). Ever heard of half right, half wrong? Take a pen and put half on contracts. Or put a floor under half of them with a put spread or LRP. Figure out your margins on that pen, and if theres profit, protect it on half the cattle. Dont forget that the packers know your break-evens just as much as you know their margins. Do they need to let you make $500/head? Be patient, but never try to pick the top.
It may have been mentioned several times in previous letters but want to touch on it again. Late winter/early spring yearlings need to get protected. If I look at the last 13 years of cash feeder cattle, during the first week of March, yearling steers that make up the CME Feeder Cattle Index have averaged $141. Today March futures are playing around near $160. It feels like we have already priced in this bull market everyone is looking for. And to further drive home the point, the current feeder cattle index is $152. How many years do you see spring yearlings bringing more than the prior November? Im not against selling March futures here. It is almost $20 over the 13-year average, and everyone has a different opinion on corn. How does that factor in?
To end this rant, again Id like to quote some cattle that have a profit in them with todays current market. Im staying with the heavy steers this week, since no one likes to land a 500# steer during National Dead Calf Month.
66 Head 937# Steers @ $149.50 return >$100/hd with $.95/cog
Looking to Trade or Hedge Cattle Please reach out and let’s chat…
Dan Gerhold
319.320.4774
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