Today in Cattle 03-27-2023

CATTLE HIGHLIGHTS: Cattle futures saw strong buying strength to start the week as the commodity sector in general saw good money flow, triggering some short covering in the cattle markets.  Apr live cattle gained 1.900 to 164.900, and Jun added 2.275 to 158.575. March feeder cattle gained 2.700, closing at 192.350, and the April contract gained 2.825 to 197.625.

The cattle market saw a round of short covering to start the week, supported by strong money flow into the commodity markets in general.  Managed Money has aggressively sold cattle futures positions, as the weekly Commitment of Traders report revealed.  Last week, fund net length was 63,000 contracts of live cattle, down significantly from recent total length and down a net 28,000 contracts last week.  With the cattle market fundamentals still supportive, this set the cattle market up for price recovery, which we saw Friday and today. In fundamentals, cash trade was undeveloped to start the week as bids and offers are undefined.  Expectations are for steady trade this week. Retail values were softer last week with choice losing $.57 and select trading $3.55 lower.  At midday, prices were slightly higher as choice carcasses were .28 higher to 280.16 and select gained .61 to 269.36. The load count was light at 33 loads. Feeder cattle saw good buying strength supported by the strong live cattle market and short covering.  Feeder cattle caught a good bid on Monday, even with a strong grain market to start the week.  The Feeder Cash Index was up 2.39 at 191.24, and that supports the March futures. The expiration of March feeder futures and options are this week on March 30. The price action in the cattle markets was very supportive today that a short-term low is in place and prices have made a turn higher. Cash trade this week will be key. The longer-term fundamentals are still friendly in the cattle markets.

SUMMARY: Cattle fundamentals should offer support, as prices have been looking to put in a short-term low. Futures are trading below cash, and that should support the market. We will continue to hold defensive positions for now, looking for more confirmation a low is in place.

HEDGING:

Live Cattle: Aside (using put strategies to keep price flexibility open).

Feeder Cattle ALERT: Sellers: Aside. Buyers: Mar: 25% bought Mar feeders at 184.000. Hold. Mar feeders expire on 3/30. Exit These positions by the end of the day on 3/29. Apr: Bought 50% Apr feeders at 190.325. Hold. May: Bought 25% May feeders at 207.200. Hold. On 25%, bought May Feeders at 198.475. Hold.

CASH:

Live Cattle: Stay current.

Feeder Cattle: Sellers: Stay current. Buyers: Stay active to purchase needed supplies or use options for protection, supplies are tightening.

OPTIONS:

Live Cattle: 2022: Apr: On 25%, bought Apr 162 puts at 3.35. Hold. On 25%, bought Apr 150 puts at 2.650. Hold. On 25%, bought Apr 150 puts at 3.000. Hold. On 25%, bought Apr 155 puts at 3.000. Hold. On 50%, bought Apr 160 puts at 3.00. Hold. Exited the Apr 150 puts at 0.700 cents, rolling the puts higher. Jun: On 25%, bought Jun 158 puts at 3.025. Hold. On 25%, sold Jun 162 calls filled at 1.200. HoldOn 25%, bought Jun 150 puts at 3.000. Hold. On 25%, bought Jun 160 puts at 3.000. Hold. Aug: On 25%, bought Aug 150 puts at 3.000. Hold. On 25%, bought Aug 155 puts at 2.000. Hold. Oct: On 25%, bought 154 puts at 3.00. Hold. On 25%, bought Oct 160 puts at 3.000. Hold.

Feeder Cattle: Sellers: Aside. Mar: March Feeder cattle options expire on 3/30. On 25%, sold Mar 190 calls at 1.375 and bought 184 Mar puts at 4.050. Hold. Apr: On 25%, sold Apr 198 calls at 1.275 and bought 188 Apr puts at 4.500. Hold. Buyers: Mar: March Feeder cattle options expire on 3/30. On 25%, bought 180 calls at 5.450 and sold 168 puts at 2.600. On 1/6 at the open, exit short puts to open up the long put protecting the price floor. Exited these short puts at 0.275, taking profit on the premium collected. Hold. Aug: On 25% bought Aug 210 calls at 4.500 and sold Aug 220 calls at 1.500. Hold. Sep: On 25% placed an order for 210-220 bull calls spread at 3.00.

FEED PURCHASE: 2023: Cover 25% of fall needs with a Dec Bull Call spread. Bought a Dec 580 call at 33 cents and sold the Dec 680 call at 12 cents. Hold.

LEGEND of Moving Averages: Pink 10-day, Purple 20-day, Blue 40-day, Green 50-day, Red 100-day, Dark Blue 200-day.

Author

John Heinberg

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