CATTLE HIGHLIGHTS: Cattle markets saw mixed trade in the live cattle futures, but momentum left the feeder cattle market on Wednesday.  Aug live cattle closed 0.025 higher to 135.750, and Oct gained .225 to 141.325. Aug feeders lost .925 to 177.825.

Live cattle futures stay in their range bound trade, afraid to make the push through the top of the range.  The live cattle market seems tied to the 100 and 200-day moving averages.  Cash trade is still developing this week and saw additional light movement on Wednesday.  Nebraska saw dressed trade at $227, down $2 from last week.  More trade will likely build into the end of the day Wednesday and Thursday, but the trend is looking steady to slightly lower. Wednesday’s estimated slaughter totaled 124,000 head, 2,000 below last week, but 6,000 more than a year ago, but weights are still lighter than last year, helping support prices. Beef cutouts at midday were lower after yesterday’s overall strength with choice at 271.23, slipping 1.34 and select at 243.30, losing .43 with light to moderate box movement at 69 loads.  Choice carcass values at $270+ are strong for this time of year, keeping buying support under the cattle market overall. Feeder cattle seemed to lose momentum on Wednesday, despite weakness in the corn market. Poor price actions in the feeder futures will leave the door open to further selling pressure on Thursday.  August feeders are trading a premium to the Feeder Cash Index, which was .17 lower to 172.50, and that helped limit the front-end feeders.  Friday will bring the next USDA Cattle on Feed report, and that could make the market choppy going into the end of the week. Overall, fundamentals and money flow has been supportive of cattle markets.  The loss of momentum in the feeder market leaves it susceptible to further selling pressure into the end of the week.

SUMMARY: Retail demand is strong and that can be supportive of prices. Thursday gives the market exports sales numbers, and Friday the release of cattle on feed totals.  The market will likely be choppy going into the end of the week. The lack of momentum and the calendar makes us cautious for a feeder pullback. We are adding 176 puts for Oct and Nov on the open for Thursday.

CATTLE PRICING STRATEGY:

HEDGING:

Live Cattle:  Aug: On 25% hedged at 138.750 and 25% at 137.00. Hold. Oct: On 25%, hedged at 140.  Hold.  Hedged 25% of Oct at 143.00. Hold

Feeder Cattle: Sellers: Aug: Sold 25% of Aug feeders at 174.625. Hold. Buyers: Aug: On 25% bought Aug futures at 174.00. Hold. On 25%, bought Aug feeders at 172.350. Hold. Sep: On 25%, bought Sep feeders at 176.500. Hold. On 25% bought Sep feeders at 176.100. Hold. Oct: On 25%, bought Oct feeder needs, filled at 176.475. Hold. On 25%, bought 25% of Oct feeder needs at 174.000. Hold. Jan: bought 25% of feeder needs, filled at 173.550. Hold. Mar: On 25% bought Mar feeders at 184.000. Hold.

CASH:

Live Cattle: Stay current. No need to add poundage.

Feeder Cattle: Sellers: Stay current. Buyers: Stay active to purchase needed supplies

OPTIONS:

Live Cattle: 2022: Aug: To protect our hedge, on 25%, bought Aug 145 call at 1.30. Oct: On 25%, bought Oct 148 calls at 3.875 and sold Oct 130 puts at 1.600. Hold. On 25% bought Oct 144 calls at 2.875. Hold. On 25%, bought Oct 140 puts at 3.750. Hold.

Feeder Cattle ALERT: Sellers: Sep: On 25%, Bought 170 puts at 3.000. Hold. Oct: On 25% Bought Oct 170 puts at 3.000. Hold. On 25%, buy Oct 176 puts on the 8:30 market open Thursday. Nov: On 25%, Bought Nov 170 puts at 3.000. Hold. On 25%, buy Nov 176 puts on the 8:30 market open Thursday Buyers: Sep: On 25%, bought Sep 180 calls at 5.400 and sold Sep 166 puts at 2.100. Hold.

Feed Purchase: 2022: 10/7/21: Cover 25% of 2022 protein needs. Added Dec 22 550-620 bull call spread at 20 cents over 25% of 2022 feed.

Author

John Heinberg