Cattle & Ranch Report
CME announced yesterday that daily trading limits will in increase on June 1 from $6.50 to $7.25 (10.75 expanded) in Fats and from $8.25 to $9.25 ($13.75 expanded) in Feeders.
Live Cattle:
Cash trade this week is still developing with $230 trading in Iowa ($362 dressed), $226 in Kansas and $219 in Texas. Choice boxes yesterday were up 1.38 @ 360.97 and up .67 on Select @ 348.95. With spot futures trading significantly under cash and a short time left to converge, I see little reason for futures to sell off in the June fats. Strong cash, boxes and demand all point to this market being supported on the front end. On Feed report days used to be risk off, but no real signs of that yet in today’s session. I agree with Swift that long put options are a good way to hedge here while leaving your top side open. Choose strike prices that reflect your willingness to assume risk- higher strikes cost more but have a better chance of printing. This is a trade recommendation. Today’s On Feed Report will be released at 2pm CST and is expected to show On Feed- 98.5, Placed- 96.8 and Marketed 96.7. The Commitment of Traders report will be released at 2pm as well and will show positioning as of Tuesday’s close. Yesterday’s weekly export sales were 12,300 MT, down 16% from the previous week but up 8% from the 4-week average. Open interest continues to increase.
Feeder Cattle:
The discount in the back months of the fat board provides less opportunity to sell into compared to feeders where the November board is only $5 below August which is now spot month. Yesterday’s index reading was 295.69 down 1.95 and today’s will be 295.46, down .23. The index is pausing here and sentiment among producers appears to be changing. Last week’s selloff caught a lot of attention and many are eyeing that gap from May 15th at 300.80 Aug. Gaps don’t have to be filled but often are and given the supportive basis structure of the fat board, it could happen. That being said, I don’t think this is a place to be complacent in making marketing decisions. Said differently, I think long put options are a great way to place a floor under cattle that leaves your top side open and limits risk. We are at levels that even a 5% correction in the coming months will more than offset premiums paid. That would be $15 pullback in Aug Feeders. $300 Aug puts are currently trading around $9. If we get that pullback we can always sell a lower strike and leg into a bear put spread if desired. This is a trade recommendation.
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