Hedge signal from Feeder and Live Cattle futures?

[TechAnalyst]

One should never be the bearer of bad news but...

Daily feeder and live cattle futures charts have given sell signals suggesting a short term (to begin with) setback could be seen.

March Feeder futures have an initial target of $132 or $13/cwt below current levels (US).

Live Cattle futures suggest a dip to $113 or $10/cwt US below current levels could be seen.

This is for those inclined to use futures or put options to hedge their risk.

[farming101]

I'd like a second opinion

[TechAnalyst]

It looks like the market provided the second opinion.

Nothing like a limit higher move to start the month to demonstrate the buying interest and potentially negate the sell signals.

I would normally lift the hedge but given the sharp reversal lower this week in equity markets and the cattle markets history of following breaks in stocks, it may be worth being patient to make sure the correction in equities doesn't turn into something more serious.

[farming101]

2600 US underwater/contract in GFH after 2 days would indicate a better entry point would be a consideration
I do think the upside is limited

[TechAnalyst]

A hedge indicates the cash cattle would be worth $2600 more as well to offset the futures loss.

If you were concerned about missing out on the upside, you would have used put options.

In that case, the cash cattle would have gained much more than the puts would have lost in value. And you would still have the price insurance in case the equity setback turns into something more serious.

[helmsdale]

What's this? A marketing thread on a marketing forum? What's this place turning into? 😲

[farming101]

Is money flowing in or out of livestock? Bullish or Bearish?

https://www.manitobacooperator.ca/daily/u-s-livestock-funds-weather-extend-cme-live-cattle-gains https://www.manitobacooperator.ca/daily/u-s-livestock-funds-weather-extend-cme-live-cattle-gains

Quote from the linked article:

Some funds that exited Friday’s stock market collapse may have landed in live cattle futures because of their upward momentum, said traders and analysts.

“It does look like there’s some new money flowing into the cattle market. It looks like maybe some are coming out of the stock market,” said Midwest Marketing Solutions analyst Brian Hoops.

[Oliver88]

Which futures contract and put options contracts are the ones used for cattle?

[errolanderson]

Which futures contract and put options contracts are the ones used for cattle?

Oliver, both love and feeder cattle are used. But feeder cattle may show more volatility than live. This increased volatilty can favor option buyers whether for puts or calls.

An opinion, but if stock markets continue to plunge next week, it won't be long before the cattle board is impacted.

[farming101]

There are two. Live Cattle and Feeder Cattle. Both at the CMExchange.

April is the front month now for Live Cattle, the more heavily used of the two. Contract months:Feb, Apr, Jun, Aug, Oct, Dec

March is the front month for Feeders, contract months:Jan, Mar, Apr, May, Aug, Sep, Oct, Nov

[farming101]

An opinion, but if stock markets continue to plunge next week, it won't be long before the cattle board is impacted.

Thanks Errol

[TechAnalyst]

Regarding money flow, the Dow lost almost 1080 pts on the week, almost 2/3rds of that on Friday. April live cattle futures actually closed lower on Friday following a strong Thursday.

In my opinion, if equities have an orderly setback, money managers will take profits and look for places to put the money to work, benefiting commodities in general.

If the selling takes on a feel of panic (in stocks), money managers will likely take profits and just hold the cash until things stabilize. That would not be helpful at all.

At the same time, beef is considered a luxury item by traders at times of distress. Right or wrong, cattle markets take a hit psychologically when stocks have an undisciplined selloff.

It is yet to be seen what type of correction this overdue pullback in equities will turn out to be.

Regarding a put option, cow calf producers and backgrounders would likely want to look at a March feeder cattle put, expiring March 29th, covering 50,000lbs. A $145 strike put closed Friday just over $2/cwt, A cheaper $140 strike closed just over $1/cwt.

[farming101]

Only 110 or so days ago the DOW had just broke through 23000. No one could believe the strength in equities. Interesting that the Mar feeder cattle contract was at about 147.

And now the sky might fall. Oh well, never get in the way of a stampede. It will be interesting to watch the markets next week.

Thanks for your input Tech

[Oliver88]

Good information. 👍🏻

[TechAnalyst]

The weak closes today and the volatile downdrafts in the stock markets confirm the previously mentioned sell signals.

My preference is still using the March Feeder Cattle $145 puts (now just over $3/cwt) or the $140 puts (now just over $1.60/cwt) for risk management purposes.

That leaves the upside open should the negative outside forces (ie weak stocks) turn around.