are you guys trading cattle from the screen w/o any pit connections? If so I'd be careful. If you have somebody (i.e. trading partner) in the pit...I've heard the cattle trade is some of the best edge going right now.
I wouldn't doubt that. A lot of brokers with pit access via screens are sending in a lot of orders that are really helping out the mm locals. There are brokers who have their own brokers in the pits and have direct phone access-these are the ones to use.
Thanks, now how about the Cattle Crush spread. I understand it involves buying 1 Feeder Future or 65 head of animals Buying 1 corn future to feed the animals Selling 2 Live Cattle Futures or appx65 animals. First: What maturities do you use / lag? E.g. july corn, august feeders, and december live cattle? I would assume the spread b/w feeders and live has to be around 160 days ? Is that the typical feeding time? Second, what is the directional view we want to take here: Feeders are Overpriced, Corn will go up and not so sure Live Cattle is doomed ? Exports reinitiated to Korea, Japan et al? What does slaughter and weight breakdowns tell us on the crush spread? Any color on this, greatly appreciated.
I generally don't trade the crush outright but use it as an analysis tool, I chart it apply bollinger bands, seasonal analysis etc. I do watch closely and will trade readily the 2:3 Feeder/Live Cattle spread. Also the crush is more correctly represent by 3:2:6 FC,C, LC to replicate one pen of cattle at an average feedlot (although the numbers are generally consistent no matter your ratio). Slaughter weights: when slaughter weights are increasing that means the supplies of fat cattle are high and probably rising, not that great for prices. Feedlots are delaying selling cattle to try and add more weight to try and reduce potential losses per head. I analyze the crush using FC and LC in the same month because I am doing this analysis for the cash market and decisions are made at the same time period. Generally the FC is 4 or 5 months ahead of the LC month with C somewhere around LC month. I can't get my chart to attach but here is my take. The feeder/live spread I referred to above is basically the inverse of this crush chart so if it looks like losses have bottomed out then the fc/lc spread should head lower.
here is the spread evolution using front month corn and feeders and 4th position live cattle. in this case july corn, aug feeders, and dec live. so according to this graph it seems a feedlot's profitability is increasing yes? or trending higher?
and here is another one: feeders - ( 2 times live) looks like live cattle gains outpacing those of feeders? i.e. index getting more negative?
who would you suggest for that? should i go for a smaller broker,since i am a smaller trader?lol. or should i move to someone like alaron or man? thanks ver much oh, and what would they expect i trade size wise to get that kind of service.
Its not something you can get unless your a local, these markets are different because they are still mainly pit traded, not on the screens, its a different world there. What I mean with 'sick edge' in the cattle trade is....say the market is 6 bid 100, 200 at 7....a broker gets an order from a customer sell 50 at 8.....broker walks over to his favorite local...hey Jim, at you at 8? "yes"..hell yes he'll sell at 8 when the market is 7 offer. So the local is short from 8 when the market is 6/7. Thats edge.
ahh. thanx john. i have access right now to the pits but from a screen and i find knowing what the "real"price is can be interesting, for me anyway as i found out today in hogs.i'm hesitant to use market orders.i'm so used to seeing the bid/ask in a electronic market.i understand why these guys have such an advantage,cause they know where the orders are and where they can get out? i wonder,is there a squack box for cattle/hog markets. thanks very much. its intersting learning this.
There are brokers out there who call direct to their broker on the floor who can get good markets. Try someone with RJO'brien, RCG, FCStone or Refco/Man. A broker we use bypasses his order desk and calls his man on the floor to get the market. It isn't that efficient or fast but it helps deal with the problem.