I would probably stay away from full crushes and just do a feeder/live spread to capture the essence of the fundamentals with a more efficient trade. Work with a good broker, that is the best advice. Go with an ag broker that knows the trades and knows the brokers in the pit. A good comission would be $40 a rd. turn or less when working with a full service broker, you can probably negotiate down to $30 rd. turn or less if you are going to do spreads. I would enter orders as a spread at a limit, if you don't get filled then adjust.
true that nebraska cattle traded 1-2 LOWER this week? sounds to me futures could be a nice short? doesn't slaughter pace at 700k per week create a glut? what is this "packers margin" people talk about?
Keep in mind that 2nd cut cattle in Nebraska traded lower before cattle rallied on Thursday. We need the slaughter as high as it can go. If slaughter does not keep pace and exceed last years then slaughter ready cattle will build up at feedlots and we wll see price pressure. Remember, the LC contract is for fat cattle at the feedlot, not the dressed or boxed beef that the packer has as it's product. One of the supports for the market has been the packer margin which is positive right now. The packers have lost tons of money in the past year with very poor margins. The boxed beef spread has held pretty well which has helped the margins as well.
Interesting, you obviously know more of the cash side than I do, and its very helpful for me to learn. A couple more, probably obviousl questions: What is the choice/select spread. And what can one infer from this value getting smaller or bigger? The spread is around 22 now, but then I see that in previous years right after this seasonal peak it collapses to under 4. Why? Choice boxed beef/ Pork Cutout has been trending lower. Thanks to lean hog futures flying? Looks like average dressed steer weights are higher this year than average. 800-825 vs. High 700's. Any signficance? Packer margin is raw beef input cost versus retail markup customer price?
also: regarding droughts, heat, etc.... doesn't that "stress" the animals , create shortage, and elevate prices? or does it work another way ?
When you go the grocery store and buy a steak it is choice, when you buy stew meat it is select, generally speaking. When the spread is high the incentive is usually to keep supplies current because there is a premium price paid by the retailers for that beef. I don't infer a lot from it however it is a seasonal spread and is highest during the start of grilling season. Most all beef that come from feedlots are going to grade choice with very few prime and some select. Select comes more from cows, bulls and older animals or cattle from mexico or other exotics. The pork vs. beef cutout values will have packers with pork and beef exposure favoring pork production. Packer margin is boxed beef value-price paid for fat cattle. It is a rough estimate. Higher weights are due to cheap corn and negative returns on feeding. Feedlots pack on more pounds at a low cost of gain to try to offset negative retruns per head that have been over $100 a head. Drought is not of real significance to LC. Feeder cattle and cows and calves have been coming in off pasture in Texas, Oklahoma, Colorado, New Mexico, parts of Nebraska. But so far no apparent price impact. If it doesn't impact prices I don't see a lot of value in the news.
Thanks for reply to my questions. How do you chart a spread or a crush? Does it have a symbol so you can look at a chart of the spread value itself. If it doesn't have a symbol how would you chart it? Any examples or screen shots of how you do that would be appreciated. THx
I create a custom chart using tradestation but you could replicate one in Excel. For the cattle crush you can use the exchange requirements for lowered margin of 4:2:1. 4 LC-2FC-1C. I also add in other costs and use a more realistic number and spacing of contracts to represent the cash margin. 4*400*lc price if quoted in cwt (83 vs. .83)-2*500*fc price-1*50*C price. I usually just chart the FC/LC spread and use that as a proxy for the margin since I know what the cash market margin roughly is on a weekly basis.
IMHO, we are on our way to challenge 119.750. We might not make it but I'm long from 05/05 and loving every minute of it trying that price level.
quick refresher? dressed cattle is ? and why does it trade in the 120's while LC trade in the 80's. thanks.