Hey Circ I have got to run but I will write you later about your system. It sounds like you have put a ton of work into it. I'm still questioning if we put in a valid bottom in fats. Pigs have a lot of room to run to the downside imo. Anyways I'll be on later.
Yes, the technicals have really deteriorated during the last week in the fat market. Things were looking decent for a bit, but I stayed spread anyhow, seeing how close to the 2008 low we were. Judgement day will soon be upon the fats, and it doesn't look like there is going to be a double bottom bounce, but I could be wrong. There is no real fundamental reasoning for a rally, but we could get a strong multiday rip to the upside based solely on oversold conditions. I am cautious at these levels, just have to see what happens at the 80.50-80.60 level in the Febs. This isn't looking so much like a bottoming process anymore.
I posted this over in the T.A. forum, deep inside the annals of the EWT thread (hardest working technicians on this board). I know that this doesn't necessarily pertain to meat, or many other commodities, but the VIX looks like it's setting up for a strong upleg. If this happens, the equity markets will tank pretty hard, and probably take down alot of commodities with it, especially since the $US refuses to quit rallying. I've got a few metrics that I watch, and all of them are looking pretty bearish right now. If the equity markets take out the November lows, you'll find me being shorter than Danny Devito in the meats. I wanted to ask a question to any who would answer, as I'm not a fundamental expert on the meats, and still pretty new to the meat market. The feeder/live cattle spread is pretty damn big, even by it's own standards. Is this some seasonal tendency? Or is this spread just asking to get taken out?? I did some stats on the Mar Feeder/Feb Live cattle spread, and the mean for the spread is around 4.00, and plus a standard deviation is just below 7.00. The thing is at 9.00, down from around 11.50. Would it be prudent to short mar feeders against a long position in the front month live cattle to make a couple of bucks?? I'm open to all opinions. Trader TX, I would like to say that I checked out you Blog, and I liked it. I liked your 50% retracement call on the S&P, classic. I also see that you hail from the greatest state in the Union. That's awesome, seeing is how I live in Dallas, and love every bit of it.
Hey Circ, in the cash markets feeders are still undervalued to fats. Today put them a bit more in line but still a bit out of whack. I agree that if equities don't hold these bottoms we could see everything go substantially lower, including meats. I hope all is well.
Thanks for checking out the blog ciracadian, hope you found something useful on there! As far as the meats go, wow...what a breakout today! I was planning on spreading hogs over cattle today after Friday's action, but today blew that possibility out of the water. Also circadian, to answer your question there is a small seasonal trade higher in the feeder/fat spread, and should be into April/May. However, looking at feedlot margins I am suprised it has gotten this high, any time the roll is greater than 12 I start looking to sell the spread, as feelots simply cannot hack that large of a spread. That is especially the case today, with Cost of Gains still running higher than the price of fats. last closeout I looked at was around 85-90 cents on total COG. Guys I'm talking to are saying their feed costs wont drop substantially until late this month when they'll finally use up most of their high priced corn. and yes...we do hail from the greatest state in the nation!
Hello, I have a fundamental question about cattle. Are the margins for the ranchers (people who raise the cattle) enough at this point or they being squeezed? Are the margins for the packers good or poor? I am looking at this from a long perspective ie over the past 20 years or so have their margins improved, stayed the same, or worsened? Also, if you can point me to source on the web where they discuss such fundamental, I would appreciate it muchly. Sridhar
Without going into individual budgeting for ranches/packers etc. (I grew up around all of this so I have a fair amount of knowledge), you can derive some of this information from typical cycles and posted reports/information (available from USDA site or from DTN, CattleFax, etc). To look at rancher profitability, you can look at typical weaned calf prices (500lb calves) at the major salebarns (same ones that are factored into the feeder cattle index calculation). Then look at replacement cow costs, and somewhat at the price of corn. To determine feedlot estimated profitablility you need to look at a few things. 1. The cattle crush spread, current basis, etc. You can also look at the published cattle breakeven projections that are published by firms like DTN, but use those only as reference points. As far as determining packer margin, this is relatively more simple than the others. Keep track of the choice/select boxed beef spread. That is the biggest demand indicator right there. You can also look at pork cutout values vs beef for a demand side indicator. Also on packer margin is the seasonal demand tendencies, but most of all look at captive supply and dressed/live prices vs futures. If the packers are consistently underbidding futures its indicative of them running in the red. Also, watch feedlot outweights (all of this data published weekly by TCFA)...that will tell you alot about future price movement. Looking at showlists and seeing the movements from there will help too, if you can get your hands on the data. (are "green" cattle moving, are showlists heavy? etc etc.) hope some of this rambling helps.
Hello TraderTX, Thanks for your info. That is quite a bit of info. I will delve into it. Have fun, Sridhar