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Swift's Market Comments

Fed cattle show some strength

Fed cattle show some strength
Feeder cattle could follow fat cattle back up.


Yesterday was a passable day for fat cattle. I would begin to anticipate the back-month contracts to start picking up premium.

With the low end of cash around $120, and what appears to be the real market around $130-plus, futures will find it difficult to find sellers that want to assume the additional risk of selling at abrupt discounts. I noted some spreading on Wednesday.

All in all, I anticipate futures to remain firm with the June contract finding strength at such a large discount.

Measuring moves: On this chart, the numbers above each letter is the range from low to high or high to low of the corresponding letter.

The premium increase on the August $120 puts begins to diminish the strategy to own them in regards to packers tying up inventory at a $12 basis spread. This has the potential to move futures higher quicker as the window closes; there could be a rush to secure that window while still open. 

Feeder cattle may offer some pricing options soon.

For now, supply is anticipated to be a steady flow for months to come. As yards are seeing some movement, it could lead to a slightly better marketing environment and therefore an increase in demand for feeders.

The push and pull of this would be that the two factors create an environment for which to anticipate a contracting price range. Recall that we anticipated this before the new contract low was made.

I understand that a penny to one person is different than a penny to another. However, in my analysis, the new contract lows were not by that much. With the tops seemingly falling short of previous ones, the feeder market only expanded the width of the range by $3.85.

So, if this current rally moves back to the down trend line, it would be an approximate $22 rally from the contract low to the bottom of the trend line.

The long story made short is there is nothing to do at this level that I can see. A trade to, or above, $155.00 August will lead to action.

An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits. You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. Past performance is not necessarily indicative of future results.

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