Cattle Trading Strategy
Aug 12, 2010
The CATTLE market has many traders scratching their head. In yesterday's trade the outside markets got hammered but cattle stayed steady and even sparked an impressive late day recovery. The word on the floor is that packers have had to pay up for cash cattle as of late, and there is now some talk of relatively tight feedlot supply and slow non-fed cattle slaughter. News that cash cattle traded $95.00 in the southern plains, up $2.00 on the week, also helped to support the market. Fears of a slowing economy is holding this market back and should remain a major concern in the coming months. Currently demand is holding up better than expected, as long as outside market forces are not too negative we should continue to see descent buying. We believe this market will continue to test new highs but will struggle to maintain ground as more negative global economic news impacts the markets.
We wanted to include a quick note for those trading LEAN HOGS. We are continuing to hear numerous reports of poor breeding this summer from hog producers, suggesting that pork production next spring could be substantially lower than expected. A long string of 90+F days along with poorer than normal quality corn are thought to be behind the problem. We recommend that Producers sit tight on further hedges until more is known about the extent of this issue, speculators may want to begin building longer term bullish positions on any significant pull-backs.
Trading Strategy
We believe the cattle market is stuck in a trading range as it desperately attempts to make new highs but is constantly pulled back by fears of a struggling global economy and fears of slowing demand. To take advantage of this range we will be Selling (1) Oct Live Cattle 98 Call & (1) Oct 92 Put @ 210. Basically this means we believe the Live Cattle Market will trade between $90-$100 during the next 50 days.
