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| Big Dog & March Feeder Cattle.
The March Feeders look like a bottom to me, at least a temporary one. There should be stop-losses over $108.50 & more above $111.50. Those are tempting targets for professional traders & would think the first target will be challenged pretty quickly, maybe today.
I think this corn market is going to enter a wide consolidation range. Meaning a couple more down days in corn should give the feeder market some legs. If the price of March Feeders tests this $105 to $106 one more time & holds…I am a buyer. If the stops are run first and expect at least the lower ones will be & the market reacts down to test support one more time, it needs to be watched closely. There may be some potential there as we are entering a strong seasonal.
There is one other consideration to watch: March Feeders have experienced 3 higher consecutive closes. In my experience, check the charts, each commodity trades a bit differently, but coming off a low, A MARKET WHICH EXPERIENCES 5 CONSECUTIVE HIGHER CLOSES is usually ready to run for at least a short while.
However, March Feeders will have some resistance at the down trend line, I don’t keep one on feeders but expect it is about at the $110 level. If the market does eventually run those higher stops, I would then expect another technical downside.
The weekly chart looks somewhat constructive also as the market found at least temporary support above previous lows. But, as always, feeders will be influenced by corn.
After spending a couple of days going through these livestock numbers, I simply cannot find anything of interest to me; anything suggesting some imbalance offering a huge opportunity. I put up regression charts on corn vs Kept for Breeding, Farrowing Intentions & Sows Farrowing as a per cent of the herd & nothing caught my attention except Farrowing intentions with a 6-month time lag. The data does suggest the report should reflect a 2 or 3 per cent decline in FI, but do not feel strongly enough about the statistics to put any money on it.
Mostly, the data just confirms the cow herd continues in strong hands, the hog breeding herd remains in a rigid pattern and appears to me we simply have to speculate higher feed costs will eventually affect farrowing intentions, some lower kill weights in both hogs and cattle and some inflationary upside in prices; to me, that means watch the charts for opportunity.
I cannot get enthused about this hog market. The forward spread relationships are such there is too much risk for me if we don’t get those farrowing intentions lower. I’d like to be a buyer as some lows have been tested but this December report is the more thorough report & USDA uses a balance sheet approach & sometimes residual hogs can appear or disappear out of the blue. A little too much risk for me. In the old days I occasionally would take a shot at the hogs coming into a report, most usually I spent the next few days: usually on the first day telling my floor guy to ‘get me out on a hard spot’..the next day “DRT –(disregard the tape) Get me out!” And on the third day is was usually just GMO!!! “Get me out!!!” (there were some additional words used by me which are not appropriate for this forum).
In the old days, before electronic trading and the more accurate monitoring of prices and trades, there used to be what I called the “old helping hand.” If you went in and took on a limit grain position (3 mil. In those days) and/or a 100 car livestock trade…some folks watch those trades. All is okay if you were right…but, if you were wrong…maybe bad wrong…prices always seemed to go against you until those folks recognized you were coming out of the trade & “helping you” by providing the worst possible price.
In these grain markets, again due to holidays and upcoming important reports, I think there is a great likelihood we will enter wide trading ranges. Granted the March wheat spike looks pretty lonely above $10, but am not totally convinced it is a top. There were some folks who took this news about the Chinese action to cease subsidies on exports as bearish. That is not correct. We will get that wheat & corn business to those other Asian countries, (if the mandate remains) but that most likely will not be of any effect until after January.
In forming a top, I would like to see (seldom get what you like to see) ..a consolidation formation for a few days & followed by a down side gap opening & if the gap is not filled in the first 30 minutes, I am short (at the market). This can be tricky because you should use an actual stop loss above the trade to prevent walking into an upside reversal; in the sort of markets we are currently involved, two or three tries may be necessary until the strategy is successful. Have to contend with a few losses. But, usually the payback is quicker going down. When this bus goes over the cliff, it could be a fast trip.
I brought the Commitment of Traders up to date; I use the data including futures and options but ignore the index funds. Nothing earth shaking except the commercials are still net long old crop Chicago wheat.
Open Interest Quick Look during advancing prices
First week of Nov vs. Dec. 11
Top line is Nov.-below line is Dec.
Corn Old Crop New Crop
Large Traders 89,000 117,000
110,000 127,000
Commercials -20,000 -75,000
-71,000 -74,000
Small -68,000 -41,000
-38,000 -52,000
Wheat
Large -32,000 44,000
-29,000 42,000
Commercials 53,000 -29,000
42,000 -28,000
Small -20,000 -15,000
-13,000 -13,000
Soybeans
Large 113,000 30,000
108,000 47,000
Commercials -87,000 -20,000
-83,000 -35,000
Small -26,000 -10,000
l -25,000 -11,000
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Feeders, Grain & some thoughts
