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Ridgway, IL | I don't think it's cause for concern, but I suspect futures will open a little lower on Monday, returning basis to a positive... That's an issue we have to deal with when 90% of the weeks cash trade takes place in 30 min on a Friday afternoon. It's not underhanded or anything, just the nature of the cattle trade. After opening the week slightly lower, believe we will regroup and look to what next week cash trade does, which in my opinion will be at least as strong as this week.
Basis and spreads should continue to show tighter a tighter s and d over the next couple months. Not saying it can't happen, but i think it takes a big down move in equities or managed money pushing around to make flat price trade down much. Fat cattle are 17$ off the cash lows, in really not that big of a time frame. Some sideways consolidation isn't bearish in my mind.
The way mine, and I imagine a lot of others formula trade works is using a regional index vs cme (as of close on Fridays) to establish basis. Which is probably partly why all the cash trade takes place at the same time typically on Friday afternoons. Week or two ago, we saw the cash trade develop early in the week, and then the futures slid down into Friday. We could have done a + 4 or 5 basis that week, but we just need to feed a little longer. Now for cattle going out in May, we wouldn't pass on an opportunity like that, because we're getting into new crop by then. The market is so thin for cash trade, the basis can be squirrelly! But overall, it's "feels" much stronger to me. Certainly than December. We weren't seeing anything good... It was like unhedged inventor is worth 30% less on the board AND let's add a -5 basis to that to really make you pace the floor.
Do I think we are going to 150? Not likely. I do believe it's possible that we get up into the 140s if exports tic up, carcass weights follow their current trajectory, and maybe we see a little more weather.
I'm long around 10-12 contracts worth of inventory that will finish in the next 120 days. I'm thankful prices are what they are and we didn't get taken to the wood shed in nov/dec. I have toyed with lifting the hedges on our hedged inventory, but after watching the 30% decline in 4q15, Ill admit I have a little more fear in me. We didn't fully realize the impact of the heavy carcasses until it was too late to take advantage of it... The last 10$ decline of that move was really emotional. So I'm not saying we've got it figured out in our shop, cause I've missed the boat too... but the indicators I like to watch are making me feel better than what we were looking at a month or so ago.
thanks for starting the thread.
Cfdr are think we are generally in agreement, though used some very different ideas to get to those conclusions.
Edited by LKM 1/31/2016 13:11
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Cattle
