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| This is a difficult question now. Ever since the first of the year, it seemed obvious that cattle were bunched to come in the late spring/early summer. Bull spreads worked great - rolling the long side from the Feb to the Apr too. Butterfly spreads worked great - as I said previously - there was just so much relentless hedging pressure on the June. There still has been - when a trader (cattle feeder) gets caught on the wrong side of a trade, the market rarely lets him out.
So, we're left with the question - are the cattle really there? This "shipwreck" has been anticipated for so long, we have to ask - will it really happen when expected? I saw that "other disappearance" was high - but I don't think they have a real good handle on that number - it could easily be larger. But - the relentless pressure on the June is still there, so we have to acknowledge that the cattle really are there, as feeders with unhedged cattle coming soon are still in panic mode.
But, this is a very long time to anticipate something without that anticipation affecting the fundamentals. Since the COF report, placements have slowed (according to my numbers, at least). And we don't know how many of those cattle put on feed earlier might eventually fall into the "other disappearance" category.
The light choice cut-out is at 211.34 - it has been trending down and is now at mid-Feb levels. This does not indicate great demand, IMHO. Packers are making money, but less so recently - but they have to be looking forward to very good profits just ahead. Hedgers are floating high with the discounted futures - there will be no hesitation about selling as early as possible - unless the packers manage to slow the kill - but that is not as easy as when they are not making profits and they know the new crop bulge is just ahead.
So far, this scenario is following the cycles perfectly. That points to a mid-summer bottom. But, what makes me cautious is that this low has been anticipated for so long that I have to think the fundamentals have been affected, and the expected might not happen. Long story short - I'm going to wait and see if the bulge does indeed materialize - and how bad it is.
All guesses, of course.
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Cattle on Feed
