07-03-2019: August Feeder Cattle:

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calendar Spread

Level Table
Other Factors
Recommendation

2
1
6     4

01     3


Introduction

5 We are anticipating that feeder cattle prices will from this point on remain fairly flat. We had to double-weight the news in our decision matrix to get a "buy" decision. Traders should possibly look for a trading range rather than a long-term trend. A lot has to do with grain prices, which are recently coming down after soaring a bit, at least for corn, suggesting that there may be heavier carcass weights coming but cattle wtihheld from market longer.


Intermarket Analysis

We fed Feeder Cattle, Live Cattle, and Lean Hogs into a neural network to get the following result:




Parabolic Chart

August Feeder Cattle:

Parabolic Chart


Nirvana Chart

August Feeder Cattle:

Initial Chart


News Analysis

There appears to be a key reversal underway in cattle futures which many times is a sign that a major low is in place. Trade is choppy and two-sided in a narrow range. Better demand and a steady tone to the cash market this past week has helped support prices. Boxed beef prices however are lower. Average dressed steer weights are lower than average. Beef production in the latest week is up 2.6% over a year ago. Weekly slaughter rate last reported is 485,000 head. That is up from 470,000 a year ago. U.S. weekly export sales for June 20th came in at 15,100 tonnes compared with the average of the previous four weeks of 18,200. Cumulative export sales for 2019 are down 0.1% from the previous year. This tends to suggest that upward price pressure will come from technical considerations rather than fundamental data.

The week beginning July 1st will be an abbreviated trading week. Geo-political issues over the past weekend will dominate trading news with hopes for resolving trade issues with China and a detente of the North Korean threat. Feeder futures were higher following a corn report. Lower corn prices allow farmers to withhold bringing cattle to market longer.

Feeder cattle prices are a "shock absorber" between fed cattle prices and corn prices.

Agriculture Secretary Sonny Perdue keeps putting out statements that China will want more U.S. beef.

69% if oasture conditions are rated good to excellent. 56% if the corn crop is rated good to excellent. Lower carcass weights are moderating production. There is little storage of beef beyond pipeline supplies. Total cattle slaughter is up 1.3% year over year in the 24 weeks ending in mid-June. Steer slaughter is down 2.2% while heifer slaughter is up 7.9% year over year. Current steer carcass weights are 4.9 lbs. less year over year, and current heifer carcass wegihts are 791 lbs., down 4 pounds year over year and 5.8 lbs. less than the first 24 weeks last year.

Feed lots are trimming back days on feed due to higher feed costs.

Heifer slaughter is increasing, as herd expansion is ending. Expansion for the first half of the year was only 0.5%.

One analyst states feeder prices are generally expected to average 3% to 5% below 2018 levels for the remainder of the year. However, that would still leave room for a potential increase in feeder prices this year due to recent price drops.

Kansas feeder steer prices are expected to average between $143 and $150 for the rest of the year, according to Kansas State University.

We anticipate that feeder cattle prices will flatten out for the rest of the year based upon the above news, with a slight upward bias, especially as approaching holidays.


Point & Figure Chart

198.0|                                                                  R  6/28
     | CME - Aug-19 Feeder Cattle, 50000 lbs, c/lb Cm.=0.07  Lim.= 2.4
     |
     |X
     | O
188.0|_O_______________________________________________________________________
     | O
     | O
     | O
     | O                    X
178.0|_O____________________XO________X________________________________________
     | OX                   XO  X     XO
     | OXO                  XO  XO    XO
     | OXO                  XO  XO    XO
     | OXO                  XOX XO  X XO
168.0|_OXO__________________XOXOXO__XOXO__X_____X______________________________
     | OXO                  XOXOXOX XOXO  XO    XO
     | OXO                  XOXOXOXOXOXOX XO    XO
     | OXOX     X           XO O OXOXOXOXOXO  X XO
     | OXOX X   XO          X    OXOXOXOXOXO  XOXO
158.0|_OXOX_XO__XO__________X____O_O_OXOXO_O__XOXO_____________________________
     | O O  XO  XO          X        O O   OX XO O
     |     OXOX XO          X              OXOX  O
     |     OXOXOXO          X              OXOX  O
     |     OXOXOXO          X              OXOX  O
148.0|_____OXOXOXOX_________X______________OXOX__O_____________________________
     |     OXO OXOXOX   X   X              O O   O
     |     OX  O OXOXO  XOX X                    O
     |     OX    OXOXOX XOXOX                    O
     |     O     OXO OXOXOXOX                    O
138.0|___________O___OXOXOXOX____________________O_____________________________
     |               OXOXOXO                     O
     |               O O OX                      O
     |                   OX                      O
     |                   OX
128.0|___________________OX____________________________________________________
     |                   OX
     |                   OX
     |                   OX
     |                   O
118.0|----|----|----|----|----|----|----|----|----|----|----|----|----|----|---
        11111             1            1         1
      66011121122355566778013555566677811112455890
      23001120201202312222231011302212210020012211
      20742618287154143165503556176825852899944725
Our computer tells us a non-conventional reactive approach works best for Feeder Cattle on p&f charts. Therefore the above chart is taken as giving a buy signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical low and a seasonal down period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "Project". It is giving a buy signal.

Internal Printout 1

Results of "Project" for Feeder Cattle (blue lines = successful trades, red, unsuccessful): (Not always in the market.)

Results


Third System Confirmation

Our third system has triggered a buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $500. Initial margin on a single contract is $3,080. Use of options is advised.


Historic Range

If we eliminate the "blip" in 2014-15, then scale traders are not a factor in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a downtrend remains intact from the last volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Feeder Cattle October 136 Put and Sell (1) Feeder Cattle October 140 Put @ 2.025 to the sell side or greater.


o 1 o 2 o 5


o 3


o 4


Calendar Spread

What the Aug. - Jan. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. The best time to enter or leave the above spread is when it is at -0.30 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at +1.60 or wider buying the far as prices are rising and then selling the near. At this time, we appear to be approaching the buy the far, sell the near point.





Level Table:

Level Table

The path of least resistance is down.
174.0|                                                                  R  6/28
 CME - Aug-19 Feeder Cattle, 50000 lbs, c/lb Cm.=0.07  Lim.= 2.4
     |
     |
     |
169.0|FFFG_____________________________________________________________________
     |FFFFFGGG
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164.0|BBBFFHHHJ________________________________________________________________
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     |AAAAABBBBBBBCCEEFFHHHHHJJJJJJ
     |AAAAABBBBBCCCCDDEEEEEHHHHJJJJJJLLLLNNNT
     |AAAAABCCCCCDDDEEHHJJJJLLLLMNNOTTV
159.0|ACCCCCDDDDDEEEEJJKKKLLLMMNNNNNNOOOPTTTTVVVVV_____________________________
     |ACCCCCDDDDDEEEEJJKKKKKKKKLLMMMMNNNOOOOOOPPPPPPQQQQQRSTTTUVVV
     |CCCCDDDDDEEEKKKKKLLLMMMNNOOOOOPPPPPPQQQQQQQQRRRRRRSSSSTTUUUUUV
     |DDEKKLLLLMMMMNOOOPPPQQQRRRRRSSSSSSTTTTTUUUUUUUV
     |DKKKLMMPPRRSSSSSSUUUUV
154.0|KSSSSSUUUV_______________________________________________________________
     |UVV
     |VVV
     |VV
     |VV
149.0|VWW______________________________________________________________________
     |VWW
     |WWW
     |WWW
     |WWWWWX
144.0|WWWWWWXXX________________________________________________________________
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     |WWWWXXXXXXXXYY
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139.0|YYYYYY___________________________________________________________________
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129.0|_________________________________________________________________________
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124.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.177
                     1 1 1 1 1 1                                      
       7 7 7 8 8 9 9 0 0 1 1 2 2 1 1 2 2 3 3 4 4 5 5 5 6 6           6
       0 1 3 1 2 1 2 1 2 0 2 0 2 0 2 0 1 0 1 0 1 0 1 3 1 2           2
       3 7 1 4 8 2 6 0 4 7 1 6 0 7 1 4 9 5 9 2 6 1 5 0 3 7           8


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 6/27 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                GFQ9    August Feeder Cattle

                      High Price:  148
                   Current Price:  136.85
                       Low Price:  131.38

                            Risk:  0.078
                     Opportunity:  0.160

                    (O/R) Ratio =  2.038


Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart + 1
Nirvana Chart + 1
News + 2
Point & Figure + 1
Cyclicals - 1
Seasonals - 1
Internal System 1 + 1
Internal System 2 0
Third System + 1
Historic Range - 1
Commitment of Traders - 1
Range/Volatility - 1
Level Table - 1
Other Factors - 1
Total + 1
Place 4 August Feeder Cattle on a Buy Watch with stoploss @ -3.40 below the get-in point when recent price is represented as "136.85".
____________________________________________________________________________________________________________________________________________M.T.