wmeubank@ocp.kcmo.com
(May 8, 1997) CATTLE: OUTLOOK--Feedlot supplies remain large. At least on paper they look big, but this has also been confirmed recently by the daily kill numbers. There are many days the daily slaughter rate is the north side of 130,000 head, a relatively large number. Yet, prices are holding up fairly well. As mentioned the last few weeks, the other side of the equation is demand. It must be good. Pork prices remain too high in relation to beef due to massive exports to Japan. This beef competitiveness is keeping demand brisk. Barbecue season is also now starting full swing. Look for two-sided price action with a slightly bullish bias over the coming weeks.
STRATEGY--FEEDERS: Hold your June 64 and 65 put options for downside `price insurance.' At less than $1.50 the premiums are reasonable and give you a worst case outcome if prices do fall. Yet, puts will not limit your upside potential. Hold until you market your cattle. Hedges in the farther out months are not recommended at this time since the fundamentals improve as time marches on.
COW/CALF OPERATORS: We have remained unhedged in the feeder futures and thus far this continues to be the right course of action. As long as the trend appear to be up this is the preferred strategy. Feedlot operators should continue to hold buy hedges in deferred feeder futures.
TRADERS: We remain long October feeder cattle at 74 or less. Raise the risk point to a close under 7290. This is a longer-term trade. Leave upside objective open at this time.
George Kleinman
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