wmeubank@ocp.kcmo.com
(May 9, 1997) LIVE CATTLE: Most of the pre-Memorial Day holiday buying is done, so rallies from current levels may represent a sale. Retail demand is expected to soften. Boxed beef prices have begun to slip. While June is under the cash market, it is not uncommon to see June trade several dollars under cash, so I would not view that as necessarily supportive, especially in an environment that suggest lower cash prices. Rollovers of positions from the June to August or October have begun. Next Friday there will be a Cattle on Feed report which is widely expected to show an increase in cattle. Some analysts are looking at the potential for record large on feed numbers. This suggest that back month cattle could take a hit. However, there are negotiations going on now, that if successful, would allow the U.S. to export beef to the EU. That could be an important development. While October or December cattle could experience a hard break, I would watch them for signs of reversals for an eventual strong rally. For now, sell June cattle on a test of the 6500's with stops of 100 points. Look for a decline to the low 6300's, possibly into the mid-6200's. Buying may appear near 6390 and 6360, with further support seen at 6330 and 6300. Sell August cattle in the 6500-6550 area with stops of 100 points or so. Option traders might buy August puts, and if aggressive, consider selling calls.
M. Steven Morgan
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