wmeubank@ocp.kcmo.com
(May 8, 1997) LIVE CATTLE: Cattle futures posted a mostly sideways trade during the past week despite higher cash and boxed markets as it appears that the market is a bit weary at current levels. The cash market ended the week at $69.00 which was up $1.00 from the previous week which was anticipated. The boxed beef market had a firm tone for most of the week with very strong movement which signaled that retailers remain willing buyers. The question is still whether or not June live cattle are at too big of a discount to cash market and the indications during the past week was they probably are. With the cash market at a $3.00 premium to the June contract it does appear the board may have some room to rally, especially given the fact that fat cattle supplies are at the tightest level seen for some time. One cannot argue that supply will not increase going into the summer with the last Cattle on Feed report showing total cattle on feed at 7% above year ago levels, but as long as strong marketings continue on a week-to-week basis the current price on the board may be a bit to pessimistic.
Overall, market internals remain in a fairly stable state and only two things need to continue to take place for the market to stay firm. The first is maintaining demand at current levels domestically which does seem possible as it appears most competing meats have priced themselves out of the market. The second factor will be a reduction in non-fed slaughter which will probably take place as long as the grain markets do not go ballistic. From a technical standpoint June live cattle are in an uptrend; the trend would down on a close below $63.77, momentum indices are a bit extended to the upside which could indicate a correction may be in the cards for the coming week; a close above $65.82 would target the market to the $68.65 level.
FUTURES STRATEGY--Long LCM at $64.50. Maintain protective sell stop close only up to $63.60.
OPTION STRATEGY--Long LCM $66.00/$68.00 vertical call spread at $.40/short $62.00 put at $.60.
Tony Montini
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