COMMODITY REVIEW AND OUTLOOK

195 Route 6A, Suite 6, Orleans, Massachusetts

(August 14, 1997) CATTLE: Tomorrow afternoon there will be a USDA Cattle report. Traders should be thinking about whether or not they wish to be in the market for the report. There is not much of a consensus for the report, as far as I can tell. Evening up for the report has been the main feature. Cash markets were a bit higher, which added support. If corn prices trend sharply higher, it may support deferred cattle based on the idea that liquidation of feeders may occur. As feeder supplies are already tight, traders should focus very strongly on the idea of buying deferred cattle contracts, February or April, for example. For the nearby cattle, cash markets have firmed, and boxed beef appears to have found a floor. However, like the hogs, charts are becoming more negative.

RECOMMENDATION–Traders might continue to sell October on rallies to 7000 or so with stops of 100 points or over 7145. One can't count out an extended rally to the 7090 area, so if more conservative, hold out for a rally to that area before selling. Very aggressive short-term traders might consider buying October cattle in the low 6900's, upper 6800's with stops of 50 points or so, looking for a rally to the upper 6900's, lower 7000's. Support lies near the mid 6900's and 6920 or so, 6900 and 6862. Option traders should consider October puts on rallies. If you're a long-term trader and well capitalized, consider buying February or April cattle on dips. More conservative long-term traders should keep an eye on February or April cattle for a buying opportunity on a hard break.

M. Steven Morgan

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