wmeubank@ocp.kcmo.com
COLUMBIA ASSET MANAGEMENT
One World Trade Center, #1160, Portland, Oregon
(March 25, 1997)
LIVE CATTLE/FEEDER CATTLE:
The cattle complex was down slightly across the board in both the fats
and the feeders
today ending, for the most part, in the middle of the range of the past
week's price movement. $70/cwt. appears to be a pretty hard ceiling for
the market and I feel we won't see prices much over $70 maybe $71 on a
spike for the rest of the spring and summer. From my past experience, a
9-10 dollar movement in price is typically the longest sustained rally
that fat cattle can put together in any given season and we've gone a good
portion of that distance already. Coupling this with the fact that the
futures markets are already discounting the summer fats by several dollars,
it leads me to believe that, barring some major market upheaval, we shouldn't
see prices go much higher throughout the summer. In my mind, the two major
variables that will influence the market in the coming months will be the
grain markets and cattle numbers. The biggest question about cattle numbers
will be the confirmation or disqualification of the rumors that there are
a ton of cattle coming off wheat pasture in the southern Midwest. I've
had so many people volunteer to me that they couldn't believe how many
cattle there were out on wheat pasture that it is hard not to accept as
fact that there is going to be a burdensome influx of supply in the next
two months. But, until we can get some hard truth on the actual numbers,
this will be a variable that we will have to watch. As for the grain markets,
there seems to be a lot of room for speculation. We've already had an uncharacteristically
large run-up in the grain markets for this early in the season, but with
the wildness of last year and the short supply coming into the current
crop year it is not without merit. With the conflicting messages, on one
hand, of coming into the crop year with one of the lowest carryovers ever,
and the other hand of reports (including the Canadian Wheat Board) predicting
one of the all-time biggest harvests, it is bard to ascertain where these
grain markets are going to go. I don't think we are going to see anything
like last year's grain prices but still, it would be better to be prepared
just in case we get some bad weather between now and planting. With these
thoughts in mind, I can make the following recommendations:
SPECULATORS
I believe we're going to see a relatively flat market for the next couple of months so I would like to sell calls above contract highs on rallies and sell puts at least $2-4 dollars out on selloffs. I also like the idea of buying the July 300 corn call and selling two of the July 330 corn calls. This position can be initiated at almost no cost and I believe the margin required is around $250. This position will allow you to participate in a rally if corn decides to get up and go, but shouldn't hurt if the corn remains in a sideways channel.
HEDGERS
I believe we're going to see a sideways market for the next couple of
months. On a rally buy a put and sell a higher call to defray some or all
of the cost of the put.
Miles Curtis
Added to the WWW 04-14-97
Last updated on 04-14-97
Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com