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Bradbard: Meat Market

I'm going to address two markets and three possible trades:

  1. live cattle;
  2. lean hogs; and
  3. spreading the two against one another.

December live cattle: After a 6.5% appreciation this summer it appears that live cattle reached an interim top in recent dealings, as prices have started to roll over. Prices are now under their 20-day mobbing average and headed lower. I've suggested bearish exposure and would use the Fibonacci levels as exit targets.

December lean hogs: Lean hogs have slid dramatically. Prices from the year's high to the year's low have dropped nearly 20%. Strong support exists at $0.70, as prices were unable to penetrate that level after several attempts. I'd suggest buying dips that hold $0.71 in December, trying to capitalize on an appreciation in the coming weeks. Similar to cattle, use the Fibonacci levels as exit targets.

December spread -- buying lean hogs, selling live cattle 1:1: This cannot be viewed as one trade but rather two separate trades. This is a recognizable spread by the exchange, so the margins are less. Understand, however, that if you're wrong on both, you lose, or if you're more wrong than you're right on one product, you lose. Because both contracts are the same size, 40,000 lbs., every penny will make or lose $400 on the individual trades as well as the spread. I'd be willing to risk to the recent lows with a target of $0.48. Risk vs. reward is not much better than 1:1. Monitor the spread, but I think one is better off managing the individual trades.
At the time of publication, Bradbard had no positions in any stocks mentioned. Risk Disclaimer: The opinions contained herein are for general information only and are not intended to provide specific investment advice or recommendations and are not tailored to any specific's investor's needs or investment goals. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions ("Forex") before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results.

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