Good evening. I am Stephen Davis with Walsh Trading Inc. in Chicago, Illinois. 

Fundamentals for live cattle continue to climb since starting to trend higher in April. New contract highs were reached in late May and early June. Many other futures markets moved into new highs this week. 

Live cattle also reached positive basis, meaning that the cash market price is higher than the futures price.  The cash market is is the immediate exchange of physical cattle for immediate payment. 

“Cattle inventories remain the fundamental driver,” says James Mitchell, University of Arkansas extension livestock economist, adding that "supply constraints are supporting prices across market segments.”

On Friday, July 25, the U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS) is due to release July Cattle Inventory Report, which surveyed 18,000 cattle operations nationwide to provide an up-to-date measure of U.S. cattle inventories. 

Given these conditions, a trade strategy would be to buy August live cattle and sell October live cattle. Another spread idea is buy August live cattle and sell December live cattle. 

Today, July 15, August live cattle was up 3.05. October live cattle was up 2.50. December live cattle was up 2.15. Look for this relationship to continue. August cattle will continue to gain on October and December live cattle, in my opinion. This is a very conservative way to trade live cattle futures.

The chart below shows the effects of buying August live cattle and selling October live cattle. Look to make two points or $800 on each spread. 

When the technicals and fundamentals come together in a market, this is a strong and powerful signal for this spread to continue to go up, in my opinion. 

To discuss trading strategies, contact me at 312-878-2391.

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Stephen Davis
Senior Market Strategist 
Walsh Trading

Direct 312 878 2391 
Toll Free 800 556 9411
sdavis@walshtrading.com  
www.walshtrading.com

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