60
SUMMER BBQ SEASON GIVES BEEF A BOUNCE
This is seasonally the best time to buy live cattle.
Fundamentally, beef consumption starts to
de cline in hot weather, but so does supply, as
feed lots are short on inventory. Cash grain
prices tend to remain high, as supply decreases
before harvest season. This supply/demand im -
balance creates a bid under the market. Then
before school season begins, federal government
sub sidies for school lunch programs kick in for
beef purchases.
As winter and the holiday season approach,
consumption increases. This helps keep a floor
of support in cattle futures through mid-February
(page 176). Enter long positions on or about June
20 then exit on or about February 7. Out of the
past 40 years, this trade has worked 26 times for
a 65.0% success rate.
A retreat in feed grain prices from the
ethanol-fueled rally, recent favorable grazing
conditions, and increased foreign buying have
been a boon for U.S. cattle ranchers. If demand
remains steady, then we could see sharply higher
red meat prices in the next few years.
The chart below has McDonald’s (MCD)
closing prices overlaid on the front contract live
cattle futures with the seasonal price move of the
futures on the bottom. It is interesting to note
that while beef has a tendency to rise from June
through August, MCD has a tendency to decline
during this same time period on average since
1970.
Traders may want to look at long futures
strategies on beef in June, and stock traders
certainly want to look for companies that would
benefit or in this case, see price weakness due to
a commodity market move, such as this inverse
relationship between MCD and beef prices. See
pages 133–138 for additional correlated trades.
Chart courtesy TradeNavigator.com
LIVE CATTLE (LC) BARS AND MCDONALD’S (MCD) CLOSES
(WEEKLY DATA JANUARY 2009–MAY 2010)
ENTRY EXIT PROFIT/
YEAR DATE CLOSE DATE CLOSE LOSS
1970 6/18 29.400 2/05 32.050 $1,060
1971 6/18 31.450 2/04 34.750 1,320
1972 6/20 35.250 2/12 43.775 3,410
1973 6/20 46.525 2/07 50.850 1,730
1974 6/20 37.000 2/07 36.150 –340
1975 6/19 41.050 2/06 39.175 –750
1976 6/18 45.975 2/07 39.075 –2,760
1977 6/20 42.050 2/07 44.250 880
1978 6/20 53.475 2/08 66.250 5,110
1979 6/20 69.650 2/07 71.175 610
1980 6/19 67.300 2/09 67.925 250
1981 6/18 68.750 2/04 63.200 –2,220
1982 6/18 59.525 2/03 62.150 1,050
1983 6/20 60.800 2/07 67.600 2,720
1984 6/20 65.600 2/06 68.200 1,040
1985 6/20 64.200 2/06 60.600 –1,440
1986 6/19 54.650 2/05 63.300 3,460
1987 6/18 65.525 2/04 70.925 2,160
1988 6/20 73.350 2/06 76.450 1,240
1989 6/20 73.600 2/06 77.275 1,470
1990 6/20 76.125 2/06 77.875 700
1991 6/20 75.700 2/06 77.675 790
1992 6/18 70.650 2/04 77.900 2,900
1993 6/18 75.925 2/03 74.350
–630
1994 6/20 70.975 2/06 73.975 1,200
1995 6/20 64.550 2/06 64.175
–150
1996 6/20 66.200 2/06 65.925 –110
1997 6/19 72.520 2/06 65.770 –2,700
1998 6/18 68.850 2/05 67.750 –4400
1999 6/18 69.100 2/07 72.750 1,460
2000 6/20 75.325 2/07 78.800 1,390
2001 6/20 76.750 2/11 75.975 –310
2002 6/20 69.600 2/10 77.900 3,320
2003 7/21 75.875 3/09 79.425 1,420
2004 6/21 86.250 2/08 88.800 1,020
2005 6/20 85.350 2/07 89.775 1,770
2006 6/20 87.100 2/08 94.875 3,110
2007 6/20 97.525 2/07 96.050
–590
2008 6/19 116.750 2/09 87.750 –11,600
2009 6/18 91.175 2/05 90.400 –310
40-Year Gain $22,240
JUNE LONG LIVE CATTLE (APRIL)
TRADING DAY: 14—HOLD: 160 DAYS
Cattle Seasonal Pattern since 1969
c01_CTA_2011_pgs_12-119_c01_cta_2011_pgs_12-119 7/21/10 2:03 PM Page 60
MONDAY
13
TUESDAY
14
WEDNESDAY
15
THURSDAY
16
FRIDAY
17
SATURDAY
18
SUNDAY
19
We can guarantee cash benefits as far out and at whatever
size you like, but we cannot guarantee their purchasing power.
Alan Greenspan (Fed chairman 1987–2006, on funding Social Security
to Senate Banking Committee 2/15/05)
Thomas A lva Edison said, Genius is 5% inspiration and 95% perspiration!” Unfortunately, many startup genius” entrepreneurs
mistakenly switch the two percentages around, and then wonder why they can’t get their projects off the ground. — Yale Hirsch
(Creator of Stock Traders Almanac, b. 1923)
To an imagination of any scope the most far-reaching form of power is not money, it is the command of ideas.
— Oliver Wendell Holmes Jr. (The Mind and Faith of Justice Holmes, edited by Max Lerner)
Knowledge born from actual experience is the answer to why one profits; lack of it is the reason one loses.
— Gerald M. Loeb (E.F. Hutton, The Battle for Investment Survival, predicted 1929 Crash, 1900–1974)
I’m not nearly so concerned about the return on my capital as I am the return of my capital.
— Will Rogers (American humorist and showman, 1879–1935)
End Short Cattle(V) (May 3)
Start Long Sugar(V)—60.0% Accuracy Since 1975—End Aug. 1—Page 58
End Long 30-Year Bond(U) (Jun. 2)
Fatherʼs Day
JUNE
LT:
LH(M)
OE:
LH(M)
LT:
BP(M), EC(M), SF(M), JY(M)
OE:
SB(N)
LT:
SP(M)
OE:
SP(M), CL(N)
FN:
CC(N)
c01_CTA_2011_pgs_12-119_c01_cta_2011_pgs_12-119 7/21/10 2:03 PM Page 61

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