The December contract for live cattle futures has typically held a premium over the less significant August contract. The March bump in prices led to the December vs August intramarket spread shooting up towards its historical high. Anywhere over zero is a good entry. Given the long-term bearish outlook for the expanding herd, it looks even more promising this year.
The charts below detail the last 15 years of the spread. There are times when the spreads spikes above zero. However, these peaks are typically short lived or close to first notice. Given this trend, I’ll be looking at the first entry above zero (Aug16 minus Dec16) with a position being added every buck. Be sure to properly leverage to give yourself the ability to add positions.
The exit target is -1.00. An exit here would be at least $400 per contract spread before fees.
Trade Details: Live Cattle Spread
Futures Contracts: Short August ’16 Live Cattle vs. Long December ’16 Live Cattle
Trade Dates: No specific dates but avoid carrying it too close to August
Entry Target: 0.0+ (adjust based on your personal objectives and risk tolerance)
Margin: $1,050 (check with the CME for changes in margin)