Cattle Crush Spread
Today a hypothetical trade for the blog was triggered in the 6:3:2 cattle crush spread. The position would have been created by purchasing six 40,000 lb. August 2015 live cattle contracts, shorting three 50,000 lb. April 2015 feeder contracts, and shorting two 5,000 bushel May 2015 corn contracts when the spread declined to -$8,000 (premium the sum of the feeders and corn). Initially, the exit strategy is to liquidate the spread on a two-consecutive day close below -$12,500.
Once this cattle crush spread clears the mid-July bounce high of -$802.50 we will have a breakout on our hands. This would trigger a Turtle-style buy signal. Keep a close eye on this one. We will have additional commentary if/when it happens.