Feeder Cattle/Corn Spread: Entry Signal Triggered

Feeder Cattle/Corn Spread

On November 19th the blog made a hypothetical trade entry on the short side of the April feeder/May corn (x6) spread when it rallied to +$1,000 (premium feeders). The spread was initiated on a bounce to the Fibonacci .382 resistance line. Initially, we are risking a two-consecutive day close above +$6,000 (premium feeders).

We also have an additional setup to sell another 50,000 lb. April feeder cattle contract and simultaneously buy six more 5,000 bushel corn contracts if the spread closes below -$7,000 (premium corn). This ‘add-on’ position will initially be liquidated on a two-consecutive day close $500 above the highest closing price after November 18th that precedes the entry on this position.

April Feeders May Corn (x6) spread daily

April Feeders May Corn (x6) spread daily

Recall that the recent trade above ‘even money’ in the feeder/corn (x6) spread is a something that has only happened twice in history. Over four decades of history (basis the nearest-futures chart) reveals that the feeder/corn (x6) spread normally oscillates around -$60k (premium corn).   If the spread has indeed topped out and the ‘add-on’ position is triggered, we could have a tiger by the tail as the profit potential is outstanding. In the event that we are lucky enough to have entered a short sale ahead of a sizable bear market, we will certainly be looking for setups to add on as the trend unfolds. Stay tuned!

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