Feeder Cattle/Corn Spread
Today the April feeder/May corn (x6) spread closed at a three-month low of -$7,512.50 (premium corn). The break below -$7k elected our ‘add-on’ short sale criteria. Therefore, IMC blog made a hypothetical trade by selling one more 50,000 lb. April feeder cattle contract at approximately 227.225 (contract value of $113,612.50) and simultaneously buying six more 5,000 bushel corn contracts at approximately $4.03 3/4 (total value of $121,125). Initially, we will risk this ‘add on’ position to a two-consecutive day close above +$2,912.50 (premium feeders), which is $500 above the November 19th rally high.
Based on four decades of price history, it is not unreasonable to expect the feeder/corn (x6) spread to return to the -$60k (premium corn) level. The spread has not been this low since spring. There’s still a lot of ground to cover for it to get there, which also means there is ample opportunity for new short sale setups to materialize. This could allow spread traders to continue pyramiding a short position in order to take full advantage of the move. We will continue to monitor the situation and see if the hoped-for setups show up.