Cattle Crush Spread: Book The Profits

Cattle Crush Spread

The IMC blog is holding hypothetical long positions in the August-April-May 6:3:2 cattle crush spread. The initial position was entered at -$10,860 (premium the sum of the feeders and corn) on October 27th and an ‘add-on’ position was entered at -$350 (premium the sum of the feeders and corn) on February 23rd.

The spread endured a wicked two-month decline from the contract high into the early April low. Since then, it has recovered about two-thirds of the decline and the cattle value has a premium for the first time since early March.

Aug-April-May 2015 Cattle Crush spread hourly

Aug-April-May 2015 Cattle Crush spread hourly

So here’s the dilemma: Next week is the Last Trading Day for the April feeder contract and it’s the First Notice Day for the May corn contract. We are looking out to the December-August-July 6:3:2 cattle crush spread, but it’s a few thousand dollars higher. Therefore, our opinion is that we should bag the profits here. We’ll get to the sidelines and then start monitoring the December-August-July 6:3:2 cattle crush spread for new setups.

Trade Strategy:

For the long August-April-May 6:3:2 cattle crush spread entered at -$10,860 (premium the sum of the feeders and corn) on October 27th and the ‘add-on’ position entered at -$350 (premium the sum of the feeders and corn) on February 23rd, exit right here at +$200 or better. This will yield a profit of +$11,060 on the initial position and a profit of +$550 on the ‘add-on’ position.

Also, cancel the setup to add another on a close above +$6k (premium live cattle).

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