Spreads in The Meats

Quote from cdcaveman:

... how does one define their risk on these?
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The Jan. 2013 is a good one to look at since we have the infrequent occurrence of negative GFM (Gross Feeding Margin) and the excessive moves in the Corn markets.

So, for example say we wanted to put on the spread with expectations that the GFM will turn positive.
In this case we Short the inputs, Feeders and the Corn, and Long the Live Cattle. For this example we'll put on the spread on 5/8/12 the second time the chart appears to show a bounce from the negative 1.50 per cwt. on the 5-4-10.

Short FC @ 161.700
Short C @ 539.50
Long LC @ 126.600

On 7/2 the lowest day with GFM @ -3.188 we have prices of:
Short FC @ 156.700 for a profit of $12,500
Short C @ 664.00 for a loss of $24,900
Long LC @ 127.950 for a profit of $5,400
net loss (drawdown) $7,000

On 7/18 the GFM is positive to almost 1
Short FC @ 146.225 P/L = $38,687.50
Short C @ 783.25 P/L = ($48,750)
Long LC @ 131.500 P/L = $19,600
Net P/L = $9,537.50
 
Quote from stoic:

The Jan. 2013 is a good one to look at since we have the infrequent occurrence of negative GFM (Gross Feeding Margin) and the excessive moves in the Corn markets.

So, for example say we wanted to put on the spread with expectations that the GFM will turn positive.
In this case we Short the inputs, Feeders and the Corn, and Long the Live Cattle. For this example we'll put on the spread on 5/8/12 the second time the chart appears to show a bounce from the negative 1.50 per cwt. on the 5-4-10.

Short FC @ 161.700
Short C @ 539.50
Long LC @ 126.600

On 7/2 the lowest day with GFM @ -3.188 we have prices of:
Short FC @ 156.700 for a profit of $12,500
Short C @ 664.00 for a loss of $24,900
Long LC @ 127.950 for a profit of $5,400
net loss (drawdown) $7,000

On 7/18 the GFM is positive to almost 1
Short FC @ 146.225 P/L = $38,687.50
Short C @ 783.25 P/L = ($48,750)
Long LC @ 131.500 P/L = $19,600
Net P/L = $9,537.50
More...

So your trading effectively the convergence of input to output ..
Corn.grain make cattle .... cattle cant stay cheap relative to expensive imputs
 
cdcaveman said:
So your trading effectively the convergence of input to output ..
Corn.grain make cattle .... cattle cant stay cheap relative to expensive imputs
More...

stoic said:
The Jan. 2013 is a good one to look at since we have the infrequent occurrence of negative GFM (Gross Feeding Margin) and the excessive moves in the Corn markets.

So, for example say we wanted to put on the spread with expectations that the GFM will turn positive.
In this case we Short the inputs, Feeders and the Corn, and Long the Live Cattle. For this example we'll put on the spread on 5/8/12 the second time the chart appears to show a bounce from the negative 1.50 per cwt. on the 5-4-10.

Short FC @ 161.700
Short C @ 539.50
Long LC @ 126.600

On 7/2 the lowest day with GFM @ -3.188 we have prices of:
Short FC @ 156.700 for a profit of $12,500
Short C @ 664.00 for a loss of $24,900
Long LC @ 127.950 for a profit of $5,400
net loss (drawdown) $7,000

On 7/18 the GFM is positive to almost 1
Short FC @ 146.225 P/L = $38,687.50
Short C @ 783.25 P/L = ($48,750)
Long LC @ 131.500 P/L = $19,600
Net P/L = $9,537.50
More...

Great post Stoic, even though it was a while ago. Are most of your trades planned similar to this?
 
Live Cattle futures on a tear for the past few weeks, breaking out of 1-yr range. April contract expires tomorrow, and the J17-M17 Cal spread has been widening substantially. Anyone care to comment on this recent price action in relation to the contract expiry?
 
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