July 29, 2008

Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was untested yesterday with no packer bids evident as of last night and cattle feeders beginning the week pricing their new showlists at $98 live and $1.55 dressed. A look at last weeks sales price and volumes shows Texas/Oklahoma feedlots selling 27,987 head of fed cattle for $95 live, Kansas feedlots selling 23,038 head of fed cattle for $94-$95 live and $1.49 ½ -$1.50 dressed, Nebraska feedlots selling 47,388 head of fed cattle for $95-$95.50 live and $1.52-$1.52 ½ dressed, Colorado feedlots selling 4,814 head of fed cattle for $94.50-$95 live and $1.52 dressed, and Iowa/MN feedlots selling 17,034 head of fed cattle for $94.50-$95 live and $1.49-$1.51 dressed. Once again we see a rather slow marketing pace in all of the major feeding areas, which again is backed up by larger showlists this week, another estimated 2 lbs increase in carcass weights (777 lbs this week vs. 775 lbs last week), and cattle continuing to grade 56.8% choice. We need to get these cattle cleaned up, and until we do I don’t know if the cash market will rally very much. Packers continue to say they are seeing too many YG 4 cattle coming through their plants and say they have enough July contract and formula cattle to finish killing and as such will be bidding the market lower, and no doubt getting cattle bought cheaper this week. The beef market remains under pressure, however the velocity of the declines appears to have slowed down, and as I mentioned in previous writing’s I believe we can see some stability come back into this market by the end of the week. I will call for a $94/$1.48-$1.50 fed cattle trade by the end of the week.

Fed cattle selling through the sale barns are mostly steady to start the week with $94-$95 tops noted on the beef cattle and $82-$85 on the Holsteins. Slaughter cows are mostly steady at $54-$62 on the cutters and boners and $64-$71 on the breakers and whites. Feeder cattle are steady to higher as evident by Oklahoma City calling their market steady on the yearling cattle and $4-$8 lower on the calves. The bulk of the 600 lbs to 800 lbs feeder steers in OKC yesterday were bringing $105-$114.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 125,000 head, which would be 2,000 head below the same day last week and 2,000 head above the same day a year ago. The industry is looking for a 680,000 head production week. The boxed beef market was lower yesterday with the choice cutout closing $.03 lower to settle at $158.47 and the select cutout closing $1.01 lower to settle at $151.56. Sales volume was light with 219 loads of beef sold (99.17 loads of choice fab cuts, 54.43 loads of select fab cuts, 9.51 loads of trim, 55.41 loads of grinds). The choice/select spread settled at $6.91 a gain of $.98.

The beef market was lower again yesterday as packers continue to search for a clearing level for product after a weekend of average at best beef movement. Again middle meats remain a challenge for packers and discounting is needed to entice buyers. The bright spot of the beef market continues to be the ground beef market and this will be the case for several more weeks. I do think we will see some buying come into the end meat complex by the end of the week; however middles will likely remain under pressure. Interest in chucks and rounds along with ground beef should help to offset some of the losses experienced in the rib and loin markets by the end of the week.

Futures Market Situation and Outlook:

August live cattle settled at $97.07 a loss of $.75, October live cattle settled at $104.80 a loss of $.30, and the December live cattle settled at $106.90 a loss of $.40. In the feeder cattle pit, August feeder cattle settled at $111.15 a loss of $.60, September feeder cattle settled at $111.10 a loss of $.82, and the October feeder cattle settled at $112.50 a loss of $.77. The reported CME feeder cattle index for 7/25/08 was $111.45 a gain of $.11.

Yesterdays live cattle volume saw 21,603 contracts trade in the pit and 9,192 contracts trade on Globex. Live cattle open interest declined 3,407 contracts to come in this morning at 297,048. Yesterday’s feeder cattle volume saw 1,999 contracts trade in the pit and 520 trade on Globex. Feeder cattle open interest gained 2 contracts to come in this morning at 32,575.

Live and feeder cattle futures closed yesterday under pressure from selling linked to the lower cash fed cattle trade last week, ideas the cash fed cattle trade will be lower again this week, and the moderately bearish numbers from the cattle on feed report. August live cattle did manage to hold the $97 area of support by the close, however I don’t know if that will be the case today or tomorrow. I think we need to break the front of the board one last time really hard to get some of these guys who are holding onto cattle for the last couple of weeks to sell them before we can rally again. Bear spreads were working in full force yesterday and I would expect that to continue. Keep in mind that the back end of the live cattle board does not have to follow the front lower as different fundamentals of the market are in place there. Feeder cattle found decent buying underneath the market in the August contract and I would expect this to be the case for the majority of the week. I still like buying Dec live and August feeders on breaks. Look for a $.10 lower open to live cattle futures and $.10 higher to feeder cattle this morning. Trade Well!!!

Any one wanting a more detailed report on the cattle and beef markets including fundamental, chart and technical analysis, plus spec/hedge recommendations for packers, processors, producers, and meat buyers feel free to contact me by phone or e-mail to set up a free trial.

There is risk in trading futures and options.

Have a Good Day,

Troy Vetterkind

Chicago Board of Trade

141 West Jackson Blvd.

Suite 1220A

Chicago, IL 60604

1-888-299-1477 Toll Free

1-312-896-2068 Direct

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tvetterkind@linngroup.com

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