July 30, 2008
Good Morning from the Chicago Board of Trade,
Cash Cattle Situation and Outlook:
The cash fed cattle market was non-existent yesterday with a few light packer bids of $92 going unmatched against feedlot offering prices of $98 live and $1.55 dressed. Showlist numbers are larger in Kansas and Colorado, however smaller in Texas and Nebraska and packers say that they have July contracts and formula cattle to finish killing before the end of the month, which has them touting they have enough cattle around them for this week. They can draw off of August contracts and formula cattle beginning next week, which combined will have them trying to buy cattle out of the cash market at lower money this week. The beef market posted some hefty gains as reported by the USDA yesterday, however private sources indicate that the market may not have been as high as the USDA values were indicating. I do think we are getting close to a near term bottom in the beef, which will help to stabilize cash fed cattle values, however we are not likely to see a big rally in the beef until mid-late August. The board reacted positively to the higher beef market yesterday, but here again, I don’t know if we will be able to hold onto the gains in the August live contract for the rest of the week. I am still going to call for a mostly steady/lower fed cattle trade for this week (i.e. $94 live and $1.48-$1.50 dressed) until we get some of these problem cattle cleaned up. This can happen pretty quick and we can easily get the front-end supply of the fed cattle market back to current status, at which time we can begin another leg up in cash prices as numbers of fed cattle going forward are by no means burdensome. The cattle selling through the sale barns are all bringing steady to higher money in regards to slaughter cattle. The feeder cattle market continues to be two-tiered, with weakness in the lightweight calves and strength in the yearling feeder cattle. Superior Livestock is holding a large video sale this week from Winnemucca, NV with 238,000 head of feeder cattle and bred cattle on offer. So far they have been selling southern and southeastern weaned calves and calves on cows, but they will start on southern plains, northern plains, and western yearling’s and calves today.
Cash Beef Situation and Outlook:
Yesterdays kill was estimated at 127,000 head, which would be 1,000 head above last week and 3,000 head above the same day a year ago. The week-to-date kill now stands at 252,000 head, which would be 1,000 head below the same period a week ago, with the industry looking for a 670,000 head production week. The boxed beef market was higher yesterday with the choice cutout closing $1.92 higher to settle at $160.92 and the select cutout closing $.64 higher to settle at $152.20. Sales volume was moderate with 293 loads of beef sold (149.75 loads of choice fab cuts, 88.81 loads of select fab cuts, 15.91 loads of trim, 38.68 loads of grinds). The choice/select spread settled at $8.19 a gain of $1.28.
The beef market was reported higher by the USDA yesterday on decent movement. As I mentioned above, private sources we talk to say the market wasn’t as high as the USDA was quoting, and part of that explanation can be found in the fact that the USDA didn’t have any reported transactions on 109A rib roasts and 114 shoulder clods on Monday, but did on Tuesday. With that said though, there were some higher transactions on choice boneless rib eyes and PSMO’s yesterday, which along with a few price increases in certain chuck and round items gave us the higher cutout quotes yesterday. The story remains the same for the most part in the beef complex; packers cite having difficulty in finding a clearing level for loin meat and to a less extent certain rib cuts. We did see some secondary distributors come in and take on some rib and loin inventory late last week, which helped to support prices coming into early this week, but many of the large retail and institutional buyers say it will be a couple weeks before they get interested about procuring late fall/early winter and end of year holiday needs. It is reported that there has been a slight pull back in export business, however with the recent price declines in chuck and round values, it is also said that business could pick back up soon. Boneless beef items were discounted slightly for no other reason except to adjust inventory positions at certain packinghouses. Ground beef demand remains very robust and this will be supportive to trimming and end meat prices. I will continue to look for a mostly sideways trend to the boxed beef market for the rest of the week.
Futures Market Situation and Outlook:
August live cattle settled at $97.55 a gain of $.47, October live cattle settled at $105.60 a gain of $.80, and the December live cattle settled at $107.52 a gain of $.62. In the feeder cattle pit, August feeder cattle settled at $112.27 a gain of $1.12, September feeder cattle settled at $112.65 a gain of $1.55, and the October feeder cattle settled at $113.87 a gain of $1.37. The reported CME feeder cattle index for 7/28/08 was $111.38 a loss of $.07.
Yesterdays live cattle volume saw 24,551 contracts trade in the pit and 12,596 contracts trade on Globex. Live cattle open interest declined 2,454 contracts yesterday to come in this morning at 294,381. Yesterday’s feeder cattle volume saw 2,836 contracts trade in the pit and 800 trade on Globex. Feeder cattle open interest declined 114 contracts yesterday to come in this morning at 32,461.
Live and feeder cattle futures started the day yesterday under some pressure on follow through selling from Monday. However, as the day wore on, higher mid day beef quotes and oversold chart conditions prompted a round of short covering to keep values positive going into the close. As pointed out above, perhaps the beef market might not have that strong yesterday and I still think we are going to eventually see this weeks fed cattle trade come in at steady to lower money. This could give the August live cattle contract a little trouble in terms of holding onto yesterday’s gains. I would expect to see August live cattle to continue to lose more value compared to deferred month live cattle until we can get the cash fed cattle market to turn around, which don’t get me wrong could very well happen later this week. But until then I think August live cattle will remain under a degree of pressure. Looking at deferred month live cattle, I still like them from a fundamental standpoint and I think once we can get the front-end of the cash fed cattle market cleaned up, we can see another rally in prices going into late summer early fall. Feeder cattle continue to be supported in the cash market and in the futures and I will continue to look for more of the same by the end of the week. I continue to view the feeder cattle market as a buy on any near term breaks. Look for a $.10-$.20 lower open to live and feeder cattle futures 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
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