August 12, 2008
Good Morning from the Chicago Board of Trade,
Cash Cattle Situation and Outlook:
A recap of last weeks fed cattle trade shows Texas/Oklahoma feedlots selling 41,313 head of fat cattle for $100 live, Kansas feedlots selling 51,885 head of fed cattle for $99-$100 live and $1.57-$1.58 dressed, Nebraska feedlots selling 70,200 head of fed cattle for $99-$100 live and $1.58-$1.59 dressed, Colorado feedlots selling 12,787 head of fed cattle for $99-$100 live and $1.58-$1.59 dressed, and Iowa/MN feedlots selling 44,869 head of fed cattle for $99 live and $1.58-$1.59 dressed. All of these weekly price and volume totals are negotiated cash and negotiated grid sales as reported to the USDA and would be $2-$3 higher live and $4-$5 higher dressed when compared to the previous week. It was a good trade on active volume as beef packers needed cattle inventory to fill new export orders and domestic forward sales. Last week also saw a mostly $2-$3 higher feeder cattle trade as well as a steady to $2 higher slaughter cow trade. I am going to look for much of the same this week; however we may not see the price increases that were witnessed last week. Because of the decent feedlot movement last week showlist numbers are coming in smaller in all trading areas, beef demand seems to still be on solid footing for the first part of this week, and so far we are seeing further gains in the futures. Another supporting factor will be packers filling orders ahead of Labor Day. For these reasons I will call for a $100-$101 live trade and $1.60 dressed trade by the end of the week. Feeder cattle and kill cows should be supported this week as well, which is evident by Oklahoma City selling their feeder cattle on a $2-$3 higher market yesterday. Fat cattle selling through the northern salebarns yesterday were mostly steady with late last week.
Cash Beef Situation and Outlook:
Yesterdays kill was estimated at 127,000 head, which would be 1,000 head above last week and 5,000 head above the same day a year ago. The industry is estimating a 670,000 head production week. The boxed beef market yesterday was $.82 higher on the choice cutout settling at $163.04 and $.86 higher on the select cutout settling at $156.63. Sales volume was light with 265 loads of beef sold (107.06 loads of choice fab cuts, 96.00 loads of select fab cuts, 8.34 loads of trim, 53.89 loads of grinds). The choice/select spread settled at $6.41 a loss of $.04.
We left last week with a weekly cattle slaughter of 668,000 head, which produced an estimated 517.6 mil lbs of beef. For the week choice and select boxed beef gained $3.00-$3.50 on renewed export buying of end meats along with active domestic demand for said items. Middle meats for the most part held steady last week with some slight gains noted in the rib primal. Packers do have some decent volumes of beef sold out in front of them, which they have to kill cattle for now in order to satisfy those orders. There has also been some buying ahead of the Labor Day holiday all of which is supporting boxed beef prices and keeping packers in the market for cattle to kill. For these reasons I will call for a mostly steady to higher boxed beef trade for at least the first part of this week.
Futures Market Situation and Outlook:
Yesterday August live cattle settled at $102.30 a gain of $.82, October live cattle settled at $106.82 a gain of $.37, and the December live cattle settled at $106.92 a gain of $.87. In the feeder cattle pit yesterday, August feeder cattle settled at $114.97 a gain of $.35, September feeder cattle settled at $116.72 a gain of $.17, and the October feeder cattle settled at $115.85 a gain of $.45. The reported CME feeder cattle index for 8/8/08 was $112.74 a gain of $1.12.
Yesterdays live cattle volume saw 19,341 contracts trade in the pit and 7,293 trade on Globex. Live cattle open interest declined 2,961 contracts yesterday to come in this morning at 278,180. Yesterday’s feeder cattle volume saw 5,290 contracts trade in the pit and 886 contracts trade on Globex. Feeder cattle open interest declined 224 contracts to come in this morning at 34,853.
Last weeks futures cattle futures market was all about liquidating long positions in deferred live cattle and feeders due to the huge liquidation going on in the corn market and buying the front month live and feeder cattle futures because of the strength in the cash markets. We saw a pretty good short covering rally in the live cattle yesterday, which helped to support the feeder cattle futures. This morning the market will be sensitive to the new USDA grain supply/demand numbers, which look to be a little bearish for the corn and bullish for the beans. The USDA is forecasting a 12,228 bil bu corn crop using a 155 bu per acre yield. Their soybean numbers show a production number of 2.973 bil bu using a 40.5 bu per acre yield. Right now the corn is being called $.10 lower and the beans are being called $.10 higher the beef numbers in the report this morning show the USDA raising this years beef production 122 mil lbs and next years beef production 165 mil lbs. They also lowered beef imports 140 mil and 120 mil for this year and next respectively and raised beef exports 25 mil lbs each for this year and next. The reasons cited for the increased beef production numbers are slower feedlot marketing’s the first part of this year and increased cow slaughter. Fed cattle futures could be slightly lower on the open if corn wants to open lower, however feeder cattle futures could be supported as they are oversold from last week and we saw a pretty good jump in the CME index yesterday. I continue to want to sell rallies in October and November feeder futures near the $118-$119 area as we will be running into more and more numbers of feeder cattle coming to market after August. Fed cattle futures should be supported on breaks as strength in cash fed cattle and beef markets should over ride lower corn futures. Deliveries against the August live cattle contract dried up with no new loads posted last night. Look for $.10-$.20 lower in the fed cattle futures and $.20-$.30 higher to 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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