August 13, 2008
Good Morning from the Chicago Board of Trade,
Cash Cattle Situation and Outlook:
For the most part the cash feedlot trade was quiet yesterday as packer inquiry remains light to begin the week. Feedlots are offering smaller showlist numbers at $102 live and $1.63 dressed and I would not expect to see much trade develop until late week. It was rumored that a few cattle were trading in the eastern cornbelt at steady to higher money, however nothing could be confirmed. I think that once we do begin to see the cash feedlot trade develop that it will be taking place at steady to higher money (i.e. $100-$101 live and $1.60 dressed). As mentioned, showlist numbers are down this week, beef demand, both domestic and international, remains healthy, and packer margins are in good shape. Fed cattle, slaughter cows, and feeder cattle selling through the nations auction markets are all trading at steady to higher money and this should be the case for the balance of the week.
Cash Beef Situation and Outlook:
Yesterdays kill was estimated at 129,000 head, which would be 2,000 head above last week and 7,000 head above the same day a year ago. The week-to-date kill now stands at 256,000 head, which would be 3,000 head above 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 $1.43 higher to settle at $164.47 and the select cutout closing $.82 higher to settle at $157.45. Sales volume was moderate with 307 loads of beef sold (106.13 loads of choice fab cuts, 111.23 loads of select fab cuts, 17.41 loads of trim, 72.73 loads of grinds). The choice/select spread settled at $7.02 a gain of $.61.
The beef market was higher yesterday as domestic and export buyers returned to the marketplace to price chuck and round cuts, in particular chuck rolls. There was also some active interest in pricing rib and loin cuts, in particular here the short loin, for quick and forward shipment. The coarse ground beef market was higher and this lent support to the boneless beef complex. Once again we see decent buying from domestic buyers ahead of the Labor Day holiday and there is active interest coming from export buyers, all of which should be supportive to the beef complex for the balance of this week. There will be a point in time when the beef market will slow down for a couple of days, especially when the majority of the Labor Day buying gets completed, however overall I think we need to view the choice cutout as heading back up to the mid-upper $170’s by early winter. Beef buyers will want to realize this and continue to buy dips in the market going forward.
Futures Market Situation and Outlook:
August live cattle settled at $102.77 a gain of $.47, October live cattle settled at $107.45 a gain of $.62, and the December live cattle settled at $107.55 a gain of $.57. In the feeder cattle pit, August feeder cattle settled at $11.5.15 a gain of $.17, September feeder cattle settled at $116.45 a loss of $.27, and the October feeder cattle settled at $115.80 a loss of $.05. The reported CME feeder cattle index for 8/11/08 was $112.75 a gain of $.01.
Yesterdays live cattle volume saw 17,856 contracts trade in the pit and 9,770 contracts trade on Globex. Live cattle open interest declined 1,910 contracts yesterday to come in this morning at 276,299. Yesterday’s feeder cattle volume saw 5,522 contracts trade in the pit and 1,867 contracts trade on Globex. Feeder cattle open interest gained 55 contracts to come in this morning at 34,630.
Live cattle futures settled higher yesterday on cash optimism and short covering, while feeders settled moderately lower on the higher CBOT corn trade. Both October and December live cattle will run into resistance at $108 this week, and a close above that level in either contract would be conducive to further price appreciation. Both these contracts will find some near term support this week at $106 as well. The feeder cattle could see a little bounce if we get some higher price action in the deferred month fat cattle, however I still like selling rallies in Oct and Nov feeder cattle going into fall. The corn feels like perhaps it could have found a near term bottom for a minute, but we will need to see follow through to the upside for the rest of this week to confirm this. If we did bottom the corn for awhile, this would be a pressuring factor to feeder cattle prices. I have been and continue to be friendly feeder cattle prices; however that friendliness lasts until the end of summer, at which time we will begin to see more feeder cattle coming to market, which will be a price limiting factor. There were 2 loads of cattle delivered against the August live cattle contract last night, both loads delivered out of Pratt, KS by RJO and both loads received by Rosenthal. Look for a $.10-$.20 higher 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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