August 14, 2008

Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was mostly quiet again yesterday with the exception of a few cattle trading in the eastern sections of the country for $100-$101. Best packer bids found so far this week are $98 in the south with most feedlots offering cattle at $102-$103 and $1.63 dressed. With smaller showlists and a healthy packer appetite for cattle this week I am still going to call for a mostly $100-$101 live and $1.60 dressed trade by the end of the week. Beef demand is holding up fairly well and packers have some meat sold out in front of them for which they need cattle to process. Next week could be a different story though as some on the buy side of the beef equation say they may back away from the market as most of their immediate needs get filled. The salebarn cattle are all trading mostly higher on fats, feeders, and slaughter cows. There are a few instances of some lower markets on feeders and slaughter cows depending on what part of the country you are in, but overall steady to higher is the best call. Starting to see more and more cattle coming off of grass running through the western barns, and this should be the case going into October/November.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 128,000 head, which would be 2,000 head above last week and 6,000 head above the same day a year ago. The week-to-date kill now stands at 384,000 head, which would be 5,000 head above last weeks pace with the industry looking for a 670,000 head production week. The boxed beef market was higher yesterday with the choice cutout closing $.13 higher to settle at $164.60 and the select cutout closing $.05 higher to settle at $157.50. Sales volume was moderate with 350 loads of beef sold (155.16 loads of choice fab cuts, 115.64 loads of select fab cuts, 13.31 loads of trim, 65.42 loads of grinds). The choice/select spread settled at $7.10 a gain of $.08.

The beef market was moderately higher yesterday on steady to higher pricing throughout the chuck, round, and rib complexes. Weakness in strip loins and top butts kept a lid on cutout values yesterday. The ground beef complex continues to be supportive to beef cutout values. As mentioned above, certain buyers around the country are getting their immediate needs filled up along with their Labor Day orders, and as such they say they may back away from the market for a week or two. Export demand remains strong and this should continue for weeks to come, however if we were to see domestic buyers become a little less aggressive in the market this could help to slow the gains we have seen recently. For these reasons I will call for a mostly sideways boxed beef market for the rest of the week. Export sales for the week of August 1-7, 2008 are as follows:

Beef: Net sales of 10,000 MT were primarily for Mexico (3,600 MT), Japan (1,900 MT), Canada (1,300 MT), Vietnam (1,000 MT), Russia (900 MT), and South Korea (800 MT). Exports of 13,800 MT were mainly to Mexico (5,600 MT), South Korea (2,800 MT), Canada (1,700 MT), Japan (1,300 MT), Russia (800 MT), Vietnam (700 MT), and Taiwan (300 MT).

Futures Market Situation and Outlook:

August live cattle settled at $103.17 a gain of $.40, October live cattle settled at $107.45 steady on the day, and December live cattle settled at $108.15 a gain of $.65. In the feeder cattle pit, August feeder cattle settled at $114.05 a loss of $1.10, September feeder cattle settled at $115.17 a loss of $1.27, and the October feeder cattle settled at $114.85 a loss of $.95. The reported CME feeder cattle index for 8/12/08 was $112.77 a gain of $.02.

Yesterdays live cattle volume saw 15,148 contracts trade in the pit and 10,597 contracts trade on Globex. Live cattle open interest gained 58 to come in this morning at 276,353. Yesterday’s feeder cattle volume saw 5,661 contracts trade in the pit and 1,296 contracts trade on Globex. Feeder cattle open interest declined 218 contracts to come in this morning at 34,412.

Yesterdays cattle trade was all about the corn trade as limit up corn sparked a strong rally in deferred month live cattle future and pummeled feeder cattle futures. The corn certainly feels like it may have made a near term low for awhile, and this should help to support some of the deferred live cattle contracts for the time being. The cash fed cattle market feels good for this week and I think higher money is attainable, however as I point out above, if the beef market starts to fade going into next week, we could see a pull back in the fed cattle market as well. Overall the trend of higher cash fat cattle markets is in tact and should remain that way into December, however if we were to see a couple dollar pull back in cattle prices going into the end of the month, this would weigh on front month live cattle futures, in particular August and October. Feeder cattle futures may have seen enough down for just a minute, however here too, I think we are going to see more feeders coming to market in the weeks and months ahead, and this should limit advances in the cash market as well as futures. I will continue to view rallies in October and November feeder futures as selling opportunities. Look for a $.10-$.20 higher open to 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

141 West Jackson Blvd.

Suite 1220A

Chicago, IL 60604

1-888-299-1477 Toll Free

1-312-896-2068 Direct

1-708-224-5985 Mobile

tvetterkind@linngroup.com

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