August 18, 2008
Good Morning from the Chicago Board of Trade,
Cash Cattle Situation and Outlook:
We left last week with a cash feedlot trade that developed at mostly steady money with the week prior. Moderate numbers of fed cattle traded in the southern feeding regions of Texas, Oklahoma, and Kansas at $100 live and $1.58 dressed. In the northern feeding states of Colorado, Nebraska, and Iowa cattle sold for $99.50-$100 live and $1.58-$1.59 dressed. It sounds like movement was pretty good in the north and a little light in the south, however I will report on actual totals tomorrow morning once everything is counted and reported to the USDA. Had it not been for the meltdown in the commodity markets on Friday I am confident we could have seen $101 cattle trade in the south, but never-the-less it wasn’t a bad trade considering it is the middle of August. Pre-booking of beef orders for Labor Day and export demand along with packers having a pre-sold position of beef to cover we’re all catalysts for the steady trade. It does sound like some of the domestic beef demand might slack off a bit going into the Labor Day holiday, which means we could see a moderating in beef prices for a couple of weeks, which would likely lead to a lower fed cattle trade during the same time period. Fed cattle numbers are by no means burdensome and will remain fairly tight going into the end of November, which overall will be supportive to the market, but to see a minor correction in the next couple of weeks should not be unexpected. Last weeks feeder cattle market was mostly steady to $2 higher. With the midweek gains in the corn market and lower cattle futures, some markets were reporting steadier than higher by the end of the week. If we were to see a small downtick in fed cattle prices in the next week or two, we will also likely see some money taken off of the feeder cattle market as well. Another feature in the feeder cattle will be more numbers of cattle coming off summer pasture in the weeks ahead. This will be a price limiting factor; however with plenty of pen space chasing an overall smaller offering of cattle compared to years past, the market shouldn’t fall out of bed. The slaughter cow market was steady last week, and here too, the closer we get to fall, the more cows that will become available to the marketplace. I will look for a mostly steady cow market for this week as well.
Cash Beef Situation and Outlook:
Last weeks cattle slaughter was estimated at 682,000 head and produced an estimated 529.6 mil lbs of beef. The weekly kill included at Friday production of 127,000 head and a Saturday effort of 43,000 head. The year-to-date cattle slaughter is running 1% above a year ago at 21,567 mil head with ytd beef production running 1.7% above a year ago at 16.6 bil lbs. Last weeks boxed beef market was $2.90 higher on the choice product and $2.63 higher on the select product on moderate spot movement. On Friday we started to see mixed tone develop in the beef market with the choice cutout closing $.51 lower to settle at $164.33 and the select cutout closing $.04 higher to settle at $157.76. Sales volume on Friday was light with 208 loads of beef sold (77.34 loads of choice fab cuts, 67.40 loads of select fab cuts, 17.53 loads of trim, 45.56 loads of grinds). The choice/select spread settled at $6.57 on Friday a loss of $.55.
Last weeks beef market started out on firm footing for both middle meats and end cuts, however as the week wore on and buyers were looking at increased slaughter rates at the packinghouse level, some were backing away from middles and concentrating more on procurement of end meats. Export demand for chucks and rounds continues to be a supporting factor in the marketplace taking away from domestic supplies. The sources within the beef market cite they are comfortable with current inventory positions for the time being and would rather get past Labor Day to get a better handle on demand going into fall before making any more major purchasing decisions. With this said it will be up to the export market to pick up the slack. For these reasons I think we could see boxed beef values move into more of a sideways to lower trade for the next couple of weeks. Again though, spurts of overseas buying along with last minute buying for Labor Day should keep the market from breaking sharply lower.
Futures Market Situation and Outlook:
For the week August live cattle gained $.20 to settle at $101.67, October live cattle lost $.60 to settle at $105.85, and the December live cattle gained $.32 to settle at $106.37. In the feeder cattle pit last week, August feeder cattle lost $.72 to settle at $113.90, September feeder cattle lost $2.25 to settle at $114.40, and the October feeder cattle lost $.87 to settle at $114.52. The reported CME feeder cattle index for 8/14/08 was $112.97 a loss of $.04 for the day and a gain of $1.35 for the week.
Fridays live cattle volume saw 21,393 contracts trade in the pit and 9,253 contracts trade on Globex. Live cattle open interest declined 578 contracts to come in this morning at 273,855. Friday’s feeder cattle volume saw 3,391 contracts trade in the pit and 1,903 contracts trade on Globex. Feeder cattle open interest declined 662 contracts to come in this morning at 33,544.
The latest commitment of traders report showed funds net long 32,297 contracts of live cattle futures and options, commercial traders net long 7,593 contracts of live cattle F/O, and small specs net short 35,889 contracts of live cattle F/O. The report also showed funds net long 7,558 contracts of feeder cattle F/O, commercials are net long 795 contracts of feeder cattle F/O, and small specs were net short 8,354 contracts of feeder cattle F/O. Deliveries continued on Friday with Rosenthal delivering and receiving 9 loads out of Amarillo, TX. The last date on deliveries was 6/30/08 with a settlement price of $101.67. Also late Friday Canada reported another case of BSE in a 6 year old cow in Alberta, but again this should be a non event. We left last week with a general sell off in all commodity markets, which spilled over into the CME livestock markets. I thought we might see a couple of dollar pull back in the futures market after we got last weeks cash trade out of the way, however I didn’t know it was going to happen all in one day. December live cattle managed to hold support at $106 on Friday, however October couldn’t and this likely doesn’t bode well technically for the entire complex for this week. This would especially be true given my opinion of lower cash markets in during the next couple of weeks. Any early week short covering rally is likely going to be viewed by the technical traders as a selling opportunity, unless by some chance fundamentals of the market remain stronger than I anticipate. I don’t think we will see a huge break in futures, however we could easily see $1-$2 lower from Friday’s settlements by late this week. Feeder cattle futures are going to have a tough time technically as well, closing into new lows for the move on Friday. With outside markets a little higher this morning we could easily see a corrective trade higher in live and feeder cattle futures early this week, however I think futures will struggle on rally attempts towards midweek. Look for a $.10-$.20 higher open this morning to live and feeder cattle futures. 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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