August 20, 2008

Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We saw a moderate fed cattle trade develop in the southern feeding regions of the country at prices $1 lower on a live weight basis and $2 lower on a dressed basis. The USDA reported close to 35,000 head of fed cattle sold in Texas and Kansas yesterday afternoon at mostly $99 live and $1.56 dressed, with a few late sales reported at $98 live. There were also a few cattle reportedly sold in Colorado at $99 live as well, however numbers look light. Cattle that were carried over from last week and ideas the beef market may be topping for a couple weeks were the catalysts for feeders to move cattle earlier than normal this week. Northern cattle traders were not as eager to sell cattle so early in the week as they sold more cattle than the south last week and their showlist numbers are quite a bit smaller when compared to the south. However, with that said, it is going to be hard for them to command too much higher money with the lower southern trade and the faltering futures board. I will look for the northern trade to develop either today or tomorrow at lower money (i.e. $99 live and $1.56-$1.58 dressed). The market looks like it could stay on the defensive until after the Labor Day holiday.

Cattle selling through the northern sale barns are bringing mostly steady money with tops on the beef fats being $97-$99 and on the Holsteins at $85-$88. Slaughter cows are mixed depending on what part of the country you are in, with cutter and boner cows bringing mostly $45-$62 with the breakers and whites bringing $62-$68. Feeder cattle sales are mixed as well, however for the most part the yearling cattle weighing 600 lbs-800 lbs continue to bring $105-$115 throughout most of the country.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 129,000 head, which would be even with a week ago and 3,000 head above the same day a year ago. The week-to-date kill now stands at 250,000 head, which would be 6,000 head behind last week with the industry looking for a 665,000 head production week. The boxed beef market was mixed yesterday with the choice cutout closing $.05 higher to settle at $164.34 and the select cutout closing $.25 lower to settle at $157.16. Sales volume was light with 214 loads of beef sold (71.16 loads of choice fab cuts, 79.18 loads of select fab cuts, 7.96 loads of trim, 55.86 loads of grinds). The choice/select spread settled at $7.18 a gain of $.30.

The cash beef market was steady to lower yesterday on lackluster retail demand. Most rib cuts, chuck rolls, outside rounds, and tri-tips were all in need of discounting yesterday as inventories of these cuts were outpacing demand. Boneless beef markets were mixed with strength in the boneless cow 90’s and weakness in the fed cattle 50’s, most of which can be attributed to the larger fed cattle slaughter last week. Ground beef values were mostly higher yesterday and this should remain the case through Labor Day. The beef market feels a little heavy coming into this week and I think we will probably see lower prices until we get past the Labor Day holiday. I don’t think we will see a huge break as export demand remains firm, but to see the choice and select cutout’s lose another $2-$3 by the end of the month should not be unexpected. Look for a softer market going into the end of the week.

Futures Market Situation and Outlook:

August live cattle settled at $100.70 a loss of $1.22, October live cattle settled at $104.82 a loss of $1.12, and the December live cattle settled at $105.82 a loss of $.92. In the feeder cattle pit, August feeder cattle settled at $112.70 a loss of $.95, September feeder cattle settled at $112.70 a loss of $.87, and the October feeder cattle settled at $112.77 a loss of $.72. The reported CME feeder cattle index for 8/18/08 was $113.11 a loss of $.04.

Live cattle volume saw 15,917 contracts trade in the pit and 8,139 contracts trade on Globex. Live cattle open interest gained 1,566 contracts to come in this morning at 275,574. Feeder cattle volume saw 4,450 contracts trade in the pit and 1,031 contracts trade on Globex. Feeder cattle open interest gained 636 contracts to come in this morning at 33,591.

Live and feeder cattle futures were under pressure yesterday as technical and commercial selling linked to lower cash cattle markets pushed the market into new lows for the most recent move down. October and December live cattle now look as though they are going to test support from last month at $104 and $105 respectively. I would assume that we will test this support by the end of the week if not earlier as the market waits for a lower northern fed cattle trade and positions itself for this Friday’s cattle on feed report. The report is likely to show 96% on feed, 107% placed, and 101% marketed, however official estimates will be released this morning. The increase in placements is going to be a feature now going into the end of the year as more feeder cattle come to market in the coming weeks and months. The majority of these cattle will get placed into the first quarter of next year, which will make it all the more important to use rallies in the Feb and April live cattle as hedging opportunities going through fall. The feeder cattle market is going to remain under pressure due to lower fed cattle markets, higher corn markets, and more feeders becoming available to the market. Feeders are getting a little oversold and could see a corrective bounce, however I would imagine that it would be short lived. Look for a $.10-$.20 lower open to live and feeder cattle 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

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1-312-896-2068 Direct

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tvetterkind@linngroup.com

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