August 21, 2008
Good Morning from the Chicago Board of Trade,
Cash Cattle Situation and Outlook:
There was further light fed cattle trading in the southern feeding regions of Texas and Kansas at mostly $98-$98.50 live and $1.55 dressed. This would be $.50-$1 lower then the bulk of trading in that part of the country yesterday. There was also a light fed cattle trade developing in the Nebraska feedlot market at $98-$98.75 live and $1.56-$1.56 ½ dressed late yesterday afternoon, however after the board rallied around midsession many feeders were passing bids waiting until later in the week. There remains quiet a few cattle to be sold in the north yet and I still think they are going to get sold at steady to lower money. The lower beef market is going to be an overriding factor in this weeks cash trade in my opinion as packers are not going to be very eager to give up margin now that they have a lot of their forward sales and Labor Day business caught up for the time being. I will continue to look for a $98/$1.56 trade in the north by tomorrow afternoon. As we hit the midweek point, fed cattle selling through the northern auction markets are brining $1-$2 lower money with tops ranging between $96-$98. Slaughter cows are trading on the defensive as are feeder cattle markets. El Reno, OK was calling their feeder market $1-$3 lower yesterday and I would suspect we will see more of the same going into the first part of next week.
Cash Beef Situation and Outlook:
Yesterdays kill was estimated at 127,000 head, which would be 1,000 head below last week and 1,000 head above the same day a year ago. The week-to-date kill now stands at 377,000 head, which would be 7,000 head behind last weeks pace with the industry looking for a 665,000 head production week. The boxed beef market was lower yesterday with the choice cutout closing $1.25 lower to settle at $163.09 and the select cutout closing $.12 lower to settle at $157.04. Sales volume was moderate with 309 loads of beef sold (129.48 loads of choice fab cuts, 99.27 loads of select fab cuts, 24.23 loads of trim, 55.97 loads of grinds). The choice/select spread settled at $6.06 a loss of $1.13.
The beef market was lower yesterday as weakness in rib and loin cuts weighted on cutout values. There was also some discounting throughout the round complex, which added to the pressure. Domestic retail demand is a little soft right now and this will likely remain the case until after Labor Day. I will still hold with my opinion that the beef market will stay on the defensive until the end of the month. Beef export sales for the week of August 8-14, 2008 are as follows:
Beef: Net sales of 20,200 MT were primarily for South Korea (8,500 MT), Mexico (7,800 MT), Canada (1,600 MT), Russia (1,000 MT), Taiwan (500 MT), and Japan (300 MT). Exports of 13,700 MT were mainly to Mexico (5,200 MT), South Korea (2,900 MT), Canada (1,600 MT), Russia (1,200 MT), Japan (1,200 MT), Taiwan (600 MT), and Vietnam (600 MT).
Futures Market Situation and Outlook:
August live cattle settled at $100.70 steady on the day, October live cattle settled at $105.00 a gain of $.17, and the December live cattle settled at $106.35 a gain of $.52. In the feeder cattle pit, August feeder cattle settled at $113.07 a gain of $.37, September feeder cattle settled at $113.25 a gain of $.55, and the October feeder cattle settled at $113.17 a gain of $.40. The reported CME feeder cattle index for 8/19/08 was $113.22 a gain of $.11.
Yesterdays live cattle volume saw 14,166 contracts trade in the pit and 8,908 trade on Globex. Live cattle open interest declined 1,197 contracts to come in this morning at 273,415. Yesterday’s feeder cattle volume saw 2,863 contracts trade in the pit and 1,731 trade on Globex. Feeder cattle open interest declined 167 contracts to come in this morning at 33,288.
Live and feeder cattle futures saw a decent short covering rally yesterday, which ended with higher settlements for the day. There was also what appeared to me to be some pretty decent fund buying in the deferred month contracts, in particular the February live cattle, on the screen all day long. The buying on the screen led the pit higher and was a major influence in the higher settlements in both the live and feeder cattle futures yesterday. Front month live and feeders didn’t do very much yesterday as cash weakness kept the August contract months in check. The cash beef, fat cattle, and feeder cattle markets are going to stay on the defensive until the end of the month in my opinion. However, if we were to see another leg higher in the grain markets, which solely in my opinion could be very possible, we could have seen enough down in deferred month fat cattle futures for the time being. Strength in December forward live cattle would give feeders a reason to rally, if nothing else to relieve oversold conditions and keep the crush spreads in line. The market might have been trying to tell us this yesterday. If such a rally were to develop in back month fat cattle, we need to keep in mind that we have to use it as a hedging opportunity in Feb and April fats, as feedlot placements are going to start increasing in the weeks and months ahead. Look for a $.10-$.20 higher open to live cattle futures and $.10-$.20 lower in the 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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Suite 1220A
Chicago, IL 60604
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