August 25, 2008
Good Morning from the Chicago Board of Trade,
Cash Cattle Situation and Outlook:
We left last week with a friendly cattle on feed report and a fed cattle market that trades mostly $1-$2 lower. The on feed report showed cattle on feed in the nations feedlots at 9.869 mil head or 96% of a year ago (96%), placements during the month of July at 1.661 mil head or 102% of a year ago (107%), and marketing’s during the month of July at 2.042 mil head or 102% of a year ago (102%). The report will be considered friendly deferred month live cattle futures in particular December live, as the placement number came in well below analysts expectations. The placement breakdown showed feedlots placed an even amount of cattle weighing less than 600 lbs and cattle weighing over 800 lbs when compared to last year, and 2.5% or 8,000 head more cattle weighing 600-699 lbs and 7.5% or 29,000 more head of cattle weighing 700-799 lbs.
Last weeks fed cattle market traded mostly $98-$99 live and $1.55-$1.56 dressed in all feeding areas on moderate movement. For the week feeder cattle markets were mostly $2 lower as were slaughter cows. The beef was lower for most of the week and that will likely continue for most of this week as well. Feedlot movement was light last week, which likely means we will see larger showlists coming into this week, with packers buying for a short kill week next week. I will look for a steady to lower fed cattle trade this week and look for the market to straighten out after the Labor Day holiday, as fed cattle numbers will be manageable until the end of the year.
Cash Beef Situation and Outlook:
Last weeks cattle kill was estimated at 667,000 head, which would be 15,000 head below the previous week. The weekly slaughter produced an estimated 518.7 mil lbs of beef. The boxed beef market was $3.32 lower on choice product and $1.24 lower on select product on moderate movement. Friday saw further losses in the beef complex as the choice cutout was $.74 lower to settle at $160.78 and the select cutout was $1.29 lower to settle at $155.19. Sales volume was light on Friday with 275 loads of beef sold (110.90 loads of choice fab cuts, 96.64 loads of select fab cuts, 15.30 loads of trim, 52.53 loads of grinds). The choice/select spread settled at $5.59 a gain of $.55.
The beef market was lower for most of last week as both domestic retail and export demand backed off. There was some export business that came in from Russia late in the week, however that supported the round complex and not the other parts of the carcass. Most orders are filled going into the Labor Day holiday and this will likely keep beef values on the defensive for at least the first part of this week barring any renewed export business. Middle meats remain the main burden to packers and this also will likely be the case until after the Labor Day holiday.
Futures Market Situation and Outlook:
August live cattle settled at $101.85 a gain of $.40, October live cattle settled at $105.77 a loss of $.52, and the December live cattle settled at $106.90 a loss of $.55. In the feeder cattle pit, August feeder cattle settled at $112.85 a gain of $.02, September feeder cattle settled at $112.95 a gain of $.27, and the October feeder cattle settled at $112.50 a loss of $.02. The reported CME feeder cattle index for 8/21/08 was $113.21 a loss of $.05.
There were 3 live cattle deliveries against the August contract Friday with MF Global delivering 3 loads at Texhoma, OK and Rosenthal receiving them. The market should start out better in the live cattle futures this morning, especially the deferred month contracts as they will receive support from the lower than expected placements in the cattle on feed report and higher corn. Feeder cattle will be under pressure early, however if we get a run higher in the deferred month fats feeders should find some support at last weeks lows. I wouldn’t expect to see very much strength in front month August live and feeder cattle futures as they will both expire at the end of the week and the cash markets will be on the defensive. The on feed report continues to show we will have a supply friendly 4th quarter cash fed cattle market and for these reasons I continue to want to be long December live cattle. There was good fund buying in Feb live cattle last week and we could see a rally in that contract as well, especially if we continue to see strength in the corn market. However, with that said, any $3-$4 rally in Feb and April live cattle and Oct and Nov feeder cattle in the next couple of weeks, will be an important hedging opportunity for producers going into the corresponding marketing dates. Look for a $20-$.30 higher open to live cattle futures this morning and $.20-$.30 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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