August 29, 2008

Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We saw further clean up trade in the south yesterday at $99 live and $1.55-$1.56 dressed. This should clean things up ahead of the long weekend and market participants will now look for clues as to how the market will trade next week and beyond. My opinion is that we will see an increase in beef demand coming back from the last holiday of summer and this along with a manageable supply of fed cattle will give us a rally in cash fed cattle prices through September and into October. Going home for the weekend we see both feeder cattle and slaughter cow markets on the defensive and I would look for that to continue into 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 below the same day a year ago. The week-to-date kill now stands at 509,000 head, which would be 4,000 head above the same period a week ago with the industry looking for a 670,000 head production week. The boxed beef market was mixed yesterday with the choice cutout closing $.01 higher to settle at $160.99 and the select cutout closing $.39 lower to settle at $153.94. Sales volume was light with 250 loads of beef sold (94.91 loads of choice fab cuts, 93.13 loads of select fab cuts, 23.44 loads of trim, 38.24 loads of grinds). The choice/select spread settled at $7.05 a gain of $.40.

The beef market was mostly steady going into the long weekend and I would expect to see more of the same today. Yesterday saw some price discounts emerge in the choice and select round complex, with some price reductions also found in select and no-roll loin cuts. Sources indicate that there has been an increase in select and no-roll grade cattle coming across the kill floor as of late and this can be attributed to the softening of select and no-roll grade beef cuts. I will look for a better demand scenario to unfold in the beef complex coming back from the holiday, with higher cutout prices being the end result.

Futures Market Situation and Outlook:

August live cattle settled at $101.07 a gain of $.45, October live cattle settled at $103.82 a gain of $.05, and the December live cattle settled at $105.87 a gain of $.65. In the feeder cattle pit, August feeder cattle settled at $112.40 a loss of $.55, September feeder cattle settled at $111.10 a loss of $.12, and the October feeder cattle settled at $110.42 steady on the day. The reported CME feeder cattle index for 8/27/08 was $112.76 a loss of $.65.

Live cattle futures settled modestly higher yesterday on short covering and hedge lifting ahead of the holiday. Feeder cattle settled modestly lower on technical selling. I wouldn’t expect to see much out of the market today as we have this week’s cash market priced in and participants will be leaving early for the holiday weekend. Overnight we saw 2 loads of cattle delivered against the August live cattle contract. RJO delivered the cattle out of Clovis, NM with Rosenthal receiving them. Keep in mind, today is the last trading day for August live cattle. Russia announced overnight that they were going to delist 19 U.S. poultry plants from importing meat into their country. This comes after they issued a statement yesterday stating they were going to increase their domestic pork and poultry production, enabling them to decrease their U.S. pork and poultry imports by “hundreds of thousands of metric tons” over the course of the next several years. I say to them good luck with that. I think we need to be careful here, as it sounds like the old Russian play book from back in the 70’s-80’s is coming back out. Put some bad press out to break the market, and then buy it. If you’re a developing country like Russia, China, India, etc, and you have no idea how you are going to feed your people in the coming years, I suppose you have to put stories like this out, in order to break the market, so that you can buy it. In my opinion, demand for both pork and beef is alive and well, and I would look for higher prices in both complexes going into next year. Futures trade will be choppy and two-sided today as trader’s square positions ahead of the holiday; however I would look for an improvement in prices next week. Look for a $.10-$.20 higher open to live and feeder cattle futures this morning. Have a Great Weekend and as Always 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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Chicago, IL 60604

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tvetterkind@linngroup.com

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