August 6, 2008

Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash feedlot trade was quiet yesterday with no solid packer bids evident as of last night and feedlot managers offering to sell cattle for $100 live and $1.58 dressed. Things continue to look conducive for a higher cash feedlot trade this week as the beef acts alright, the August live cattle contract remains supported, and showlist numbers are coming in mostly smaller when compared to last week. There also seems to be some decent export business around, which along with overall feelings that fed cattle supplies will begin to shrink in the weeks ahead should all combine to keep a level of support underneath the market. The cash feeder cattle market is still trading at mostly higher money on the yearling cattle and mostly steady to instances lower on the lightweight calves. Again most of this has to do with the high costs of gains being incurred with most feedlot finishing rations as the feeding period on the heavier cattle is less, thus less expenses being occurred. Although, with that said, we did see some active buying interest in some of the light weight cattle last week as backgrounders stepped back into the market to buy lighter cattle to feed to 800/900 lbs. This would make some sense as if you can buy lighter 500-600 lbs calves and feed them for less than a dollar a pound there are some hedging opportunities in deferred month feeder futures. For the rest of this week I will look for firmer cash cattle markets in fats, feeders, and slaughter cows. Should probably see feedlot trade that takes place at $97-$98 live and $1.55-$1.57 dressed.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 127,000 head, which would be even with the same day last week and 1,000 head above the same day a year ago. The week-to-date kill now stands at 253,000 head, which would be 1,000 head above the same period last week, with the industry looking for a 665,000 head production week. The boxed beef market was higher yesterday with the choice cutout closing $.61 higher to settle at $160.13 and the select cutout closing $2.02 higher to settle at $154.17. Sales volume was light with 258 loads of beef sold (98.81 loads of choice fab cuts, 107.81 loads of select fab cuts, 12.16 loads of trim, 39.37 loads of grinds). The choice/select spread settled at $5.96 a loss of $1.41.

The boxed beef market was firmer yesterday on renewed strength in chuck, round, and boneless beef items. For the most part rib and loin cuts were trading steady to slightly higher, but most of yesterday’s gain in cutout values can be attributed to strength in the end meats. Both domestic and export demand was at play in the chuck and round complexes yesterday and this should be the case for the rest of the week. I don’t expect to see a larger rally in the middle meats for another couple of weeks, however there are people willing to step into that market and take on inventory on breaks. This type of buying activity should be over all supportive to cutout values for the rest of this week and into next.

Futures Market Situation and Outlook:

August live cattle settled at $100.22 a gain of $.05, October live cattle settled at $106.90 a loss of $.60, and the December live cattle settled at $107.30 a loss of $2.12. In the feeder cattle pit, August feeder cattle settled at $115.35 a loss of $.07, September feeder cattle settled at $117.10 a loss of $.72, and the October feeder cattle settled at $117.55 a loss of $.65. The reported CME feeder cattle index for 8/4/08 was $111.14 a gain of $.35.

Yesterdays live cattle volume saw 40,087 contracts trade in the pit and 14,527 contracts trade on Globex. Live cattle open interest gained 1,424 contracts to come in this morning at 296,992. Yesterday’s feeder cattle volume saw 6,849 contracts trade in the pit and 1,169 contracts trade on Globex. Feeder cattle open interest gained 640 contracts yesterday to come in this morning at 35,329.

Live cattle futures were under pressure once again yesterday on long liquidation and new hedge selling because of lower corn and ideas the market needs to take risk premium out of back month cattle as the threat of higher costs of gains is alleviated. The feeder cattle were supported early in the session because of the lower corn futures, however that market began to soften up a bit around midsession on hedge selling, the brief turnaround in the corn market, and weakness in deferred month live cattle. With the feeder cattle futures trading at a premium to the CME feeder index and weakness in the back month fats, I think we could see a more pronounced pull back in feeder futures by the end of the week. I remain bullish cash feeder cattle prices for another 4-5 weeks, however we need to keep in mind that we have 300,000 more feeder cattle outside of feedlots available for placement compared to last year per the latest USDA cattle inventory report, and that these cattle are going to be coming off of grass starting in September. This along with the annual fall calf run in the west will give us more supply of feeder cattle throughout early to late fall, and hedging opportunities need to be evaluated on October and November feeder cattle futures as they remain near all time highs of $119. In the last 4 years we have made our yearly high in feeder cattle prices in mid to late August, and in each of those last 4 years the market has broken 20% into the first of the next upcoming year. I see nothing in this year’s market to differentiate from that trend, and as such we need to be looking at rallies in Oct and Nov feeders as selling and hedging opportunities. Front month fats and feeders are going to be supported by strength in cash markets for the rest of this week. Back month fats are going to remain under pressure until corn finds a bottom, which I think is close at hand. I still don’t want to get bearish December live cattle from a supply and demand standpoint; however rallies in Feb and April live cattle are going to need to be sold from a hedge standpoint. Live cattle deliveries continued last night with 12 new deliveries (2 in Pratt, KS and 10 in Tulia, TX) and 8 retenders from Monday posted against the August contract. Of the 8 retenders, all 8 loads were demanded for by what looks to be Rosenthal. Delivering yesterday were Prudential, 2 loads, RJO, 10 loads, C&B, 3 loads, and Rosenthal, 5 loads. Receiving yesterday were MF Global, 6 loads, Man, 1 load, RJO, 3 loads, and Rosenthal, 10 loads. Look for a mixed open to live and feeder cattle futures this morning (i.e. $.10 higher to $.10 lower). 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

1-888-299-1477 Toll Free

1-312-896-2068 Direct

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tvetterkind@linngroup.com

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