September 10, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market went untested again yesterday as packer demand for the first of the week is light. Most of the major beef packing companies cite ample supplies of contract and formula cattle for the first part of September and as such are in no hurry to bid for any cattle. If you were to call in and ask for a bid they would probably shoot you $97/$1.54. To begin the week, cattle feeders have a mostly steady to slightly smaller showlist offering priced at $102 live and $1.62 dressed, and so the standoff continues. I wouldn’t imagine that we would see any meaningful trade develop before Thursday at the earliest. There isn’t a lot of fresh news to influence the market one way or the other, which makes predicting this week’s price action a little difficult. There are certain spots throughout the country where ample numbers of fed cattle are available this week, the upper Midwest in particular and this will keep northern packers bidding the market lower where applicable. The futures act good one day, and look weak the next day, so it’s hard to get a good feel there. We could trade cattle steady this week and the futures wouldn’t have to do anything, as a matter of fact they could sell off in an attempt to further narrow the wide basis. I am still of the opinion that the market could trade steady this week, however much is going to depend on how well the beef moves throughout the week and what the futures do. While beef packers may have a lot of contract cattle to work through for the first part of this month, numbers are still slated to tighten towards the end of September on through October and November, which is going to be long term supportive. For now I will still call for a mostly steady fed cattle trade with a chance of being higher.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 127,000 head, which would be 1,000 head below last week and even with the same day a year ago. The week-to-date kill stands at 254,000 head, which would be 123,000 head below last weeks holiday shortened production week. I will look for a 665,000 head production week. Due to a computer problem at USDSA there was no boxed beef report yesterday. However, private sources indicated a mostly steady to slightly firmer undertone. Chuck cuts, in particular chuck rolls were trading at higher money on renewed export business. Round items were under a little pressure and middle meats were steady to a little softer. Look for steady to higher by the end of the week in the beef market.

Futures Market Situation and Outlook:

October live cattle settled at $102.65 a loss of $.40, December live cattle settled at $104.12 a loss of $.82, February live cattle settled at $105.80 a loss of $.52. In the feeder cattle pit, September feeder cattle settled at $110.85 a loss of $.45, October feeder cattle settled at $110.42 a loss of $.87, and the November feeder cattle settled at $109.75 a loss of $.62. The reported CME feeder cattle index for 9/8/08 was $111.90 a loss of $.46.

Yesterdays live cattle volume saw 36,502 contracts trade in the pit and 19,467 contracts trade on Globex. Live cattle open interest gained 1,218 contracts to come in this morning at 272,352. Yesterday’s feeder cattle volume saw 5,767 contracts trade in the pit and 709 contracts trade on Globex. Feeder cattle open interest declined 418 contracts to come in this morning at 27,901.

The futures took it on the chin yesterday as sharply lower hogs, outside markets, and general concerns over a faltering U.S. economy weighed on contract values. Technically the market looks vulnerable to further downside as we continue to have too big of premiums built into the futures and the entire commodity complex as a whole seems to be liquidating. The “Goldman Roll” continued yesterday with an estimated 8-10,000 contracts of October live cattle rolled into December and 2,000 contracts to October feeder cattle rolled into November. Options have been busy the last couple of days, with heavy call option buying noted in the live cattle market. Much of this appears to be the covering of short call positions initiated several weeks ago near the highs of the market. Option volatilities have gotten pretty cheap at 13%-15% over the last couple of weeks in both calls and puts, and option premium should be owned at current levels and not sold. Also, short future hedges should be moved into put options to take advantage of the decline in option premium and guard against an unforeseen rally in futures. For today we will likely open a little lower in the futures. Support for October live cattle will come into place at $102, and below that the $100-$101 area looks probable. December live cattle will have some near term support at $103.50 and below that $102-$103 looks probable. Feeder cattle futures will have some support at $109-$109.50 basis the October contract, below that $104 seems probable. Look for a $.10-$.20 lower open to live and feeder cattle futures 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
Vetterkind Cattle Brokerage, LLC
Chicago Board of Trade
141 West Jackson Blvd.
Suite 1220A
Chicago, IL 60604
1-888-299-1477 Toll Free
1-312-896-2068 Direct
1-708-224-5985 Mobile
tvetterkind@linngroup.com


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