September 18, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

There was nothing going on in the cash fed cattle trade yesterday as the first real packer bids of the week came out at $97 in the south and $96/$1.51 in the north with feedlot offering prices remaining dollars higher at $102-$103 live and $1.60 plus dressed. There were a few cattle that have changed hands in eastern Nebraska and western Iowa for $1.51-$1.52 dressed. Not much has changed fundamentally on the cash side, showlists are mostly smaller in the south and a little larger in the north. Packers have ample contract and formula cattle in their northern plants and not as many in their southern plants. The futures have been all over the place since the first of the week, which keeps a lot of uncertainty in the market, however it is my opinion that the futures shouldn’t have all that much bearing on this weeks cash market as the futures market is dealing with fund liquidity problems linked to problems on Wall Street. As a matter of fact, we could still lose another $1-$2 in the futures and still not hurt the cash market as we would just be narrowing an already wide basis. Holding October futures above $102 keep a positive spin on the cash market for this week, where we should be able to trade fat cattle at $99 in the south and $98/$1.52 in the north.

Fed cattle selling through the sale barns are bringing mostly steady money with Sioux Falls, SD calling their market that way yesterday. Tops on the beef fat yesterday in Sioux Falls were noted at $92-$94 and on the Holstein steers at $82-$85. Slaughter cows have been lower for much of the week and they were off $1-$2 in Sioux Falls yesterday with the cutter and boning utility cows bringing $50-$60 and the breakers and whites bringing $60-$64. Feeder cattle are lower in just about every sale throughout the country and La Junta, CO was no exception where they were calling their market $2-$3 lower yesterday. The bulk of the medium/large frame #1-#2 feeder steers weighing 600 lbs-800 lbs in La Junta yesterday were bringing $104-$113. There are several large strings of yearling cattle coming off grass hitting many northern plains sale barns and this is, and will continue to keep pressure on the cash feeder cattle market and the CME feeder cattle index for several weeks to come. Wild swings in the commodity, equity, and credit markets doesn’t help cash feeder cattle values right now either.

Cash Beef Situation and Outlook:

Yesterday’s cattle kill was estimated at 127,000 head, which would be 1,000 head below last week and 8,000 head above the same day a year ago. The week-to-date kill now stands at 381,000 head, which would be 1,000 head below the same period a week ago with the industry looking for a 670,000 head production week. The boxed beef market was higher yesterday with the choice cutout closing $.46 higher to settle at $161.21 and the select cutout closing $.25 higher to settle at $154.27. Sales volume was moderate with 281 loads of beef sold (86.79 loads of choice fab cuts, 107.52 loads of select fab cuts, 14.87 loads of trim, 71.52 loads of grinds). The choice/select spread settled at $6.94 a gain of $.21.

The beef market was higher yesterday on what was said to be solid demand for end meats from domestic retail buyers. Most items throughout the chuck and round primal were trading at higher money; some instances sharply higher, as seasonal factors have kicked in demand for end meats. There is also continued export buying of chuck rolls and short ribs, which helps keep the chuck complex supported. Middle meats continue to lag as buying interest for ribs and loins for end of the year holidays has yet to kick in. Boneless beef markets were lower yesterday with increasing supplies weighing down prices there. Given everything that is going on in the economy, the beef market and demand are holding up pretty good and I will continue to look for a steady to higher market going into next week. Export sales for the week of September 5-11, 2008 are as follows:
Beef: Net sales of 9,900 MT were primarily for South Korea (3,100 MT), Canada (1,700 MT), Vietnam (1,600 MT), Japan (1,300 MT), and Mexico (700 MT). Exports of 13,600 MT were mainly to Mexico (5,100 MT), South Korea (4,400 MT), Canada (1,400 MT), Japan (1,000 MT), Vietnam (700 MT), and Russia (400 MT).
Futures Market Situation and Outlook:

October live cattle settled at $102.60 a loss of $.15, December live cattle settled at $104.05 a loss of $.57, and the February live cattle settled at $103.75 a gain of $.02. In the feeder cattle pit, September feeder cattle settled at $108.00 a loss of $.90, October feeder cattle settled at $106.30 a loss of $1.37, and the November feeder cattle settled at $105.87 a loss of $1.72. The reported CME feeder cattle index for 9/16/08 was $109.93 a loss of $.11.

Yesterday’s live cattle volume saw 37,430 contracts trade in the pit and 15,366 contracts trade on Globex. Live cattle open interest declined 2,375 contracts to come in this morning at 274,229. Yesterday’s feeder cattle volume saw 4,701 contract trade in the pit and 1,477 contracts trade on Globex. Feeder cattle open interest declined 187 contracts to come in this morning at 26,625.

It was another wild day in the CME cattle pits yesterday as more liquidity problems throughout the financial industry took futures from a higher early trade to sharply lower on the day only to come back late in the session on short covering and bargain hunting. It was a big spread day with accounts buying April and June live cattle and selling December. There was also quite a bit of short Dec and long Feb positions being put on yesterday. With all the wild moves this week, we are basically right back where we started on Monday morning, and in the case of the October live cattle contract, we are actually $.45 higher on the week, which makes one think that cash fed cattle should be no worse than steady this week. As outlined above, the cash fundamentals of the market (i.e. numbers of fed cattle (with the exception of a few more cattle up north) and the beef) aren’t in all that bad of shape. There is a big competition down here in Chicago to see who can be the most bearish on the cattle market; however despite everyone’s best efforts they can’t seem to break the market really hard from current price levels. It’s not to say it can’t happen at some point in time, but I think if it did it would be short lived. Perhaps a scenario like the cash market coming in a couple dollars lower on a week when we all think it should be higher and you break the futures really hard, that’s when it would be time to buy it with both hands. For the rest of this week, $102 in October live cattle and $103 in December live cattle will be big areas of support. Taking them out on a closing basis would certainly open the door for another $1-$3 lower in my opinion. Feeder cattle were a mess yesterday and we are now approaching contract lows of $104 in both Oct and Nov. As mentioned yesterday, this would probably be a good place to take some profits on short positions and roll them into cheap puts. October puts seem pretty reasonably priced at the current time. You could also buy some cheap October feeder cattle puts and use them as protection to buy futures against contract lows. The CME index will probably find some support at $105 and the futures are already there. Estimates for this Friday’s cattle on feed report were released yesterday with the market looking for on feed Sep 1, 97.9%, placed during the month of August at 100.2%, and marketed during the month of August at 90.3%. If anything the placement number maybe looks a little light as does the marketing number. Look for a $.10-$.20 higher 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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