September 22, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We left last week with a mostly neutral to slightly friendly cattle on feed report and a cash fed cattle market that trade steady to $1-$2 lower in the north at $98/$1.50-$1.52 and steady in the south at $99/$1.56. First we will look at the cattle on feed report, where the USDA estimated the number of cattle on feed in the nations feedlots as of Sep 1 at 9.997 mil head or 97% of a year ago (97.9%), placements of cattle during the month of August at 2.061 mil head or 97% of a year ago (100.2%), and fed cattle marketing’s during the month of August at 1.884 mil head or 91% of a year ago (90.3%). Pre-report estimates are in parenthesis. The report is regarded as neutral to slightly friendly as the marketing number came in a little higher than expected (however it was the lowest marketing number for the month of August since the new reporting series began in 1996) and the placement figure came in below most pre-report expectations. Part of the reason for the lower marketing figure can be found in a couple less slaughter days this year when compared to next and we overall have less cattle on feed compared to last year and we are seeing less Canadian fed cattle imports recently when compared to last year. It’s not to say that marketing’s couldn’t be a little more current though, as we are seeing plenty of heavy cattle in the slaughter mix in the northern feeding sections of the country. Looking at the placement numbers, we see placements of cattle weighing 700 lbs and under at 930,000 head, which would be a decline of 155,000 head or 17% from last year, and placements of cattle weighing 700 lbs and over at 1.189 mil head or an increase of 97,000 head or 8% from last year. The increase in heavier weight placements last month would make some sense as we begin to see yearling cattle coming off of grass enter the feedlot mix and the market is still giving incentives to keep light weight cattle out of feedyards and on some sort of back grounding program to put cheap gain on before entering a finishing yard. The report also showed on feed numbers in KS, OK, and TX running 98%, 98%, and 94% of a year ago respectively and numbers on feed in NE running 102% of a year ago, confirming we still need to be marketing cattle more aggressively in the north. I believe most of the report should have been priced in last week, however we could see them come in and bear spread the futures market early this morning due to the light marketing number and the lower lightweight cattle placement number. This would likely present an opportunity, as if we have any kind of marketing hole ahead of us I think it is going to come in late October/early November, and we still have plenty of big cattle coming off of grass to place into the first quarter of next year.

Last weeks cash fed cattle market was considered a victory for the feeder in my opinion given all the concerns over the economy and the wild gyrations in the futures market. Fed cattle trade no worse than steady with the previous week on the southern plains on moderate movement at $99 live and $1.56 dressed. The Nebraska, Colorado, and Iowa market was mostly $1-$2 lower at $97-$98 live and $1.50-$1.51, with a few $1.52 early in the week. Numbers of fed cattle remain very manageable in the southern feeding sections of the country and this helps to support that market. There was a light cleanup trade on Friday at the above mentioned prices and I will report on actual trade volumes tomorrow morning once everything is counted and reported to the USDA. Last weeks feeder cattle market was mostly $2-$5 lower as ample numbers coming to market and worries over the credit crisis kept replacement buyers bidding lower all week long. The slaughter cow market was mostly $1-$2 lower as well, with increased marketing’s and a drop in boneless beef markets weighing on that market. Looking into this week, I would look for a mostly steady to higher cash fed cattle market, with southern values leading the market higher. Showlists will likely be a little smaller in the south and steady to larger in the north. Steady demand for beef and manageable numbers should help to support the fed cattle market again this week. The feeder cattle and cow markets will likely be under some pressure as ample numbers coming to market keeps those markets in check.

Cash Beef Situation and Outlook:

Last weeks cattle slaughter was estimated at 686,000 head, which was 32,000 head above the previous week and 39,000 head above the same week a year ago. The weekly slaughter included a Friday kill of 121,000 head and a Saturday kill of 58,000 head and produced an estimated 537 mil lbs of beef. The boxed beef market was $.20 higher on the choice cutout last week to settle at $160.77 and $.72 higher on the select cutout to settle at $154.33 through Thursday. Sales volume backed off a bit with 956 loads of fabricated cuts sold. Friday saw a lower day in the beef market with the choice cutout closing $.97 lower to settle at $159.80 and the select cutout closing $1.25 lower to settle at $153.08. Sales volume on Friday was light with 258 loads of beef sold (104.83 loads of choice fab cuts, 103.32 loads of select fab cuts, 18.53 loads of trim, 31.28 loads of grinds). The choice/select spread settled at $6.72 a gain of $.28.

The beef market was mostly steady to higher last week on continued buyer support for end meats. There are a couple of things at play here the first being the normal seasonal of more chuck and round meat featuring at the retail level through the fall of the year. Along with that is the fact that the consumer spending dollar is getting stretched and they are looking for lower priced beef items to cook at home as opposed to eating out. Export demand is a supporting factor for the chuck complex as well. Packers are still having problems moving middle meats and this is a drag on the entire carcass value right now, however packers did offer enough discounts on rib and loin meat last week to come into this week with a manageable position to sell. Boneless beef markets were mostly lower last week as grinder demand and ample supplies of 90’s and 50’s kept values under pressure. Look for a modestly lower beef market early this week and steady to higher by the end of the week.

Futures Market Situation and Outlook:

For the week, October live cattle lost $.60 to settle at $101.55, December live cattle lost $.52 to settle at $103.25, and the February live cattle lost $2.37 to settle at $103.17. In the feeder cattle pit last week, September feeder cattle lost $1.65 to settle at $108.25, October feeder cattle lost $3.07 to settle at $105.85, and the November feeder cattle lost $3.47 to settle at $105.30. The reported CME feeder cattle index for 9/18/08 was $109.28 a loss of $.47 for the day and a loss of $1.70 for the week.

Fridays live cattle volume saw 26,975 contracts trade in the pit and 15,883 contracts trade on Globex. Live cattle open interest declined 4,080 contracts to come in this morning at 259,820. Friday’s feeder cattle volume saw 3,340 contracts trade in the pit and 1,778 contracts trade on Globex. Feeder cattle open interest gained 353 contracts to come in this morning at 26,547.

It was a wild week of trading in the CME cattle pits, which was characterized by massive long liquidation linked to fund problems on Wall Street. It was good to see the cash market trade no worse than steady in the south and $1-$2 lower in the north, all of which I think was a supporting factor to the futures market late in the week. We could have put in a near term low in the futures market last week as we forced a lot of people out of the market last week because of money problems and the fundamentals of the market aren’t in all that bad of shape going forward. We might not be out of the woods yet, however we have taken quite a bit of premium out of the market and if we were to trade fed cattle steady to higher this week, last weeks lows should hold. Last weeks low in October live cattle was $100.05 and the low in October feeder cattle was $103.30. I would look to buy something on an early week test of those lows and risk a new low close. If they come out with a big bear spreading program early this week because of the placement and marketing breakdown in the on feed report, I wouldn’t mind taking the other side of that, as I think the best of our fed cattle market will be in Oct/Nov, and we will still be placing a lot of cattle into Jan-April of next year. Look for a $.10-$.20 higher open to live and feeder cattle markets 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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