September 23, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash cattle market was quiet as is usual for a Monday with showlist distribution the main feature of the day. Numbers of fed cattle for sale this week look to be larger in Nebraska and Kansas, and smaller in Texas. Packer bids were few and far between yesterday with feedlot offering prices beginning the week at $102-$103 live and $1.60-$1.62 dressed. A look at last weeks trade volumes shows Texas/Oklahoma feedlots selling 50,940 head of fed cattle for $99 live, Kansas feedlots selling 32,595 head of fed cattle for $99 live and $1.55-$1.56 dressed, Nebraska feedlots selling 61,944 head of fed cattle for $98 live and $1.50-$1.51 dressed, Colorado feedlots selling 4,341 head of fed cattle for $98 live and $1.52 dressed, and Iowa/MN feedlots selling 25,219 head of fed cattle for $93-$95 live and $1.50-$1.51 dressed. All weekly totals are negotiated cash and negotiated grid sales as reported to the USDA. Movement for the week looks pretty good in Texas and Nebraska and moderate in Kansas, which is why Kansas is showing more cattle for sale this week. Nebraska feedlots look to have more cattle for sale this week as well, simply because they have more cattle to market in the next couple weeks. I still think we can see a steady/better fed cattle trade for this week, especially in the south, as beef demand isn’t all that terribly bad and packers seem to have some demand for cattle as is evidenced by last weeks decent 686,000 head kill. The beef market was a little softer yesterday and I think it will stay that way until midweek, but I also think packers have some beef sold out in front of them that they will need to harvest cattle for. So that’s what we will call for early in the week, no worse than $99 live in the south and $98/$1.51 in the north.

Cash cattle selling in the country sale barns are bringing mostly steady on the fat cattle and lower on the feeders and cows. Fat cattle selling in Zumbrota, MN yesterday were bringing $90-$93 on the beef fats and $82-$86 on the Holsteins, all of which would be steady with last week’s market. Slaughter cows were steady to a little higher at $49-$62 on the cutter’s and boner’s, with the fat cows bringing $63-$68. Feeder cattle markets were mostly lower yesterday with both Oklahoma City and Joplin, MO calling their markets off $1-$3. Oklahoma City had an estimated run of 10,000 head with the bulk of the medium/large frame #1-#2 feeder steers weighing 650 lbs-850 lbs bringing $103-$112, with some calves falling into the same weight group bringing under $100. I would look for a lower trend in the feeder cattle market to continue for most of this week, as we see more numbers coming off grass and coming to market, especially in the northern plains.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 129,000 head, which would be 1,000 head above last week and even with the same day year ago. The industry will be looking for another 670,000 head production week. The boxed beef market was mostly lower yesterday with the choice cutout closing $.25 lower to settle at $159.55 and the select cutout closing $1.20 lower to settle at $151.88. Sales volume was moderate with 309 loads of beef sold (100.54 loads of choice fab cuts, 94.56 loads of select fab cuts, 24.20 loads of trim, 89.32 loads of grinds). The choice/select spread settled at $7.66 a gain of $.95.

The beef market was under a degree of pressure yesterday as it was said that packers perhaps carried some product over into this week, which along with lackluster demand for ribeyes, short loins, and PSMO’s had them offering discounts on choice and select grades of the above mentioned product. There were a few instances of some lower transactions taking place on briskets, clods, and inside rounds yesterday also and this helped to weigh on cutout values as well. Ground beef markets were said to be in pretty good shape and this lent support to the boneless beef markets. I think overall, the beef market is in good shape and we may see some further weakness in this next day or two, but we should be able to hold right around this $158-$159 area basis the choice cutout and move higher by the end of the week. The USDA released cold storage figures yesterday, with beef stocks in the nations coolers pegged at 433.971 mil lbs, which would be 10.058 mil lbs or 2% above last month, however 46.973 mil lbs or 11% less when compared to a year ago. The report also showed a 2% decrease in pork stocks compared to last month; however a 5% increase when compared to last year, and poultry stocks showed an increase of 1.5% and 17% of a month ago and year ago respectively. So beef will still have some competition with competing proteins in the near future.

Futures Market Situation and Outlook:

October live cattle settled at $102.45 a gain of $.90, December live cattle settled at $103.90 a gain of $.65, and the February live cattle settled at $104.15 a gain of $.97. In the feeder cattle pit, September feeder cattle settled at $108.15 a loss of $.10, October feeder cattle settled at $107.05 a gain of $1.20, and the November feeder cattle settled at $106.47 a gain of $1.17. The reported CME feeder cattle index for 9/19/08 was $108.43 a loss of $.85.

Yesterdays live cattle volume saw 28,240 contracts trade in the pit and 14,834 contracts trade on Globex. Live cattle open interest declined 2,098 contracts to come in this morning at 257,621. Yesterday’s feeder cattle volume saw 2,953 contracts trade in the pit and 1,531 contracts trade on Globex. Feeder cattle open interest gained 208 contracts to come in this morning at 26,743.

It was another day of short covering in the CME cattle pits yesterday, which kept prices supported for most of the session. The latest commitment of traders report showed commodity funds net long 9,373 contracts live cattle futures and options a decline of 3,759, commercials were net long 24,127 contracts of live cattle f/o a gain of 2,286, and small specs were net short 33,500 contracts of live cattle f/o a decline of 1,473. In the feeder cattle, funds were net short 246 contracts of F/O a gain of 1,182 from the previous report, commercials were net long 5,496 contracts of F/O a gain of 1,660, and the small specs were net short 5,250 contracts of F/O a gain of 478. As we can see there has been a pretty good transfer of ownership in the last several weeks, with the funds trimming their live cattle long position by about 16,000 contracts since the first of August and actually going from net long 7,389 contracts of feeder cattle futures and options to net short 246 contracts during the same time period. The commercial category has taken the majority of these long positions on the way down. This is another reason why I am going to stay with my theme of putting in a near term low in live and feeder cattle futures, as we are on a $13-$15 break in the market, the last two days of which ended in complete and utter capitulation resulting in limit down moves (i.e. Wednesday and Thursday of last week). We have a big transfer of ownership in the long side of futures from spec’s to commercials, the fundamentals of the market aren’t that bad (at least the fed cattle fundamentals), and everybody in the world in bearish the market. I think you want to be very careful about being short in this type of environment at these price levels, and do so only if you are fading extreme type moves like we saw yesterday when the market is $2 plus higher in the backend of the board for a day or overnight trade. I don’t think the commodity story is over with as there are still supply/demand issues in all these markets going forward, especially the cattle and hogs. I think we saw forced liquidation the last couple of weeks out of commodities because of what was going on in New York, I think there is a plethora of money sitting on the sidelines looking for a home, and I think there is a general lack of confidence in the equities markets right now, which is still going to make tangible investments like commodities look attractive, especially if that commodity has a story behind it.

Yesterday saw a lot of spreading in the fat cattle market with buying the backs and selling the fronts due to less than expected placements in the cattle on feed reports and strength in the corn. The placement story in the on feed report simply showed less lightweight cattle placements for the first quarter of next year, however we all know we have an abundance of big cattle coming off grass in the next several weeks that will be placed into the first quarter of next year. However, here is where the next trap could be, as all the fundamental and numbers guy’s including myself, will be looking at the increase in tonnage we will have for the first quarter of next year and will want to be selling rallies out there, and all of the sudden commodities will get good again, or corn will get good again, and money will be looking for a home and they come and buy the back end of the board like they did earlier in the year. So we all need to be a little careful getting too bearish the cattle market right now. For today I would look for a little lower start to futures trading due to lower overnight markets and a correction from yesterday’s big rally. Support in Oct live cattle should be found at $102, December at $103, and Oct feeders at $106. However, I am not so convinced feeder cattle can hold much strength until the cash feeder market turns around. Call option trading was pretty heavy again in the December live cattle $104-$108 calls, with open interest going up. Option volatility has come down quite a bit the last several weeks, and this might be a good way to play an upside move. Look for a $.10-$.20 lower start to cattle futures trading 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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