September 24, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was quiet again yesterday with a few $97/$1.48 packer bids being put out with most feedlots remaining priced at $102-$103/$1.60-$1.61. Another late week trade is expected with prices no worse than steady with last week (i.e. $99 live in the south/$98 live and $1.51 dressed in the north). There isn’t a whole lot new to report about the market as showlists remain a touch smaller in the south and larger in the north. Packers have a lot of contract and formula cattle to work through in the north and this keeps them bidding the market in that part of the country lower. The opposite is the case in the southern feeding states with packers not having as many contract cattle to work off of and overall numbers in the south are a lot more current than in the north. This will keep premiums in that part of the country running above that being paid on cattle in the north. We should continue to see a general tightening of numbers in the weeks to come per our placement patterns in the last several cattle on feed reports, which should be a supporting factor to the cash fed cattle market in the coming weeks. Coming into midweek, fed cattle selling through the auction markets are mostly steady, slaughter cows are mostly lower as are feeder cattle. Numbers of feeder cattle coming through northern plains sale barns continue to be heavy and I would look for this to continue for the next several weeks, which is going to be a limiting factor to the cash feeder cattle market.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 127,000 head, which would be 1,000 head above last week and even with the same day a year ago. The USDA revised the Monday slaughter down to 126,000 head, which puts the new week-to-date slaughter at 253,000 head, 1,000 head below last weeks pace. The boxed beef market was $.86 higher on the choice cutout closing at $160.41 and $.36 higher on the select cutout closing at $152.24. Sales volume was moderate with 200 loads of beef sold (64.64 loads of choice fab cuts, 81.29 loads of select fab cuts, 10.58 loads of trim, 43.64 loads of grinds). The choice/select spread settled at $8.17 a gain of $.50.

The boxed beef market saw some moderate gains yesterday on better buying in the rib primal of the animal. Chuck items, as well as the certain cuts from the round cleared up a bit and higher transactions were taking place during yesterday’s session. The drag on the complex continues to be found in the loin section of the carcass where packers are forced to offer discounts on select strips and top butts to keep from backing product up. Thin meats and boneless beef items were also lower during the day yesterday. There is a little concern that packers could be over killing for the current demand in the market and as such many buyers are buying hand-to-mouth. Export demand remains in good shape and this should help support the market going forward. I will continue to look for a beef market that trades sideways to higher by the end of the week.

Futures Market Situation and Outlook:

October live cattle settled at $102.20 a loss of $.25, December live cattle settled at $103.45 a loss of $.45, and the February live cattle settled at $103.67 a loss of $.47. In the feeder cattle pit, September feeder cattle settled at $107.60 a loss of $.55, October feeder cattle settled at $106.60 a loss of $.45, and the November feeder cattle settled at $105.95 a loss of $.52. The reported CME feeder cattle index for 9/22/08 was $108.16 a loss of $.27.

Yesterdays live cattle volume saw 19,411 contracts trade in the pit and 10,193 contracts trade on Globex. Live cattle open interest declined 1,290 contracts to come in this morning at 256,310. Yesterday’s feeder cattle volume saw 1,368 contracts trade in the pit and 755 contracts trade on Globex. Feeder cattle open interest gained 88 contracts to come in this morning at 26,784.

Live and feeder cattle futures settled lower yesterday on a correction from the recent gains we saw from late last week. It was a rather slow trading day with the market trying to rally a couple of times throughout the session only to find willing sellers on any up tick in the market. Support was carved out early in the morning at $102 in Oct live and $106 in Oct feeders, and buyers were under these price levels whenever the market approached. Option activity slowed down a little yesterday, however there was some interest in the December $107 calls. It has been a pretty active month in the live cattle options with total option open interest increasing 13,968 contracts, with call open interest increasing 9,523 and put open interest increasing 4,445 since the first of the month. Option volatility has come down quite a bit the last several weeks as well with most at the money vol trading at 15.5% vs 18%-20% a couple of months ago. Whether you are bullish or bearish, with volatility being cheap it is time to buy options as opposed to selling them. For today, I think we could be a little higher as a bit more optimism seems to be coming back into the financial sector and grains are higher again overnight. If corn is going to get good again I think we are going to see investors come back into the backend of cattle, which is going to be supportive to April live cattle forward. This again likely means we will see another big bear spread program, selling the front and buying the back. The front month live cattle contracts should find some support from ideas of steady to higher cash fed cattle markets this week. October live cattle will find first support today at $102 and below that $101.50. December live cattle will find first support at $103 and below that $102.75. You could probably look at buying something against that support this morning. Feeder cattle could be under a little pressure early if corn wants to trade higher on the open. However, if we get a big rally in corn they will come after back month live cattle and this will be supportive to feeder cattle futures. Support in Oct feeders will be found from $106 down to $105.80. Look for a $.10-$.20 higher open to live cattle futures and $.10-$.20 lower to 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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