September 3, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

Fed cattle trading was inactive in all trading areas yesterday as participants spent the day putting new showlists together. No packer bids were being reported as of last night with producers pricing a lower weekly showlist offering at $101-$103 live and $1.63-$1.64 dressed. A quick look at last weeks sales volumes and prices shows Texas/Oklahoma feedlots selling 49,775 head of fed cattle for mostly $99 live, Kansas feedlots selling 41,245 head of fed cattle for $99 live and $1.56 dressed, Nebraska feedlots selling 67,170 head of fed cattle for $99-$99.50 live and $1.56 dressed, Colorado feedlots selling 5,570 head of fed cattle for $99 live and $1.56-$1.57 dressed, and Iowa/MN feedlots selling 27,735 head of fed cattle for $97-$98 live and $1.55 dressed. As we can see last weeks feedlot movement was pretty good and private sources indicate that a lot of backed up cattle were moved last week. Many feel that this will open the door for higher prices again this week. Feedlot supplies of cattle are expected to decline modestly from now through late December, and this along with still fairly good export demand for beef and an expected increase in domestic middle meat demand going into fall, will be supportive to the fed cattle market from September through November. Packers do have a lot of cattle contracted for the October timeframe, and this along with a general softening of the U.S. economy could limit prices from achieving previous price forecasts of $110-$112, however a yearly high of $105-$108 sometime in November is still attainable. For this week, I would expect the market to be flat until we get closer to the weekend, at which time I think we will be able to sell fat cattle at steady to higher money (i.e. $99-$100 live and $1.58-$1.60 dressed).

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 128,000 head, which would be steady with a week ago and 2,000 head below the same period last week. With an estimated Monday slaughter of 3,000 head, the week-to-date kill stands at 131,000 head, which would be 124,000 head behind last weeks pace. I would look for a 555,000 head production week. The USDA also revised last Saturday’s kill up to 43,000 head, which put last week’s cattle slaughter up to 680,000 head. The boxed beef market was lower yesterday with the choice boxed beef down $.59 to settle at $159.95 and the select-boxed beef down $1.26 to settle at $152.17. Sales volume was light with 275 loads of beef sold (111.39 loads of choice fab cuts, 93.59 loads of select fab cuts, 18.18 loads of trim, 51.67 loads of grinds). The choice/select spread settled at $7.78 a gain of $.67.

The beef market was under a degree of pressure again yesterday as most participants spent the day going over inventory positions and weekend beef clearance. Rib and loin cuts were lower yesterday, as there seems to be carryover product coming out of last week and packers were discounting those items in order to clear inventories. Also under pressure yesterday were several items throughout the round complex, as here too, inventories coming out of last week are a little burdensome at the packinghouse level. These lower price transactions relate to spot delivery of product as pricing for forward delivery takes place at higher money. Boneless beef item were mixed yesterday with steady to higher money being paid on 50% fed cattle trim and lower money being paid on the 90% lean cow beef. There are a few more cows coming to market the last couple of weeks and this is putting pressure on the lean beef items. I think we will see the beef market trade steady to lower until about midweek, at which time we will see buyers step back into the market. I also think we will begin to see a more concerted effort in securing middle meats for end of year celebrations, which along with lower fed cattle beef production towards the end of September and through October, will give us the next leg up in beef prices going into the fall.

Futures Market Situation and Outlook:

October live cattle settled at $103.75 a loss of $.30, December live cattle settled at $106.10 a loss of $.30, and the February live cattle settled at $106.75 a gain of $.02. In the feeder cattle pit, September feeder cattle settled at $111.77 a gain of $.62, October feeder cattle settled at $111.72 a gain of $.77, and the November feeder cattle settled at $111.27 a gain of $1.00.The reported CME feeder cattle index for September 1, 2008 was $111.48 a gain of $.16.

It was another quiet day in the cattle futures pit as traders try to determine the proper direction of the market. Fat cattle futures were under moderate pressure most of the day on what I believed was weakness in the outside markets and lower midday boxed beef quotes. All things considered I thought live cattle held up fairly well given the weakness in the grains, metals, and energies. Feeders were supported by the weakness in CBOT corn and the futures being oversold and discount to the CME index. There were 15 deliveries against the August live cattle contract last night with MF Global delivering 5 loads out of Amarillo, TX, Cadent delivering 3 loads out of Norfolk, NE, and RJO delivering 7 loads out of Norfolk, NE. Rosenthal received all 15 loads. I still think we will find some support under the market on any early week sell off and would be interested in owning December live cattle on a pull back to the $105 area. October feeder cattle had a pretty impressive reversal type trade last Friday and I can’t help but think we could get a corrective trade higher into the $113-$114 area in the near term. You can try to trade it from the long side and capture the quick up should it develop, however the better trade in my opinion would be to initiate short positions should we approach that area. 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
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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