September 30, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was at a standstill yesterday with no meaningful bids or offers being put out as participants spent the day putting together new showlists and watching the fallout in the financial markets. A look at last weeks sales volumes and prices shows Texas/Oklahoma feedlots selling 37,366 head of fed cattle for $99 live (50,940 head previous week), Kansas feedlots selling 45,171 head of fed cattle for $99-$98 live and $1.55-$1.56 dressed (32,595 head previous week), Nebraska feedlots selling 68,720 head of fed cattle for $96.50-$99.50 live and $1.50-$1.52 dressed (61,944 head previous week), Colorado feedlots selling 10,964 head of fed cattle for $99-$99.50 live and $1.56 dressed (4,341 head previous week), and Iowa/MN feedlots selling 42,549 head of fed cattle for $95-$98 live and $1.49-$1.50 dressed (25,219 head previous week). All weekly totals include negotiated cash and negotiated grid sales as reported to the USDA with prior week sales totals in parenthesis. As we can see there was fairly decent movement out of the nation’s feedlots last week, with the exception of Texas, which is where we are finding a little larger showlist offering for this week with northern showlist being a little smaller. The cash fed cattle market would look a little lower to me this week just because we have been trading basically steady for the last six weeks and there isn’t a lot of good news in the country in terms of beef demand or positive financial news. We still seem to have a little problem with bigger cattle in the northern sections of feeding country that need to get cleaned up and with the implosion in financial and commodity markets early this week I would say that packers will be difficult to do business with. Because of the inability of beef packers to move much meat the last couple of weeks they have cut production schedules last week and plan to do the same this week, which also will keep them less aggressive in the cash market. I wouldn’t look for much trade to develop until at least midweek, and when it does I would look for a $1-$2 lower trade at $97-$98 in the south and $1.48-$1.50 dressed in the north.

Starting out this week sale barn cattle are on the defensive with fed cattle tops noted at $92-$94 on the beef cattle and $82-$86 on the Holstein steers. Slaughter cow markets are off by $1-$2, as are feeder cattle. The bulk of the cutter and boning utility cows bring $42-$57 with the fat and high yielding cows bringing $58-$66. With an estimated run of 7,500 head Oklahoma City was calling their market mostly $2-$3 lower. Medium/large frame #1-#2 feeder steers weighing 650-850 lbs in OKC yesterday were bringing $96-$106.

Cash Beef Situation and Outlook:

Yesterday’s cattle kill was estimated at 125,000 head, which would be 1,000 head below last week and 5,000 head below the same day a year ago. The industry will be looking for a 640,000 head production week. The boxed beef market was mixed yesterday with the choice cutout closing $.09 higher to settle at $155.51 and the select cutout closing $.35 lower to settle at $149.60. Sales volume was light with 232 loads of beef sold (99.81 loads of choice fab cuts, 64.16 loads of select fab cuts, 21.78 loads of trim, 46.69 loads of grinds). The choice/select spread settled at $5.91 a gain of $.44.

The beef market was mostly steady on the choice product and steady to lower on the select yesterday as most participants spent the day going over inventory positions and gauging weekend beef clearance. Beef clearance over the weekend was rated as average. There was also concern about what was happening on Wall Street, which had some buyers on the sidelines trying to determine what the meltdown in the stock market would mean to consumer demand. There were a few instances where choice ribeyes and top butts needed discounting, which along with lower pricing on inside rounds kept choice cutout values from moving higher. Select beef saw lower markets on ribeyes, inside rounds, clods, and a few loin items. Packers have taken action to support the beef market and improve margins by reducing slaughter schedules late last week and late this week. This should help to stem some of the recent losses in the beef market and stabilize it going into the last half of this week and fist of next.

Futures Market Situation and Outlook:

October live cattle settled at $98.05 a loss of $2.90, December live cattle settled at $99.87 a loss of $2.92, and the February live cattle settled at $100.10 a loss of $2.97. In the feeder cattle pit, October feeder cattle settled at $102.80 a loss of $3.00, November feeder cattle settled at $102.57 a loss of $3.00, and the January feeder cattle settled at $102.80 a loss of $3.00. The reported CME feeder cattle index for 9/26/08 was $106.76 a loss of $.98.

Yesterdays live cattle volume saw 27,447 contracts trade in the pit and 12,824 contracts trade on Globex. Live cattle open interest declined 4,251 contracts to come in this morning at 247,908. Yesterday’s feeder cattle volume saw 2,326 contracts trade in the pit and 611 contracts trade on Globex. Feeder cattle open interest declined 1,131 contracts to come in this morning at 26,028.

The cattle futures market came under further liquidation yesterday on low volume, due to further concerns over what impact the meltdown in the equity and credit markets would have on consumer beef demand. Panic selling was the main theme of the day yesterday and I would suspect that some of that will subside today as long as the stock market can show some stability throughout the day. Live cattle futures pushed into new lows for the move down yesterday and most front month feeder cattle made new contract lows all of which is not bullish technically. The next major support for front month live cattle futures will come into play at $97.50, below that $95.40. In the feeder cattle, the next area of major support comes into play at $100. I don’t know if we can get down to these price levels yet, but if we get more capitulation in the stock market, we will likely see further liquidation in the cattle futures market. Picking a bottom in this type of market environment is going to be tough, and selling futures on such a huge break is going to be hard as well. Whether you are bullish or bearish, I still believe using options is the best play right now as volatility has come down the last several weeks, although, keep in mind option volatility did increase a little on yesterday’s extreme move. I would like to buy some 14-15% volatility with ATM vol currently at 16%. 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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