September 5, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

A moderate fed cattle trade developed in the northern feeding areas of Nebraska yesterday, with prices running generally $1-$2 lower at $1.54-$1.55 dressed and $97 live. USDA was reporting close to 25,000 head of cattle sold at that price level in their late afternoon report. Many producers were said to be passing the lower bids, especially in the southern regions of the country looking for higher money. Apparently one of the majors in the north keeps talking about having plentiful supplies of contract and formula cattle to kill in the coming weeks and this was said to be a catalysts for producers in that part of the country to accept lower money for their cattle this week. Southern cattle traders could fare a little better than their northern counterparts today as their showlist numbers are quite a bit smaller this week and I don’t think packers have as many contract cattle around them down there. Nevertheless though, early week thoughts of a higher fed cattle trade are quickly diminishing with the lower northern market and a steady trade in the south would seem like a victory coming into this morning. This is going to be more and more of an issue going forward into late Sep/early Oct, as although fed cattle supplies are going to become more and more manageable during this timeframe, packers do have an awful lot of cattle contracted in the northern sections of the country for the same time period. This could develop into a two-tiered market in the coming weeks with premiums being paid on southern cattle. Going home for the weekend, sale barn cattle are trading mostly steady on the fats (i.e. $95-$97 tops), slaughter cows are off about $1-$2 (i.e. $53-$63 on the cutters/boners and $62-$67 on the fat cows). Feeder cattle markets seem to have firmed up a little late in the week as the holiday shortened trading week has curtailed receipts at several locations. Pratt, KS had a pretty good run of yearling cattle on offer yesterday with the majority of their 700-900 lbs feeder steers bringing $109-$117, $2-$3 higher when compared to last week.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 128,000 head, which would be 1,000 head above last week and even with the same day a year ago. The week-to-date kill now stands at 387,000 head, which would be 122,000 head below the same pace last week. The boxed beef market was mixed yesterday with the choice cutout closing $1.15 lower to settle at $158.41 and the select cutout closing $.13 higher to settle at $152.00. Sales volume was very good with 536 loads of beef sold (196.15 loads of choice fab cuts, 142.40 loads of select fab cuts, 131.75 loads of trim, 65.33 loads of grinds). The choice/select spread settled at $6.41 a loss of $1.28.

The beef market was mixed yesterday with choice cuts losing more to select as packers cleaned up some problem inventory levels of rib and loin meat. Along with the lower market came an increase in movement, as buyers were willing to take on extra product for immediate shipment at the discounted prices. Forward price negotiations continue to take place at higher money on most middle meat items, however there is a reluctance to take on a whole lot of inventory from the buy side at the higher money. End cuts remain mixed, with chuck items supported by export demand from Asia, and round cuts under a degree of pressure from a lack of Russian business. For the most part coarse ground beef markets were steady and ground beef demand is still rated as steady. Boneless markets were mixed once again, with lower 90’s and strong buying in the 50’s supporting values there. Packer inventories of beef to sell seem to be in better shape than they were at the beginning of the week, which will help them in price negotiations next week. Retail/wholesale buyers did take on some extra inventory late this week and likely won’t be too aggressive in the marketplace unless consumer pulls warrant it. With that said though, it feels like the beef market could stabilize and begin to move modestly higher into the first part of next week. Export sales for the week of August 22-28, 2008 are as follows:

Beef: Net sales of 12,300 MT were primarily for South Korea (4,400 MT), Mexico (4,200 MT), Vietnam (1,000 MT), Canada (800 MT), Japan (700 MT), Russia (600 MT), and Taiwan (300 MT). Exports of 15,700 MT--a marketing-year high--were mainly to Mexico (5,500 MT), South Korea (3,600 MT), Russia (1,900 MT), Canada (1,500 MT), Japan (1,300 MT), and Vietnam (1,100 MT).

Futures Market Situation and Outlook:

October live cattle settled at $103.30 a gain of $.15, December live cattle settled at $105.30 a loss of $.17, and the February live cattle settled at $106.10 a gain of $.27. In the feeder cattle pit, September feeder cattle settled at $110.77 a gain of $.22, October feeder cattle settled at $110.37 a gain of $.10, and the November feeder cattle settled at $109.97 a loss of $.07. The reported CME feeder cattle index for 9/3/08 was $111.65 a gain of $.17.

Yesterdays live cattle volume saw 24,031 contracts trade in the pit and 11,003 contracts trade on Globex. Live cattle open interest declined 428 contracts to come in this morning at 271,870. Yesterday’s feeder cattle volume saw 3,161 contracts trade in the pit and 651 contracts trade on Globex. Feeder cattle open interest gained 695 contracts to come in this morning at 30,584.

After an initial lower opening live and feeder cattle futures managed to claw their way back into positive territory by the close on what was said to be some light commercial buying once early morning support held. There was some spreading out of December live going into the close and some light hedge selling that came into April and June, which gave lower settlement prices to those contracts. One would have to think that reports of lower fed cattle sales in Nebraska after the close would exert pressure on front month October and December live cattle this morning. Here again, we will have to keep a close eye on yesterday’s support levels of $102.60-$102.80 in the October and $105 in the December as a clue to price direction. I would imagine that we will open right down against that support this morning, and with a change in cash psychology from yesterday afternoon I would suspect that support to be violated, especially considering sharply lower overnight grains, energies, and metals. Just exactly how much lower could the market go becomes a big question. In the October live cattle contract if we close sloppy today, it would seem like $100-$101 would be a possibility. December will find some support at $104, below that $102 would seem to be in the cards. I am going to keep the same stance on October feeder cattle as yesterday, if we close below $109, the charts would tell you that $104 should be the next price target. The futures market may have to go lower for just a little bit and narrow up the basis and get everybody bearish before it can move higher with a rally in the cash later on in October/November. Deliveries continued last night with Prudential Bache delivering 5 loads of cattle against the August live contract in Norfolk, NE and RJO delivering 10 loads in Tulia, TX, with Rosenthal taking them all. I would look for a $.10-$.20 lower open to live and feeder cattle futures this morning, and we will have to see if we can come back and hold the above mentioned support levels by the close, which as of right now would not seem likely. Trade Well and Have a Good Weekend!!!

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.

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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
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tvetterkind@linngroup.com


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