Wednesday, October 1, 2008

October 1, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash cattle market was untested yesterday as packer bids of $96-$97 live go unmatched against feedlot offering prices of $100-$102/$1.62. There were a few hundred head of fed cattle reported sold in Nebraska yesterday for $1.52 dressed, which would be steady with last week, however numbers were too light to establish a market trend. Another late week trade is expected at prices I believe to be steady to $1-$2 lower than last week. It’s not to say we can’t sell cattle fully steady with last week, however if beef packers hold true with what they say about cutting kills like they did last week in order to support sagging margins and with a larger fed cattle offering in the south, they may be able to have their way with the market this week. There are still issues with some bigger cattle in the northern feeding sections of the country as evident by an increase of YG 4 cattle being killed in Nebraska and Iowa, and it would be nice to see a lower market this week to get these cattle cleaned up. At that point I think numbers would get pretty manageable again, which would put more bargaining power in the hands of the cattle feeder when it comes to price negotiations. The beef still acts a little sluggish as we enter midweek, however I would expect that to turn around by late week and into the first part of next. It will be important to see some life come back into the beef market with in the next couple of weeks in order to stave off further losses in the cash cattle market. Coming into midweek we continue to see a mostly steady trend to the fed cattle selling through the Midwest auction market’s with tops noted around $92-$94 on the beef fats and $82-$86 on the Holstein’s. Keep in mind though, the sale barn cattle have been running $4-$5 cwt in back of the cash feedlot trade for several weeks. Slaughter cows are running mostly $1-$2 lower this week with the bulk of the lean cows bringing $48-$57 and the fat cows bringing $58-$67. Feeder cattle markets are off a couple of dollars pretty much wherever you look as well as the seasonal fall run of yearling’s and calves begins to increase. Phillip, SD had a big sale yesterday, with a big run of yearling cattle weighing over 800 lbs. Most of the 800 lbs-1,000 lbs steers were bringing $94-$103, the 600 lbs-800 lbs steers were bringing $100-$114, and the 400 lbs-600 lbs steers were bringing $105-$123. We will begin to see a shift in marketing’s as the yearling run of big cattle starts to slow down and we see more calves show up in the marketing mix. This will help to stabilize the yearling market, so long as the deferred month live cattle futures can find some support, as those cattle will still have good demand and numbers become shorter. The northern plains and intermountain west calf market will come under increasing pressure as numbers coming to market will increase from now until the end of November. However, the southern plains and southeast calf markets should find some support going forward as wheat prospects look fairly decent on the southern plains and buyer demand for calves to place on wheat increases.

Cash Beef Situation and Outlook:

Yesterday’s cattle slaughter was estimated at 126,000 head, which would be 1,000 head below last week and 3,000 head below the same day a year ago. The week-to-date kill stands at 251,000 head, which would be 2,000 head below the same period a week ago with the industry expecting a 640,000 head production week. The boxed beef market was mostly lower yesterday with the choice boxed beef down $.11 to settle at $155.40 and the select-boxed beef down $1.14 to settle at $148.46. Sales volume was light with 298 loads of beef sold (88.79 loads of choice fab cuts, 106.99 loads of select fab cuts, 48.53 loads of trim, 53.76 loads of grinds). The choice/select spread settled at $6.94 a gain of $1.03.

The beef market was lower yesterday, as buyers remain reluctant to take on extra inventory of product given all the press about the crisis in the financial system. Yesterday saw packers tweaking and managing inventory positions by offering discounts in areas of the carcass such as the round and loin. Choice and select knuckle’s, inside rounds, strip loins, and PSMO’s were all in need of some sort of discounting yesterday. Choice and select chuck rolls and clods were in good shape and higher prices were noted there. Coarse ground beef prices came under pressure yesterday and this helped to break the boneless beef and imported beef markets. Also, with the increase in the U.S. dollar the last couple of weeks, this has likely given incentive’s for more foreign grinding beef to come into the U.S., however, e-coli spec’s and MCOOL keep’s a flood of imported beef at bay. There still remains a reluctance to procure large amounts of rib and loin meat and this will keep rallies in the beef cutout values in check. Demand for middle meats remains stable and this will keep the market from falling out of bed. I would look for a sideways trend to the beef market for the balance of the week.

Futures Market Situation and Outlook:

October live cattle settled at $98.90 a gain of $.85, December live cattle settled at $100.37 a gain of $.50, and the February live cattle settled at $100.72 a gain of $.62. In the feeder cattle pit, October feeder cattle settled at $104.00 a gain of $1.20, November feeder cattle settled at $103.72 a gain of $1.15, and the January feeder cattle settled at $103.65 a gain of $.85. The reported CME feeder cattle index for 9/29/08 was $106.19 a loss of $.57.

Yesterdays live cattle volume saw 21,675 contracts trade in the pit and 11,631 contracts trade on Globex. Live cattle open interest declined 1,684 contracts to come in this morning at 246,257. Yesterday’s feeder cattle volume saw 3,190 contracts trade in the pit and 1,821 contracts trade on Globex. Feeder cattle open interest gained 296 contracts to come in this morning at 26,313.

Live and feeder cattle futures settled higher yesterday on short covering and ideas Monday’s limit down move was overdone. Feeder cattle saw a pretty good round of short covering early yesterday morning, which ran the market $2 higher at one point during midsession, however once that buying dried up the market did settle back off its highs going into the close. Live cattle also managed to come back a dollar off their highs, but still managed to settle in positive territory. The market today will be choppy and two-sided as traders await further news on this weeks cash fed cattle trade and results from the government bail out plan. We had a nice rebound in the stock market yesterday, however Dow futures are about 100 points lower coming into this morning as of this writing. We have a lower fed cattle trade priced into the futures coming into this morning, however the cattle futures market will remain on pins and needles given all the turmoil in the outside markets. For the rest of this week, October live cattle will need to hold support between $97.50-$98, with the market looking positive on a close back above $100. December live cattle will need to hold support at $100 to stave off a move down to $98. Both October and November will need to hold Monday’s lows of $102.80 and $102.57 respectively. Below that next support would be $100, and below that long term support would come into play at $96-$97. Can’t rule out another big break in the futures market should more political wrangling delay some sort of resolution to the credit situation. Still though, believe that the best way to play the short side of the market on hedges is via put options or short futures and long calls. If selling cash cattle on a lower market down at these levels, would reown them with call options. Look for a mixed open, $.10 higher to $.10 lower in 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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