October 20, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We left last week with a fed cattle that trades mostly $2 lower live and $3-$4 lower dressed, and a cattle-on-feed report that should be construed as mildly friendly from a numbers standpoint. A quick look at the on feed report shows cattle on feed October 1, 2008 at 10.415 mil head or 95% of a year ago (pre-report estimate 95.5%), placed during the month of September, 2.281 mil head or 94.5% of a year ago (96.5%), and marketed during the month of September, 1.812 mil head or 106.8% of a year ago (106.4%). The report shows a continued supply friendly situation in the cattle market with placements coming in below expectations and marketing’s coming in slightly above expectations, with overall on feed numbers 5% below a year ago. The placement breakdown showed a 19% increase in cattle weighing over 800 lbs, which should have been expected and shows that we will have cattle to kill into the first quarter of 2009. The biggest declines in placements came in under 700 lbs category where we see a reduction in placements of 22% compared to a year ago. Numbers on feed and placements continue to run below year ago levels in the southern feeding states of Texas, Kansas, and Oklahoma, with numbers on feed and placements at or above year ago levels in the north. This continues to show us that we need to be doing a better job of marketing cattle in the north. The report along with the higher outside markets should prompt a $.25-$.50 higher open in cattle futures trading this morning.

Last weeks cash fed cattle market ended at mostly $90 live on the southern plains and $87-$90 live or $1.36-$1.37 dressed in the north, all of which would be $2-$3 lower live and $4-$5 lower dressed when compared to the week before. The cash feeder cattle market was mixed last week with early week declines of $3-$5 noted, however the market straightened out to trade as much as $4-$5 higher on the calves in the northern plains sale barns. The slaughter cow market was mostly $2-$4 lower last week as well. Looking into this week, we could possibly see a stabilization in the cash fed cattle market as movement last week seemed to be adequate in most trading areas, numbers of fed cattle remain manageable, the boxed beef market could be in the process of finding a bottom, and the futures might have put in a near term low last week. The feeder cattle market could find a little support as well, as a better outlook to winter wheat pastures down south and stabilization in fed cattle prices along with lower feed grain markets could be a supporting factor. Slaughter cows will likely be under a degree of pressure as we see more numbers coming to town in the coming weeks. We will look for steady markets early this week, with the chance of modestly higher by the end of the week.

Cash Beef Situation and Outlook:

Last weeks cattle slaughter was estimated at 628,000 head, which would be 27,000 head below the previous week. For the week, the choice cutout lost $3.90 and the select cutout lost $5.04 on reduced movement of 959 loads of fabricated cuts through last Thursday. Friday saw similar losses of $1.12 on the choice cutout to settle at $144.49 and $.71 on the select cutout to settle at $137.49. Sales volume was decent on Friday with 334 loads of beef sold (98.98 loads of choice fab cuts, 85.35 loads of select fab cuts, 82.92 loads of trim, 66.76 loads of grinds). The choice/select spread settled at $7.01 a loss of $.41 for the day, however a gain of $.74 for the week.

Last weeks beef market was once again characterized by concerns over the domestic and world economy and how it would affect beef demand. Export sales have slacked off in recent weeks because of this and that has been putting more product on the domestic market. All primal sections throughout the beef carcass saw losses of 1%-6% last week, however it is thought that with packers cutting kills late in the week and many items throughout the carcass trading at or below year ago levels, that this may spur some demand late this week or early next. Packers did get some back logged product moved last week, which has them coming into this week with a better sold inventory position. I will look for a steady to softer beef market early this week, with some stabilization late in the week.
Futures Market Situation and Outlook:
On Friday, October live cattle settled at $91.05 a gain of $1.60, December live cattle settled at $92.55 a gain of $1.72, and the February live cattle settled at $93.25 a gain of $1.70. In the feeder cattle pit, October feeder cattle settled at $98.40 a gain of $1.60, November feeder cattle settled at $98.65 a gain of $1.92, and the January feeder cattle settled at $98.05 a gain of $1.42. The reported CME feeder cattle index for 10/16/08 was $97.32 a gain of $.01.

Friday live cattle volume saw 18,544 contracts trade in the pit and 9,211 trade on Globex. Live cattle open interest declined 526 contracts to come in this morning at 225,548. Friday’s feeder cattle volume saw 2,745 contracts trade in the pit and 1,740 trade on Globex. Feeder cattle open interest declined 44 contracts to come in this morning at 23,158.

It was another week of the live and feeder cattle futures being led around (almost tick for tick) by the stock market. It was interesting to see on Friday though, that perhaps the live and feeder cattle futures were trading on their own merits, as stock futures spent most of Thursday night trading sharply lower with cattle futures trading $1 higher, and most of the strength in cattle futures carrying over into the day session on Friday. This morning we should see a better start to the stock market along with many other commodity markets, which along with a friendly on feed report and ideas that perhaps the cash markets may stabilize late this week should have cattle futures trading higher for the first part of this week. I think we could go and attempt to fill some chart gaps above the market at $97.50 basis December live cattle and $100.50 basis the November feeder cattle contract early this week, so you might want to trade it that way early. There is still going to be a lot of volatility so to protect long futures with put options or just outright trading some call options might not be a bad idea. Deliveries on Friday saw 26 new loads posted against the October live cattle contract out of Norfolk, NE. We will see if any of these are stopped tonight. Look for a $.25-$.50 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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