October 21, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

Yesterdays fed cattle trading was mostly non-existent, except for those cattle selling through auction. Bids from packers and offers from feedlots were poorly defined yesterday as participants spent the day putting together this weeks showlists and watching the futures board. A look at last weeks feedlot sales shows Texas, Oklahoma, and New Mexico feedlots selling 53,443 head of fed cattle for mostly $90 live, Kansas feedlots selling 38,790 head of fed cattle for $90 live and $1.42 dressed, Nebraska feedlots selling 55,479 head of fed cattle for $87-$90 live and $1.36-$1.37 dressed, Colorado feedlots selling 6,683 head of fed cattle for $89-$90 live and $1.39 dressed, and Iowa/MN feedlots selling 25,938 head of fed cattle for $83-$85 live and $1.35-$1.39 dressed. All the above-mentioned weekly totals include negotiated cash and negotiated grid sales as reported to the USDA. Sales volumes look pretty good in all trading areas, which is leading to a mostly smaller showlist offering in the south, with a slight increase in numbers for sale in the north.

So far this week both the stock market and the futures market seem to have found a little equilibrium, and as such we have yet to see the large volatile swings that we have been forced to deal with the last couple of weeks. Some of this stabilization has also seemed to show up in the beef market. While volume of beef sales was rather light yesterday, which is typical for a Monday, the market was some higher. With shorter numbers for sale in the south and fewer contract cattle in that part of the country, feeders may be able to hold the cash fed cattle market steady in Texas and Kansas this week. This of course barring the futures market doesn’t fall out of bed. As per our latest cattle on feed report numbers of available fed cattle are very manageable, except for the northern tier of feeding country. There still remain plenty of heavy fed cattle in that part of the country that still need to be marketed. Packer inventories of beef are said to be in better shape coming out of last week, however near term demand remains an issue. For these reasons though, I am going to call for a fed cattle market that trades steady to better in the south at $90-$91 and mostly steady in the north at $87-$90/$1.36-$1.37.

Fed cattle selling through the Midwest auction markets are mostly steady to $1 lower to begin the week, with tops on the beef fats ranging from $81-$86 and on the Holsteins from $78-$81. Slaughter cows are mostly steady at $42-$51, with numbers of cows said to be short in certain parts of the country. Feeder cattle markets are starting the week on a firmer tone, especially on the lightweight calves that are destined for some sort of winter backgrounding program. Oklahoma City, OK had approximately 6,500 head of cattle on offer with that market being called $1-$3 higher on the yearling cattle and $5-$10 higher on the calves. The bulk of the 600 lbs-900 lbs yearling feeder steers in OKC yesterday were bringing $95-$107, with the 4-6 weight steer calves bringing $105-$130. Faith, SD was reporting similar results on their 400 lbs – 600 lbs steer calves yesterday as well with a large offering of 6,700 head of cattle on hand. Better moisture prospects on the southern plains getting this years wheat crop off to a good start is the main reason behind the strength in the feeder cattle market. The lower corn market is a help in this regard also. Look for further strength in the cash feeder cattle market as the week wears on.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 127,000 head, which would be 1,000 head above last week and 2,000 head below the same day a year ago. The industry will be looking for a 630,000 head production week. The boxed beef market was higher yesterday with the choice cutout closing $1.07 higher to settle at $145.56 and the select cutout closing $.54 higher to settle at $138.03. Sales volume was light with 217 loads of beef sold (84.15 loads of choice fab cuts, 69.99 loads of select fab cuts, 11.25 loads of trim, 52.02 loads of grinds). The choice/select spread settled at $7.53 a gain of $.53.

The boxed beef market was slow to develop yesterday as most participants spent the day going over inventory positions after the weekend. Weekend beef clearance was rated as slightly above average with most of the movement confined to cheaper cuts of beef namely ground beef and certain round and chuck items. With that said though, a lack of exports the last couple of weeks continues to put more chuck and round meat on our domestic market, which had packers discounting choice and select chuck rolls, shoulder clods, and gooseneck rounds during yesterday’s session. Choice boneless strip loins were also in need of some discounting yesterday, however select peeled tenderloins found a little better demand and higher pricing was the net result. Boneless beef markets were also a little higher yesterday as better ground beef movement over the weekend had grinders back in the market looking for product. Imported beef values were under some pressure as well as traders get imported product in line with domestic beef values. Packers still struggle trying to find a clearing level on choice and select middle meats. With that said though, many feel that with a better sold position coming into this week and the fact that many rib and loin items are at or below year ago levels that this will begin to spur some demand. Consumer spending habits remain a concern given the recent financial and credit woes, however many remain optimistic towards beef prices later this week. I will continue to call for stabilization in the beef market towards the end of this week and into the first part of next.

Futures Market Situation and Outlook:

October live cattle settled at $90.82 a loss of $.22, December live cattle settled at $92.07 a loss of $.47, and the February live cattle settled at $93.15 a loss of $.10. In the feeder cattle pit, October feeder cattle settled at $98.65 a gain of $.25, November feeder cattle settled at $98.60 a loss of $.05, and the January feeder cattle settled at $97.95 a loss of $.10. The reported CME feeder cattle index for 10/17/08 was $97.43 a gain of $.11.

Yesterdays live cattle volume saw 18,723 contracts trade in the pit and 9,915 contracts trade on Globex. Live cattle open interest declined 849 contracts to come in this morning at 224,647. Yesterday’s feeder cattle volume saw 3,502 contracts trade in the pit and 877 contracts trade on Globex. Feeder cattle open interest declined 800 contracts to come in this morning at 22,358.

Live and feeder cattle futures settled mostly lower yesterday as the market contended that the increase in heavy weight placements of cattle in Friday’s cattle on feed report was a little negative December and February cattle. October was under pressure due to liquidation ahead of the contracts expiration. The futures market still has a hard time holding a rally, and with most of the outside markets lower again this morning, we will likely see a lower open to live and feeder cattle futures. There was active spreading yesterday with accounts selling the front of the live cattle board and buying the back, I think mostly in response to the decline in lightweight cattle placements in the cattle on feed report and higher corn futures. Overnight news was rather quiet; however items of interest are the Justice Department trying to block the JBS Swift acquisition of National Beef Packing. Deliveries last night showed 8 new loads posted against the October live cattle contract out of Norfolk, NE, and 25 loads retendered from Friday in Norfolk, with all 25 loads being demanded for by Rosenthal. Delivering the 25 retenders was Mann Financial and delivering the 8 new loads were RJO 1, Rosenthal 5, and Oak 2. For today’s trade, October needs to hold support at $90 and below that $89. The $89 area really needs to hold by the end of the week to keep further losses in the entire cattle complex at bay. December should find a little support this morning at $91 and below that $90 needs to hold by the end of the week. Feeder cattle should find some support this morning at $98 down to $97.50, and a breach of the bottom support area would take the market down to test contract lows at $95. On a weekly basis, feeder cattle really need to close back above the $100 area in order to negate some of the recent bearishness. Look for a $.20-$.40 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
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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