October 23, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

A fairly active fed cattle trade developed in the southern tier of feeding states yesterday with prices running generally $1 higher when compared to last week. USDA was reporting 16,144 head of fed cattle sold in Texas/Oklahoma for mostly $91 live, 4,079 head of fed cattle sold in Kansas for mostly $91 live and $1.43 ½ dressed, 7,465 head of fed cattle sold in Nebraska for $1.36-$1.37, 2,024 head of fed cattle sold in Colorado for $90 live, and 1,717 head of fed cattle sold in Iowa/MN for $1.35-$1.37 dressed. The northern fed cattle sales are running basically steady with last week’s cash sales. It was interesting to see packers come into the market bidding higher money for fed cattle so early in the week. Believe it was a combination of smaller showlists, attractive basis levels, and perhaps a little better demand scenario set to unfold in the coming weeks that led to such a move. Whatever the reason, a steady to $1 higher cash trade given the current climate of the market was certainly a victory for the producer. Trade volumes look pretty good in the south and a little light in the north, however all areas will need to sell more cattle today and tomorrow, which barring any kind of 500-700 pt drop in the Dow that would drag down cattle futures, should take place at steady money with yesterday.

Cattle selling in the sale barns are bringing mostly higher money this week as well. Sioux Falls, SD held their weekly slaughter cattle auction yesterday with prices running generally steady to $1 higher with the beef fats bringing $81-$85 and the Holsteins bringing $79-$82. Slaughter cows are higher with the bulk of the cutter cows bringing $44-$50 and the boners bringing $50-$59. Feeder cattle are mostly $1-$3 higher on the yearling steers and $4-$6 higher on the steer calves. The majority of the 700 lbs-900 lbs yearling steers around the country bring $90-$100, with the bulk of the northern plains steer calves weighing 500 lbs-700 lbs bringing $1.01-$1.16. The recent drop in corn prices in conjunction with the decline in feeder cattle values has feedlot operators wanting to take on some ownership. The recent precipitation on the southern plains has improved prospects for this year’s wheat crop and this has been a supporting factor to the calf market as winter grazers enter the market to take on inventory. I would continue to look for steady to higher money being paid for yearling cattle in the weeks ahead, providing the deferred live cattle futures don’t fall out of bed, as numbers of heavier yearling cattle become tight now that we have the biggest bulk of the fall grass run of cattle behind us. Margins still look positive for backgrounding calves, even after the recent increase in prices the last week or so, and this will be a supportive factor to lightweight cattle prices as long as they can be laid off in March and April feeder futures for a profit.

Cash Beef Situation and Outlook:

Yesterday’s cattle slaughter was estimated at 127,000 head, which would be 11,000 head above last week and 6,000 head below the same day a year ago. The week-to-date kill now stands at 381,000 head, which would be 13,000 head above the same period a week ago, with the industry looking for a 630,000 head production week. The boxed beef market was lower yesterday with the choice cutout closing $.66 lower to settle at $144.38 and the select cutout closing $.63 lower to settle at $137.56. Sales volume was good with 455 loads of beef sold (171.44 loads of choice fab cuts, 154.50 loads of select fab cuts, 48.18 loads of trim, and 81.02 loads of grinds). The choice/select spread settled at $6.82 a loss of $.03.

The beef market was lower again yesterday, however given the recent decline in prices buyers stepped into the market to take on some extra inventory. Choice and select middle meat were once again in need of discounting especially on boneless ribeyes, bone-in strips, top butts, and peeled tenders. There were a few instances of lower transactions taking place on chuck meat, rolls in particular, however for the most part round meat seemed to be in good shape. Boneless beef markets were mostly steady on the cow beef as there is a little better interest from the grinding sector and cow killers report manageable inventories of 90’s to sell. 50’s were under a little pressure yesterday as this weeks fed cattle slaughter is running 13,000 head above last week. The market still anticipates some buying of middle meats ahead of the end of year holiday celebrations, and this is expected to be a supportive factor to cutout prices in the coming weeks. The rally will be limited however given the recent economic turmoil. Exports, while being a little lax the last couple of weeks, are still expected to be supportive to end meats into December. Bottom line is choice cutout values should find some support in the lower $1.40’s and select cutout values should find some support in the mid $1.30’s for the next 30-45 days. Beef exports for the week of October 10-16, 2008 are as follows:

Beef: Net sales of 4,000 MT reported for Mexico (1,400 MT), Canada (1,300 MT), Japan (900 MT), and Taiwan (100 MT), were partially offset by decreases for South Korea (200 MT) and Vietnam (100 MT). Net Sales of 2,500 MT for delivery in 2009 were for South Korea. Exports of 7,700 MT were mainly to South Korea (2,900 MT), Mexico (1,500 MT), Canada (1,100 MT), Japan (900 MT), Vietnam (700 MT), Taiwan (300 MT), and Hong Kong (100 MT).

Futures Market Situation and Outlook:

October live cattle settled at $91.15 a loss of $.67, December live cattle settled at $91.87 a loss of $1.10, and the February live cattle settled at $92.77 a loss of $1.07. In the feeder cattle pit, October feeder cattle settled at $98.97 a loss of $.30, November feeder cattle settled at $98.92 a loss of $.52, and the January feeder cattle settled at $98.55 a loss of $.57. The reported CME feeder cattle index for 10/21/08 was $97.51 a gain of $.12.

Yesterdays live cattle volume saw 16,583 contracts trade in the pit and 10,548 contracts trade on Globex. Live cattle open interest gained 600 contracts to come in this morning at 225,973. Yesterday’s feeder cattle volume saw 2,019 contracts trade in the pit and 873 contracts trade on Globex. Feeder cattle open interest gained 34 contracts to come in this morning at 22,553.

Live and feeder cattle futures took it on the chin yesterday as the sharply lower stock market and outside commodity markets weighed on values. Had it not been for the meltdown in other markets, I feel we would have been higher due to the higher cash cattle trades in the country both feeders and fats. We did rally 200 points off our lows long about 10:30 yesterday morning once word of higher fed cattle sales down in Texas began hitting Chicago, however those gains were erased by the end of the day on general financial weakness in the rest of the markets. I thought we might be higher today because of the better tone to the cash markets, however the stock futures are all over the place again this morning, and I am getting sick of saying it but a lot is going to depend on how the Dow trades today to determine if we can see any kind of rally in the cattle futures. If those guys are so bearish the stock market they should go sell stocks and leave the rest of our markets alone, but that doesn’t seem to be the case just yet. For today, we should find some pretty good support in the October live contract at $90 and December at $91. Nov and Jan feeders should find some support this morning at $98, and taking that out would move us back down to $95. I like Jan/March feeders on a spread along with April and June fats vs. short Feb and August. I would continue to look at some of the back month crush spreads for opportunities to lock in some feeding margins. I also think it wouldn’t hurt to get a little feed coverage down here either via cash or upside option strategies in the corn market. Call or email if you have any questions on spread trades. There were no deliveries against the October live cattle contract last night and keep in mind that Oct feeders will go off the board next Thursday the 30th and Oct fats will go off the board next Friday the 31st. Look for a $.10-$.20 higher open to live and feeder cattle futures this morning providing the Dow isn’t 200 lower. 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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