October 27, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We left last week with a fat cattle that trades mostly $1-$2 higher at $90-$91 live and $1.43 dressed in the south and $87-$90 live and $1.36-$1.37 dressed in the north on moderate movement. Feeder cattle started the week on a firmer tone with many sales reporting $1-$3 higher on yearling cattle and $5-$10 higher on calves. However, as the futures market continued to capitulate late in the week many auctions started reporting steady to lower trades by Friday afternoon. Slaughter cows started the week a couple dollars higher as well, but fell off late. Beef demand has fallen off the last couple of weeks both domestically and internationally and this will be an overriding factor to fed cattle prices until we see demand pick back up. I wouldn’t expect to see much out of the cash markets this week unless we get a major rally in the futures market, as the futures are going to lead the cash lower until the market straightens out. Look for a lower tone to the cash cattle and beef markets early this week.

Cash Beef Situation and Outlook:

Last weeks cattle slaughter was estimated at 647,000 head, which would be 15,000 head above the previous week and 26,000 head below the same week a year ago. The weekly slaughter produced an estimated 511-mil lbs of beef. The ytd slaughter now runs .5% above last year at 28.087 mil head with ytd beef production running .9% above last year at 21.734 bil lbs. For the week, choice boxed beef lost $1.19 to settle at $143.30 and the select boxed beef lost $1.67 to settle at $135.82 on increased volume of 1,177 loads of fabricated cuts sold through Thursday. Friday saw similar losses in the beef complex with the choice cutout losing $1.78 to settle at $141.52 and the select cutout losing $.78 to settle at $135.04. Sales volume on Friday was good with 340 loads of beef sold (135.81 loads of choice fab cuts, 123.96 loads of select fab cuts, 34.30 loads of trim, and 45.85 loads of grinds). The choice/select spread settled at $6.48 a loss of $1.00 for the day and $.52 for the week.

The beef market was mostly lower all of last week, however we continue to see increased buying on the break in the market. This increase in sales volume is confined to immediate shipment of product as forward sales remain stagnant. All primal areas of the carcass were lower last week, with the biggest declines being found in the rib and loin sections of the animal. Until we see some better demand come into the beef market prices will remain under pressure, which in turn will continue to pressure fed cattle prices. Boneless beef markets were mostly steady on the 90’s and slightly lower on the 50’s. The larger fed cattle kill kept the fed cattle trim under pressure late in the week, and a lack of available slaughter cows in the country supported cow beef values. Imported beef markets were mostly steady last week, however Australian beef and South American beef are starting to price into domestic grinding formulations better than domestic beef, and with these countries currencies losing value to the U.S. dollar we can expect to see more imported beef coming into the U.S. in the coming months. Look for a softer trend to the beef market early this week.

Futures Market Situation and Outlook:

For the week, October live cattle lost $3.20 to settle at $87.85, December live cattle lost $5.00 to settle at $87.55, and the February live cattle lost $4.85 to settle at $88.40. In the feeder cattle pit, October feeder cattle lost $2.55 to settle at $96.15, November feeder cattle lost $4.82 to settle at $93.82, and the January feeder cattle lost $4.95 to settle at $93.10. The reported CME feeder cattle index for 10/23/08 was $97.61 a loss of $.32 on the day however a gain of $.29 for the week.

Fridays live cattle volume saw 18,043 contracts trade in the pit and 16,197 contracts trade on Globex. Live cattle open interest declined 7,441 contracts to come in this morning at 216,577. Friday’s feeder cattle volume saw 3,206 contracts trade in the pit and 1,589 contracts trade on Globex. Feeder cattle open interest declined 405 contracts to come in this morning at 21,416.

The latest commitment of traders report showed the small funds net short 13,643 contracts of live cattle a gain of 2,566, commercials were net short 71,607 a decline of 4,152, index funds were net long 115,063 a decline of 4,129, and the small spec was net short 29,815 a decline of 2,542. In the feeder cattle, small funds were net short 4,808 a decline of 388, commercials were net long 3,869 a decline of 520, index funds were net long 5,447 a decline of 135, and the small spec was net short 4,508 a decline of 267.

Live and feeder cattle futures continued their downtrend last week with sharp losses posted across the board by the close on Friday. Further capitulation in the U.S. and world stock markets drug down the entire commodity complex last week and we can expect to see more of the same until worldwide equity markets straighten out and investors find confidence in the financial system again. Current fundamentals of the livestock and grain markets mean nothing right now as the market goes to price in a worst case scenario in world demand for all commodity products. This type of thinking and technical factors in the cattle market could take futures prices down to the upper $70’s to lower $80’s in the fed cattle and upper $80’s to lower $90’s in the feeder cattle. For producers who have missed the boat in terms of hedging or have lifted hedges too soon, the best alternative right now would be to have coverage via put options, or if selling futures have some sort of call option protection on. Look for a $.10-$.20 higher open to live and feeder cattle futures, providing the Dow isn’t 300 lower by the open. 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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