October 28, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was typically slow for a Monday with most of the day spent putting together this weeks showlist, which looks to be coming in smaller in Nebraska and Texas with just a few more cattle showing up for sale in Kansas. A look at last weeks sales volume shows Texas/OK/NM feedlots selling 44,287 (53,715 the week before) head of fed cattle for $90-$91 live, Kansas feedlots selling 27,831 (38,928) head of fed cattle for $90-$91 live or $1.43 ½ dressed, Nebraska feedlots selling 62,665 (55,479) head of fed cattle for $86-$90 live and $1.36-$1.37 dressed, Colorado feedlots selling 6,438 (6,683) head of fed cattle for $89-$90 live and $1.38-$1.39 dressed, and Iowa/MN feedlots selling 29,927 (25,938) head of fed cattle for $84-$86 live and $1.34-$1.36 dressed. Sales volume looked pretty good in Texas and Nebraska, however a little light in Kansas, which is leading to a few more cattle being offered for sale there this week. Packer bids were few and far between yesterday with most offering prices starting out at $93 live and $1.40-$1.42 dressed. A few packers, especially in the south, are said to be a little short on inventory, which could lead to a midweek trade in that part of the country. Beef demand remains on the defensive and that is going to remain a key issue in the cash markets for the next several months as we are going to need to see some stabilization in the economy and some confidence return to the beef trade in order to keep the cash market from moving lower into the first quarter of next year. For this week though, if we can see the stock market stabilize and hold together, which in turn would keep the futures market from capitulating any further, then we could likely see a fed cattle market that would trade no worse than steady with last weeks $90-$91/$1.36-$1.37 trade.

In the auction markets most classes of cattle are starting the week on a lower tone with tops in the fat cattle market at $81-$85 on the beef cattle and $77-$81 on the Holsteins. Slaughter cows are off with the bulk of the lean cows bringing $42-$52 and the fat cows bringing $52-$60. Feeder cattle markets are giving up almost all of last weeks gains early this week, with Oklahoma City trading yearling cattle $2-$4 lower and the calves $5-$10 lower. This is the case throughout many of the northern plains sale barns as well. A quick run down of prices in OKC yesterday shows 4-6 weight calves bringing $100-$120, 6-8 weight steers bringing $90-$100, and 8-10 weight steers bringing $85-$90. I would look for more pressure on sale barn cattle until at least midweek.

Cash Beef Situation and Outlook:

Yesterday’s cattle slaughter was estimated at 128,000 head, which would be 1,000 head above last week and even with the same day a year ago, with the industry looking for a 635,000 head production week. The boxed beef market was higher yesterday with the choice cutout closing $.12 higher to settle at $141.64 and the select cutout closing $.21 higher to settle at $135.25. Sales volume was light with 247 loads of beef sold (76.12 loads of choice fab cuts, 78.18 loads of select fab cuts, 5.66 loads of trim, 86.92 loads of grinds). The choice/select spread settled at $6.39 a loss of $.09.

The beef market was mostly steady yesterday with just a few price markdowns noted in the loin section of the animal, most notably the tenderloin butt and peeled tenders. Most of the rest of the complex appears to be in pretty good shape in terms of inventory at the packinghouse level and this had packers hold with firm offering prices on most cuts throughout the rib, chuck, and round. It is being reported that ground beef demand at retail is on solid footing and most coarse ground and boneless items were said to be moving at steady to higher price levels. There was more talk yesterday about import arrivals of Australian and South American beef in forward time slots given the recent strength of the U.S. dollar vs. foreign currencies. The market still anticipates some buying of holiday rib and loin packages coming into the first of November, which would be supportive to cutout values if such a scenario were to develop. I would look for a mostly steady beef market into the middle of the week, with some possible strength developing by late week into the first of next.

Futures Market Situation and Outlook:

October live cattle settled at $88.92 a gain of 1.07, December live cattle settled at $88.77 a gain of $1.22, and the February live cattle settled at $90.17 a gain of $1.77. In the feeder cattle pit, October feeder cattle settled at $95.90 a loss of $.25, November feeder cattle settled at $95.55 a gain of $1.72, and the January feeder cattle settled at $94.70 a gain of $1.60. The reported CME feeder cattle index for 10/24/08 was $96.93 a loss of $.68.

Yesterdays live cattle volume saw 19,183 contracts trade in the pit and 9,933 contracts trade on Globex. Live cattle open interest declined 2,493 contracts to come in this morning at 214,084. Yesterday’s feeder cattle volume saw 2,582 contracts trade in the pit and 886 contracts trade on Globex. Feeder cattle open interest gained 122 contracts to come in this morning at 21,543.

Live and feeder cattle futures ended the day on a higher market due to short covering and ideas last Friday’s selloff was overdone. On Friday there were 19 loads of cattle posted against the October contract and all 19 loads were retendered last night and demanded by Newedge in Norfolk, NE. The big news this morning is the USDA coming out with revised acreage numbers for the 08/09 corn and bean crop. They lowered corn acres 1 mil and bean acres 1.1 mil, giving us a projected corn production number of 12.033 bil bu down 167 mil bu and a projected carryout of 1.088 bil bu down 66 mil. They also lowered bean production 45 mil and lowered the bean carryout 15 mil. This had grains trading sharply higher overnight and will likely lead to a sharply higher grain open this morning. Overseas equity markets were sharply higher overnight, which has Dow futures pointing to a 200 point plus opening this morning. All of this should help support a higher cattle open. Front month live cattle futures will find resistance at $90 for the first part of this week, and we will need to see December live cattle close above $90 by the end of the week in order to negate some of the recent bearishness. Keep in mind that last trading day for October live cattle is this Friday at noon. You either have to be out of positions or deliver/take delivery of cattle by noon on Friday. October feeder cattle also expire this week on Thursday. Support for live and feeder cattle futures for the rest of this week will be found at last Friday’s lows. Hedger’s look for strength in the futures to buy some put option spreads on production that needs risk management. Speculators can buy live and feeder cattle futures when they are trading lower this week and pitch them when they are higher. 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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