October 8, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

Yesterday’s cash cattle market was largely untested except for a handful of cattle trading in Nebraska at $1.42 dressed. The way it looks right now the southern feedlot trade is likely going to take place somewhere around $93-$95 and the northern dressed trade is going to be right around $1.42 give or take a dollar by Friday afternoon. The sale barn trade is showing fat cattle off by $2-$3, feeder cattle off by $2-$3, and slaughter cows off by $1-$2. The volatility in the cash market is going to keep up with the volatility in the futures market, as the futures are leading the cash lower at this point. Once the futures get straightened out, the cash should get straightened out.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 127,000 head, which would be 1,000 head above last week and 1,000 head below the same day a year ago. The week-to-date kill now stands at 250,000 head, which would be 1,000 head below the same period a week ago with the industry looking for a 635,000 head production week. The boxed beef market was lower with the choice cutout closing $1.10 lower to settle at $155.06 and the select cutout closing $.45 lower to settle at $146.56. Sales volume was light with 273 loads of beef sold (116.80 loads of choice fab cuts, 89.85 loads of select fab cuts, 18.98 loads of trim, 47.14 loads of grinds). The choice/select spread settled at $8.50 a loss of $.65.

The beef market was lower yesterday as there is as much uncertainty in the beef trade as there is in the cash cattle and futures trade right now. There were a few bright spots in the cutout yesterday though, as we saw some higher money being paid on ribeye’s, short ribs, and top butts. Thin meats, coarse ground, and boneless beef markets were mostly lower yesterday as were certain round items. Here too, the beef market will be choppy and volatile until more calm comes into the global equity markets. No one is willing to take on inventory unless it is on an as need basis or the price looks cheap enough. Look for more of the same the rest of the week.

Futures Market Situation and Outlook:

October live cattle settled at $93.40 a gain of $.80, December live cattle settled at $95.10 a gain of $.32, and the February live cattle settled at $95.12 a gain of $.42. In the feeder cattle pit, October feeder cattle settled at $99.20 a gain of $1.52, November feeder cattle settled at $98.65 a gain of $.85, and the January feeder cattle settled at $97.62 a gain of $.22. The reported CME feeder cattle index for 10/6/08 was $102.58 a loss of $1.53.

Yesterdays live cattle volume saw 24,959 contracts trade in the pit and 14,576 contracts trade on Globex. Live cattle open interest gained 644 contracts to come in this morning at 239,492. Yesterday’s feeder cattle volume saw 5,350 contracts trade in the pit and 1,433 contracts trade on Globex. Feeder cattle open interest declined 748 contracts to come in this morning at 25,088.

Live and feeder cattle futures settled mostly higher yesterday on short covering from the massive sell on Monday. However, futures settled well off their highs of the day as the Dow Jones Industrial Average faded late in the day to close 500 points lower. Overnight we see a massive sell off in Asian and European stock markets, which has Dow futures pointing to another 200 point lower open this morning as of this writing. An example of overnight volatility shows soybean futures going from $.09 lower around 6:30 pm to almost $.63 higher by 10:00 pm, only to show up $.11 lower by 5:00 am this morning. There was panic selling across the globe last night as the European banking system seems to be in worst shape than ours, and investors are pulling money out of mutual funds and hedge funds around the world because of this. All of this will have all of our markets opening lower this morning, sharply lower in some instances, and our cattle market won’t be any different. Our cattle market isn’t going to do anything but keep going lower until the stock market straightens out. And when that happens is anybody’s guess right now, but I think it is getting close as we are seeing panic and irrational selling in all of the World’s stock markets right now. It’s the same as in our commodity markets, when people can’t take it anymore and they get out, whether they are long or short, that is when you usually post an important top or bottom in a market, and the same type of scenario seems to be playing out in the equity markets right now. A good clue as to when we may have seen a bottom in the cattle market, would be to see a day when we trade sharply lower to limit down early and come back to close higher by the end of the day, and so far we haven’t seen that type of price action yet. Closing below Monday’s lows of $94.77 in December live cattle and $97.80 in November feeder cattle will keep the market heading lower in the near term. Volatility is going to be huge until we get this mess straightened out, so you need to be very careful if your trading futures. If your worried about protecting inventory buy puts, otherwise as you are selling cattle in this down market, buy them back with call options, as we will come out of this at some point. Deliveries against the October contract started Monday with 16 loads posted. Those 16 loads were retendered last night and demaded for by NEWEDGE. There were 10 new loads delivered last night by Cadent in Norfolk, NE, with FC Stone and Oak receiving them. I would look for another $.25-$.50 lower open to live and feeder cattle futures this morning and we will have to see how we handle Monday’s lows by the close of trading today. Trade Well!!!

UPDATE: Most of what I wrote this morning was before 6:00 am. At 6:00 am the Fed announced they cut the Fed Fund rate by 50 basis points to 1.5%. This rallied the overseas stock markets and Dow and S&P futures shortly after the news. At the same time overnight cattle futures were trading $.30-$.60 lower, as of 7:30 am cattle Globex cattle futures are trading closer to steady. We are trading almost tick for tick with Dow futures, so wherever they are by the open is where cattle futures will open.

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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