October 9, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We saw an active fed cattle trade develop on the northern and southern plains yesterday at sharply lower money when compared to the week before. Fed cattle were trading at mostly $92-$93 in Texas and Oklahoma, $91-$92 live and $1.46 dressed in Kansas, and $88-$91 live or $1.38-$1.42 dressed in Nebraska. Compared to last week live sales are mostly $4-$5 lower and dressed sales are mostly $5-$7 lower on moderate movement. The sale barn cattle were sharply lower yesterday as well with Sioux Falls, SD calling their fed cattle market $4-$5 lower on the beef fats, $3-$4 lower on the Holsteins, and $4-$5 lower on the slaughter cows. The tops on the choice beef fats in Sioux Falls yesterday was $84-$86 with the Holstein steers bringing $77-$78. Feeder cattle are sharply lower as well coming into midweek, with sales like Torrington, WY, El Reno, OK, and Kearney, NE all calling their feeder cattle sales $3-$6 lower. Most of the 6-8 weight beef steers destined to a feedlot bringing $90-$105.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 122,000 head, which would be 3,000 head below the same day last week and 2,000 head below the same day a year ago. The week-to-date kill now stands at 372,000 head, which would be 4,000 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 yesterday with the choice cutout closing $4.59 lower to settle at $150.47 and the select cutout closing $1.89 lower to settle at $144.67. Sales volume was good with 437 loads of beef sold (141.88 loads of choice fab cuts, 171.37 loads of select fab cuts, 29.56 loads of trim, 94.56 loads of grinds). The choice/select spread settled at $5.80 a loss of $2.70.

The beef market was lower again yesterday with discounts once again surfacing throughout most of the carcass components. With the sharply lower markets though finally came a little better movement, as some were viewing certain beef items as having value and were willing to take on some extra inventory. There still remains a lot of concern over how the global economic meltdown will affect beef demand in the coming months. As such many are on the sidelines buying only on an as need basis. This is uncertainty is showing up overseas also as we see export sales back way off last week. Look for a softer trend to the beef market for the rest of the week and perhaps we can stabilize the market in the upper $1.40’s basis the choice cutout in the coming sessions. Beef export sales and shipments for the week of September 26-October 2, 2008 are as follows:
Beef: Net sales of 3,800 MT were primarily for South Korea (1,100 MT), Canada (1,000 MT), Japan (700 MT), Vietnam (600 MT), and Hong Kong (400 MT). Decreases were reported for Russia (600 MT). Exports of 11,700 MT were mainly to South Korea (3,900 MT), Mexico (3,700 MT), Japan (1,200 MT), Canada (1,100 MT), Vietnam (700 MT), Taiwan (400 MT), and Hong Kong (300 MT).
Futures Market Situation and Outlook:

October live cattle settled at $92.45 a loss of $.95, December live cattle settled at $94.95 a loss of $.15, and the February live cattle settled at $95.10 a loss of $.02. In the feeder cattle pit, October feeder cattle settled at $98.90 a loss of $.30, November feeder cattle settled at $98.32 a loss of $.32, and the January feeder cattle settled at $97.92 a gain of $.30. The reported CME feeder cattle index for 10/7/08 was $101.99 a loss of $.59.

Yesterdays live cattle volume saw 35,504 contracts trade in the pit and 15,213 contracts trade on Globex. Live cattle open interest declined 1,825 contracts to come in this morning at 237,553. Yesterday’s feeder cattle volume saw 5,570 contracts trade in the pit and 2,244 contracts trade on Globex. Feeder cattle open interest declined 604 contracts to come in this morning at 24,483.

It was another wild day in the CME cattle pits with many live and feeder cattle contracts trading limit down or close to limit down early in the session on the sharply lower cash fed cattle market, only to recover going into the close on hedge lifting, short covering, and bottom picking by speculators. I don’t know if yesterday was the bottom or not, but we did see some price action that I was looking for and indicative of putting a bottom in the cattle market (i.e. trading cash sharply lower, trading futures sharply lower, and the futures market recovering late in the day). The stock market was all over the place yesterday as well, which was an influencing factor in the cattle market. In the stock market too, I don’t know if we made a bottom yet, but I think it is close. We saw Central Banks in the U.S. and Europe cut interest rates two nights ago, and three Central Banks in Asia cut rates last night, all of which has overseas markets trading higher overnight and our market pointing to a higher open this morning. Throughout all of this one thing that has been happening the last couple of days is that the credit markets are loosening up and banks are starting to do business with each other again so there are some positives for at least a corrective rally in the stock market for the near term. Most live and feeder cattle issues were able to come back and close above Monday’s limit down lows, which is encouraging, however we will need to hold onto these lows on a closing basis by Friday afternoon. The only contract that wasn’t able to come back and close above its low on Monday was the October live cattle, which was prohibited from doing so by the sharply lower cash fed cattle market. We will need to see some follow through to the upside today and tomorrow in order to keep a corrective rally alive into next week. Again, much will depend on how the stock market holds up the rest of this week and into the first part of next. The “Goldman’s” are rolling out of November feeder cattle into January, so this is going to keep a little pressure on the Nov contract and support Jan for the rest of the week on a closing basis. There were no new deliveries against October live cattle last night, however the 10 loads delivered on Tuesday were retendered and demanded for by Newedge (believe this to be a packer). I would look for a little higher start to cattle futures trading this morning, and would probably try to buy fats and feeders on a break today if one presented itself. Still like some sort of upside call strategy, either outrights or spreads, to take advantage of a corrective rally higher in the coming weeks. If selling cash cattle in a down market here, I would reown those sales via call options as well. Look for a $.10-$.20 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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