November 3, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We left last week with a cash fed cattle market that trades mostly $1-$2 higher at $91-$92.50 live in Texas and Kansas. Live sales in the north were reported at $90-$92 in Nebraska and Colorado, which would be steady to $1-$2 higher, with dressed sales coming in $4-$5 higher at $1.38-$1.44. Sales volumes were reportedly moderate, however I will report on final totals in the morning once everything is counted and reported to the USDA, as there were clean up trades occurring in all trading areas on Friday. Last weeks feeder cattle market saw large price swings, with yearling cattle reportedly selling $2-$4 lower and calves selling $5-$10 lower early in the week, however those prices were rebounding by Thursday and Friday with many sales reporting $1-$2 higher transactions on yearling cattle and $2-$5 higher on the calves. For the week slaughter cows were fully $2-$4 lower. Last week packers were forced to pay higher money for a tighter supply of available cash cattle on the open market despite disappointing slaughter margins. Part of the reason for this is a lack of contract and formula cattle on the southern plains along with tight feedlot supplies in that region of the country. I also believe that they are having to deliver on meat sales that were made a couple of months ago, which keeps them in the market needing to kill cattle in order to deliver on those orders. This also means though that they are selling that meat into a much higher market than what is currently being transacted on the spot market. Our tightest fed cattle supplies of the year are right ahead of us in the next 30 days and this along with a better tone to the boxed beef trade coming out of last week should help support another higher fed cattle market for this week. Last weeks cash feeder cattle market was pretty volatile as the beginning of the week had most buyers concerned over the previous weeks poor performance in the equity markets and concerns over the cash fed cattle market. However as the week wore on and the futures began to rally buyers became more comfortable with spending higher money on replacement cattle that would breakeven with the higher futures board. Also, yearling feeder cattle supplies are dwindling fast as most of the bigger cattle are moved off pasture already, which supports prices there. There are still plenty of calves scheduled to come to market, however a better tone to the cattle futures market and increasing prospects of decent wheat pasture on the southern plains should help to support prices there as well. I would look for a higher feeder cattle market for this week. Slaughter cows are going to remain under a degree of pressure as we will continue to see ample numbers in the sale barns for the next couple of weeks due to the annual fall run of cows and the threat of increasing imports of grinding beef loom due to the sharp rally in the U.S. dollar.

Cash Beef Situation and Outlook:

Last weeks cattle slaughter was estimated at 638,000 head, which would be 9,000 head below the previous week and 23,000 head below the same week a year ago. The weekly slaughter included at Friday kill of 123,000 head and a Saturday kill of 22,000 head and produced an estimated 503.1mil lbs of beef. The year-to-date cattle slaughter now stands at 28.725 mil head or .4% above last year and the year-to-date beef production stands at 22.234 bil lbs or .8% above a year ago. Through Thursday of last week, choice boxed beef gained $.29 to settle at $141.81 and select boxed beef gained $.38 to settle at $135.42 on reduced volume of 1,000 loads of fabricated cuts. Friday saw a higher day in the beef market with the choice cutout closing $.40 higher to settle at $142.21 and the select cutout closing $.90 higher to settle at $136.32. Sales volume was light on Friday with 273 loads of beef sold (147.65 loads of choice fab cuts, 150.09 loads of select fab cuts, 28.86 loads of trim, and 57.26 loads of grinds). The choice/select spread settled at $6.39 on Friday a loss of $.16 for the day and a loss of $.09 for the week.

Last weeks beef market was plagued early by over production due to a 648,000 head kill the previous week, which left large inventories of spot market product to move. However, as the week wore on and packers aggressively offered discounts on rib and loin meat, buyers began to step back into the market for middle meats sensing some opportunity at the below year ago prices. The same can be said for chuck and round meat last week, and both buyers and sellers alike hold more optimism towards higher beef prices coming into this week. Boneless beef prices were under a degree of pressure with both 90’s and 50’s closing lower on the week due to larger cattle kills and lessening demand from grinders. It is thought that retail and wholesale buyers will be a bit more aggressive in their buying patterns this week as several beef cuts, in particular middle meats for the upcoming holiday’s, present an opportunity. Look for higher cutout values throughout the balance of this week.

Futures Market Situation and Outlook:

For the week, December live cattle gained $5.15 to settle at $92.70, February live cattle gained $5.85 to settle at $94.25, and the April live cattle gained $6.27 to settle at $94.75. In the feeder cattle pit, November feeder cattle gained $4.80 to settle at $98.62, January feeder cattle gained $4.95 to settle at $98.05, and the March feeder cattle gained $4.37 to settle at $98.52. The reported CME feeder cattle index for 10/30/08 was $96.06 a gain of $.19 for the day, however a loss of $1.55 for the week.

Friday’s live cattle volume saw 21,076 contracts trade in the pit and 12,817 contracts trade on Globex. Live cattle open interest gained 2,238 contracts to come in this morning at 213,236. Friday’s feeder cattle volume saw 2,352 contracts trade in the pit and 856 contracts trade on Globex. Feeder cattle open interest declined 484 contracts to come in this morning at 20,080. For the week, live cattle open interest declined 3,341 and feeder cattle open interest declined 1,341.

The latest commitment of traders report showed the small funds net short 12,551 contracts of live cattle futures a decline of 1,091, the commercials net short 68,128 contracts of live cattle futures a decline of 3,479, the index trader net long 107,585 contracts of live cattle futures a decline of 7,479, and the small spec trader net short 26,905 a decline of 2,910. In the feeder cattle, the small funds were net short 4,235 contracts of feeder cattle a decline of 574, the commercials were net long 3,437 contracts of feeder cattle a decline of 432, the index trader was net long 5,296 contracts of feeder cattle futures a decline of 151, and the small spec trader was net short 4,499 contracts of feeder cattle futures a decline of 9.

After closing on new contract lows the previous Friday, live and feeder cattle futures started last week trading higher and never looked back gaining mostly $5-$6 in live futures and $4-$5 in the feeders. Most of the gains can be attributed to short covering as we continue to see hefty declines in open interest the last couple of weeks. Higher cash cattle markets and ideas that cash strength would spill over into this week were also contributing factors. Looking into this week I would expect to see some follow through to the upside in live and feeder cattle futures. Tight fed cattle and yearling feeder cattle supplies, along with better demand from the packing and feeding sector for those animals and a better demand tone to the boxed beef market should support further gains in both live and feeder cattle futures by the end of this week. Technical considerations and further short covering will be a supporting factor to this week’s futures trade as well. It feels as though we could get front month live cattle futures into the mid $90’s in the near future, at which time we will want to consider getting further hedge protection on inventory that will need to be sold from late December to late March. If feeder cattle futures can manage to breach the $100 area, this week I think further short covering could take Nov and Jan to $102-$103 where they will likely encounter some stiff resistance. For this week, keeping December live cattle above $90 and November feeder cattle above $96 looks supportive. Deliveries on Friday saw an additional 14 loads of cattle posted against the October live cattle contract. 8 loads were posted by Rosenthal in Amarillo, TX and 6 loads were posted by RJO in Clovis, NM. Newedge USA received all 14 loads. 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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