November 4, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was quiet yesterday as feedlots spent the day putting together this week’s showlist numbers, numbers that look to be a little larger in Nebraska and Texas and smaller in Kansas. A look at last weeks sales volume shows Texas/OK/NM feedlots selling 50,510 head of fed cattle (44,287 previous week) for $92-$93, Kansas feedlots selling 36,588 (27,831) head of fed cattle for $91-$92 live or $1.44 dressed, Nebraska feedlots selling 56,633 (62,665) for $88-$91 live or $1.37-$1.43 dressed, Colorado feedlots selling 7,582 (6,438) head of fed cattle for $92 live and $1.43 dressed, and Iowa/MN feedlots selling 30,926 (29,927) head of fed cattle for $86-$90 live and $1.37-$1.41 dressed. As we can see movement out of feedlots last week was pretty decent and that will help keep cattle numbers manageable for the next several weeks. Coming into this week packers margins are suffering a little bit, which has them talking about and acting on cutting this weeks cattle kill, as is evident by yesterday’s 115,000 head slaughter. However, to counteract some of this, beef buyers feel a little better about taking on some product at current price level and it is thought that we could see a rally in beef prices throughout this week and next, which will help packer margins. Because of reduced placements into feedlots from the last several months, fed cattle numbers are going to be at their tightest in the next 30 days. This along with a better beef market and a futures market that seems to have straightened out for the time being should be supportive to the cash market until the end of the month. We could perhaps see both the futures and the cash fed cattle market get back into the mid $90’s during this time frame. For this week though we will continue to look for a steady to $.50-$1 higher market by the end of the week, $93 in the south and $1.45 in the north.

As expected most all classes of cattle selling through the nations auction markets are trading higher to begin the week. Fed cattle are bringing $1-$2 better money with tops of $86-$87 noted on the beef fats and $81-$82 on the Holstein steers. Slaughter cows are under some pressure again early this week with the majority of lean cows bringing $40-$50. Feeder cattle sales are starting the week higher on all categories with Oklahoma City calling their market mostly $3-$4 higher on the yearling cattle and $5-$10 higher on the calves on an estimated run of 10,000 head. The bulk of the 4-6 weight steers in OKC yesterday were bringing $105-$130, the 6-8 weight steers were bringing $96-$106, and the 8-10 weight steers were bringing $90-$101. There were several drafts of 6-7 weight steer calves fresh off cows that brought $85-$95 in OKC as well. True yearling cattle are becoming hard to find both on the southern plains and northern plains and these cattle will be increasingly in demand for feedlot replacements coming into winter, which will be price supportive. Calf demand will remain active for placement on wheat in the southern plains as long as moisture prospects hold out. I would continue to look for a stronger tone to the cash feeder cattle market for the balance of this week into next.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 115,000 head, which would be 13,000 head below last week and 7,000 head below the same day a year ago. The industry will be looking for another 635,000 head production week. The boxed beef market was higher yesterday with the choice cutout closing $.53 higher to settle at $142.74 and the select cutout closing $.60 higher to settle at $136.92. Sales volume was good with 303 loads of beef sold (100.59 loads of choice fab cuts, 119.64 loads of select fab cuts, 19.38 loads of trim, 63.38 loads of grinds). The choice/select spread settled at $5.81 a loss of $.07.

The beef market was higher yesterday as with decent buying noted in the rib and loin sections of the animal. Sharp gains were seen in choice, select, and no-roll rib roasts, ribeye’s, tenderloin butts, and peeled tenders. There was also some active interest from retail in procuring clods, chuck rolls, briskets, and outside rounds, all of which lent to higher overall cutout values yesterday. Ideas of reduced slaughter levels for the next couple of weeks along with many of the above mentioned cuts trading below year ago levels had buyers in the market covering a portion of their needs going into the end of the year. Coarse ground beef markets were also higher yesterday as retail features of ground beef continue. Boneless beef markets were mixed, with higher 50% trim values due to the lighter fed cattle kill last week and lower 90% lean cow beef values due to increased cow kills. Imported beef values were mostly unchanged as imported beef tries to compete with lower domestic cow beef markets. I would continue to look for a higher beef market as the week wears on, with the choice cutout trading back to the mid-$1.40’s and the select cutout trading back to the upper $1.30’s.

Futures Market Situation and Outlook:

December live cattle settled at $93.32 a gain of $.62, February live cattle settled at $94.15 a loss of $.10, and the April live cattle settled at $95.15 a gain of $.40. In the feeder cattle pit, November feeder cattle settled at $99.70 a gain of $1.07, January feeder cattle settled at $99.17 a gain of $1.12, and the March feeder cattle settled at $99.42 a gain of $.90. The reported CME feeder cattle index for 10/31/08 was $95.74 a loss of $.32.

Yesterday’s live cattle volume saw 24,454 contracts trade in the pit and 13,195 contracts trade on Globex. Live cattle open interest gained 1,908 contracts to come in this morning at 215,141. Yesterday’s feeder cattle volume saw 2,476 contracts trade in the pit and 608 contracts trade on Globex. Feeder cattle open interest declined 996 contracts to come in this morning at 19,082.

Live and feeder cattle futures settled mostly higher yesterday with triple digit gains being posted in the feeder cattle on first of the month fund buying, short covering, and strengthening cash cattle markets. Options trading was active in the February live cattle calls yesterday with several thousand contracts each of the Feb $94, $95, and $100 calls trading, which was thought to be a couple of big fund accounts selling the calls. These same accounts were said to be buying Feb futures to hedge themselves, however outright bull spreading in Dec/Feb in the futures pit outweighed that buying. Option volatility did come down to 22% in the at the money Dec and Feb straddles and 20% in the April straddles. Futures feel pretty good here and as long as the equity markets remain stabile. Holding December live cattle above $90 by the end of the week and November feeder cattle above $96 by the end of the week keeps a positive spin on the market going into next week. Upside targets in Dec live cattle are $96-$97 and if we can get November feeder cattle above $100, $102-$103 is in the cards. For today Dec live cattle will find support at $92 and November feeder cattle will find support at $98.50-$99. Resistance will be found at $94.50 in Dec live and $100.50 in Nov feeders. 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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