November 12, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash feedlot trade was at a standstill yesterday with packer bids of $91-$92 live going unmatched against feedlot offering prices of $96-$97 live and $1.50-$1.52 dressed. Producers were not interested in entertaining lower packer bids with the board being down sharply so early in the week. This is especially true in the southern feeding states where showlist numbers are smaller when compared to last week. Packers have this weeks kill curtailed in an attempt to keep beef prices propped up and so far this has been the case but we could start running into some buyer resistance on certain middle meat items in the beef carcass. This is not to say that we can’t see a higher live market for this week, but the market could back off a little going into the Thanksgiving holiday week. There will certainly be no oversupply of fed cattle numbers coming to the market in the next 4 weeks, however the market will definitely ebb and flow with beef demand and holiday schedules for the next couple of weeks. For the rest of this week though, I still think we can hold the fed market together as long as the beef or the futures don’t fall completely out of bed. I’ll still call for $94-$95 live and $1.46-$1.48 dressed trade in the feedlots by the end of the week.

Cash Beef Situation and Outlook:

The USDA did not publish slaughter numbers yesterday due to the Veteran’s Day holiday; however most in the industry are looking for a 625,000 head production week. The boxed beef market was higher yesterday with the choice cutout closing $2.62 higher to settle at $154.68 and the select cutout closing $.71 higher to settle at $144.27. Sales volume was light with 218 loads of beef sold (70.27 loads of choice fab cuts, 72.61 loads of select fab cuts, 29.88 loads of trim, 45.06 loads of grinds). The choice/select spread settled at $10.40 a gain of $1.91.

The beef market managed to post another day of solid gains, however some of those gains may begin to slow down in the coming sessions. Packers were able to command higher prices for most rib and loin items because of reduced production levels but many on the buy side of the equation were becoming of the opinion that prices were high enough for the time being. Choice bone-in and boneless ribeyes have gained $.65-$.96 ½ respectively since last week with choice PSMO’s gaining $.57 during the same time frame. These cuts alone are almost solely responsible for putting the $10 cwt on choice cutout values we have seen since last Tuesday. With that said though, markets for middle meats remain firm with continued active interest in procuring inside/outside rounds and chuck rolls for up coming feature ads. Choice and select short ribs were a laggard yesterday as export demand for these items is down. Boneless beef items were mixed once again, with sharply lower pricing noted on the boneless cow 90’s due to increasing cow numbers coming to market across the country and competition from lower priced imported beef. The 50’s market remained firm with the cut in fed cattle kill’s being the supportive factor there. I would look for the recent sharp gains in the middle meats complex to level off a bit, which means the end meat complex will have to be responsible for carrying the cutout higher. With a lack of export business and Thanksgiving right around the corner that would seem unlikely. Choice and select cutout values have met some near term price objectives and I would look for values to settle back into the lower $1.50’s to upper $1.40’s going into the Thanksgiving holiday week.

Futures Market Situation and Outlook:

December live cattle settled at $91.60 a loss of $1.05, February live cattle settled at $92.80 a loss of $1.35, and the April live cattle settled at $93.67 a loss of $1.60. In the feeder cattle pit, November feeder cattle settled at $98.20 a loss of $.80, January feeder cattle settled at $97.20 a loss of $1.67, and the March feeder cattle settled at $98.17 a loss of $1.45. The reported CME feeder cattle index for 11/10/08 was $97.74 a gain of $.19.

Yesterdays live cattle volume saw 37,700 contracts trade in the pit and 17,943 contracts trade on Globex. Live cattle open interest declined 1,757 contracts to come in this morning at 212,279. Yesterday’s feeder cattle volume saw 3,537 contracts trade in the pit and 530 contracts trade on Globex. Feeder cattle open interest gained 243 contracts to come in this morning at 19,020.

Live and feeder cattle futures settled under pressure yesterday on ideas the cash beef and cattle markets could move into a sideways to lower trading pattern and steep losses in the equity markets. Daily support levels in Dec live cattle and Jan feeders were violated early in the session yesterday and this added to spec and commercial selling interest. Weekly support at $91 in the Dec live and $97 in the Jan feeders managed to hold yesterday, however those support areas will likely be challenged today or tomorrow. Closing below these price levels by Friday opens the door to a lower trending market going into next week. I would say that we would need to see December live cattle close back above $92 and January feeder cattle close back above $98.50 today or tomorrow in order to negate some of yesterday’s bearishness. The “Goldman Roll” continued yesterday with an estimated 8-10,000 Dec/Feb spreads done in the pit and 6-7,000 done on the screen. Options trading was quiet with no real features, however volatility did come down again in Dec, Feb, and April at the money straddles. Overnight stock markets seem to be a little higher this morning, which should help to promote some stability in cattle futures on the open today. Rally attempts back towards yesterday’s highs will likely be viewed as a selling opportunity by many though. 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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