November 17, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We left last week with a fed cattle market that trades mostly steady to $1 lower at $90-$92 live and $1.43-$1.44 dressed in the north and $93 live and $1.48 dressed in the south. Most of the northern trade developed earlier in the week with what looks to be decent movement of 52,000 head of cattle sold in Nebraska and 34,000 head in Iowa. Most of the southern trade took place on Friday with preliminary reports from the USDA showing 14,000 head of cattle sold in Kansas, 23,000 head of cattle sold in Texas, and 3,000 head of cattle sold in Colorado. I will report on actual trade volumes and prices tomorrow morning once everything is counted and reported to the USDA today. Week long selling in CME cattle futures contracts linked to volatile trade in U.S. equity markets and a weakening boxed beef market late in the week prompted cattle feeders to accept steady to lower money for their fed cattle as opposed to steady/higher, which was thought earlier in the week. Many packers late in the week were applying supply side economics in order to preserve margins late in the week by reducing slaughter schedules, which had some less aggressive in the market for cattle last week. More of the same is in store for early this week, as IBP will have at least one plant dark today. While beef demand and movement has been pretty good the last couple of weeks, some of that buying could begin to dry up as retail and wholesale buyers have covered a good portion of their needs going into the end of the year, and this has packers concerned on how they will move beef product post Thanksgiving, which has them buying cattle accordingly. They will be buying for a short kill week next week as well, which one has to assume will keep them looking to procure live inventory at lower money again this week. I would look for a softer tone to the cash fed cattle market this week, with prices ranging steady to lower compared to last week at $92-$93 live and $1.46-$1.48 dressed in the south and $89-$91 live and $1.42-$1.44 dressed in the north. After starting the week on a stronger market, most feeder cattle and calf sales were beginning to soften up late in the week on the break in the futures board and lower fat cattle market. By the end of the week most classes of feeder cattle were trading steady to $1-$3 lower, however demand was said to be good from Midwest backgrounders and southern plains grazers. Numbers of cattle for sale last week in the western sale barns increased as producers finally begin to move their new crop calves to market due to weather disruptions the last couple of weeks. I would have to say that a lower trend to the feeder cattle market will prevail for most of this week as well following the direction of the futures and cash fed cattle market. Slaughter cows and bulls were mostly $1-$3 lower last week, as here too an increase in sale barn receipts and a lower trend to the domestic boneless beef market had cow killers buying live inventory defensively. Expect to see more of the same in that venue this week as well.

Cash Beef Situation and Outlook:

Last weeks cattle slaughter was estimated at 616,000 head, which would be 5,000 head below last week and 31,000 head below the same period a year ago. The weekly slaughter produced an estimated 482.8-mil lbs of beef. Year-to-date production figures show the kill running .2% above a year ago at 29.962 mil head and ytd beef production running .5% above a year ago at 23.197 bil lbs. From Thursday to Thursday of last week choice boxed beef gained $8.34 and select-boxed beef gained $5.15. Sales volume was lighter on the increased market with 1,113 loads of choice/select-fabricated cuts of beef sold throughout the week. Friday saw a lower beef market with the choice cutout closing $.35 lower to settle at $157.02 and the select cutout closing $.31 lower to settle at $146.18. Sales volume on Friday was light with 196 loads of beef sold (75.84 loads of choice fab cuts, 51.23 loads of select fab cuts, 21.80 loads of trim, 46.81 loads of grinds). The choice/select spread settled at $10.84 a loss of $.04 for the day, however a gain of $3.09 for the week.

The beef market was higher for most of the week last week, however the market was being met with some buyer resistance late in the week as many were getting their both their near term and forward needs into the end of the year covered. Once again the charge higher was led by active procurement of late year holiday cuts of beef as we see choice boneless ribeyes gaining $.60 in value and choice peeled tenders gaining $1.00 in value throughout the course of the week. This pushed rib and loin primal values 16% and 5% higher by the end of the trading week. There was some active interest in round items early in the week as retail interests covered up coming features for the first of December. A lack of export business kept more chuck product on the domestic market and as a result values drifted lower. Boneless beef items were mostly steady on the 50% fed cattle trim due to lighter fat cattle slaughters, but mostly lower on the boneless cow 90’s due to increased cow kills and competition from lower priced imports. By Friday of last week, many buyers were content with current inventory positions and were beginning to back away from the market waiting for opportunities to present themselves. Turkey items will now occupy most retail and wholesale attention for the next couple of weeks and I would expect to see beef values drift lower as a result of this. We may have one more beef buying spurt going into the first of December, however this will likely be short lived. Look for cutout values to drift lower from current price levels.

Futures Market Situation and Outlook:

For the week, December live cattle lost $2.75 to settle at $90.05, February live cattle lost $2.87 to settle at $90.67, and the April live cattle lost $2.85 to settle at $2.85. In the feeder cattle pit, November feeder cattle lost $2.25 to settle at $96.70, January feeder cattle lost $3.95 to settle at $95.27, and the March feeder cattle lost $3.75 to settle at $95.92. The reported CME feeder cattle index for 11/13/08 was $97.60 a gain of $.18 for the day and a gain of $1.15 for the week.

Friday’s live cattle volume saw 21,585 contracts trade in the pit and 11,347 contracts trade on Globex. Live cattle open interest gained 2,915 to come in this morning at 216,503. Friday’s feeder cattle volume saw 1,903 contracts trade in the pit and 703 contracts trade on Globex. Feeder cattle open interest gained 233 contracts to come in this morning at 19,149. For the week, live cattle open interest gained 329 contracts and feeder cattle open interest 140 contracts.

The latest commitment of traders report showed the small funds net short 5,090 contracts of live cattle futures and options a decline of 934 contracts from the previous week. The commercials were net short 72,909 contracts of F/O a gain of 444 contracts, the index funds were net long 105,891 contracts of live cattle F/O a decline of 1,144 contracts, and the small spec’s were net short 27,892 contracts of live cattle F/O a decline of 654 contracts. In the feeder cattle, small funds were net short 2,375 contracts of F/O a decline of 429 contracts, commercials were net long 1,175 contracts of F/O a decline of 875, index funds were net long 6,120 contracts of F/O a gain of 526, and the small spec’s were net short 4,920 contracts of F/O a gain of 80.

The live and feeder cattle futures markets were under pressure for most of last week on continued economic concerns and ideas beef and cattle markets were likely topping out for the near term. Live cattle lost close to $3 by the end of the week and feeders lost $4 because of this and took out many areas of near term chart support. December live cattle did manage to hold $90 by Friday and January feeder cattle did close above $95, however I would suspect we are down below these levels by early this week. Dow and S & P futures seem poised to make new lows by the first of the year and this will inevitably drag cattle futures down with them. Most traders will be expecting to see lower cash cattle and beef markets this week, which will keep a sell mentality in the cattle pits. First support on Dec live cattle will be found right here at $90, below that will be old contract lows of $87. Weekly resistance in December live cattle starts at $92 and goes up to $92.50. Jan feeders will have support at $95 early this week and below that $92-$93 seems likely. Resistance in Jan feeders will be found on rally attempts at $97.50 up to $98. Option trading was pretty quiet on Friday with volatilities increasing slightly. Look for a $.10-$.20 lower open to live and feeder cattle futures trading 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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