November 26, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was untested yesterday with packer bids of $87 live and $1.37 dressed going unmatched against feedlot offering prices of $90-$92 live and $1.42-$1.44 dressed. All eye’s were on the futures market again yesterday to see if someone could get advantage over someone else in terms of buying or selling cattle in the cash market this week. I can tell you that couldn’t be a more fool hardy mistake to try and price cattle, whether it be on the buy side or the sell side, by what is going on in the futures market, as the futures are in complete disconnect with what is going on in the real world right now. I think both the packer and the cattle feeder realize fat cattle got a little too cheap last week, and I think both would agree that cattle will be higher this week. Perhaps not as high as the cattle feeder would like, but I think the packer realizes he needs some cattle to kill next week, and the market will be a buck or two higher from last week. This foolishness with cattle futures trading TICK for TICK with Dow and S&P futures should not have a bearing on this weeks cash cattle trade, and those trying to determine what the value of fat cattle should be this week by wringing their hands and watching what is going on in Chicago, should turn their quote screens off, and price the cattle by where the cutout is at, or by what kind of numbers they have for sale, or by what kind of meat sales they have to cover, because what is going on in the trading pit and on the screen at the CME, at least by yesterday’s standards, is by far price discovery. With that said, I think we should all look for a moderating in price declines and slight price improvement in cash fed, feeder, and slaughter cow values throughout the course of the next couple of weeks.

Cash Beef Situation and Outlook:

Yesterdays cattle kill was estimated at 128,000 head, which would be 1,000 head above last week and 3,000 head above the same day a year ago. The week-to-date kill now stands at 257,000 head, which would be 19,000 head above the same period a week ago with the industry looking for a 620,000 head production week. The boxed beef market was lower yesterday with the choice cutout closing $.94 lower to settle at $153.94 and the select cutout closing $.98 lower to settle at $144.01. Sales volume was good with 377 loads of beef sold (120.43 loads of choice fab cuts, 130.79 loads of select fab cuts, 40.41 loads of trim, 85.54 loads of grinds). The choice/select spread settled at $9.92 a gain of $.04.

The beef market was lower yesterday, as most attention from the buy side of the equation has turned to moving poultry product ahead of the Thanksgiving Day holiday. As such we saw packers discounting end meats along with loin product in order to spur some demand. The continued lack of export demand weighed on short rib values, with inside round and strip loin values reflecting reduced domestic buyer demand. Spot coarse ground items were under pressure yesterday as well, however processors looking beyond Thanksgiving Day were bidding slightly higher for cow 90’s and fed cattle 50s’. A lack of import business directly following the up coming holiday could be a cause of this. Still believe that we will come back from the holiday and see a modest up tick in beef buying interest from the retail and wholesale sector as they cover first of Dec feature adds and finish late year holiday celebration buying. Beyond that the beef market will be plagued by a modest increase in fed cattle production and waning demand after the holiday’s for beef until mid March. Some of this negativity towards the Jan/Feb beef market could be negated if a falling U.S. dollar and subsequent up tick in export demand were to develop. We also need to keep a close eye on the U.S. dollar to determine what level of beef imports we could be dealing with in the first quarter of 2009.

Futures Market Situation and Outlook:

December live cattle settled at $85.82 a loss of $.82, February live cattle settled at $87.32 a loss of $.27, and the April live cattle settled at $89.15 a loss of $.10. In the feeder cattle pit, January feeder cattle settled at $91.40, unch, March feeder cattle settled at $92.25, unch, and the April feeder cattle settled at $92.40 a loss of $.15. The reported CME feeder cattle index for 11/24/08 was $91.86 a loss of $.85.

Yesterdays live cattle volume saw 23,029 contracts trade in the pit and 10,770 contracts trade on Globex. Live cattle open interest declined 95 contracts to come in this morning at 213,883. Yesterday’s feeder cattle volume saw 1,535 contacts trade in the pit and 685 contracts trade on Globex. Feeder cattle open interest gained 361 contracts to come in this morning at 19,552.

The cattle futures market was pretty choppy and volatile again yesterday with part of the market thinking that Monday’s rally was overdone, part of the market thinking we should rally because the cash market will be higher this week, and part of the market trading cattle via the stock market. Despite all of the foolish intra-day movement, by the end of the day it did feel like there was some support under the market and we did manage to close back near our highs of the day. Given what we know about the near term fundamentals of the market (i.e. manageable fed cattle supplies and beef demand that isn’t all that bad and bound to improve after Thanksgiving), I still think we could see higher cattle futures prices going into the first couple weeks of December. I still want to target the $89-$90 area in Dec and Feb live cattle futures and the $94 area in Jan feeder cattle as near term price objectives. If by chance the cash beef and fed cattle markets were to exceed current expectations, which could easily happen as the current state of the beef market can probably support a low to mid $90’s fed cattle market, then we could see live cattle futures move $2-$4 beyond the above mentioned resistance levels. Option trading was active in the February live cattle calls yesterday with open interest going up by 3,000 contracts in out of the money strikes, which would lead one to believe there was net new buying coming into the market. Option volatility also went up the last couple of days, with at the money Dec straddle vol at 25.5%, Feb atm straddle vol at 23%, and April atm straddle vol at 21.5%. Dow and S&P futures are trading lower this morning, which will likely have an adverse affect on cattle futures on the open. I would look for a $.10-$.30 lower open to live and feeder cattle futures this morning, with some support under the market being found at yesterday’s lows. Keep in mind we will be trading on regular hours today, of course we will be closed tomorrow, however cattle and grains will open Thursday at 5:00 pm and 6:00 pm respectively on regular overnight trading schedules. All markets (meats, grains, financials, stock index’s) will close at noon on Friday. Everyone Have a Happy Thanksgiving and 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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