December 11, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

Yesterday’s cash fed cattle market was quiet again in the feedlot trade with the salebarn cattle continuing to be under pressure. There were a few packer bids beginning to surface in the south at $84 live and in the north at $83 live and $1.33 dressed. Those bids go unmatched against feedlot offering prices of $88-$90 live and $1.40-$1.42 dressed. Both sides will ultimately have to give in again this week as I don’t see that much of a higher fed cattle trade, however I don’t see the market being as low as where the bids are at. Rather, I think we could see a $85-$86 type trade in the south and $1.35-$1.36 type trade in the north. It’s no secret that the beef is a problem here right now. Does that change after the first of the year? Yea, I think it can but going through the holidays the beef is going to be hard to move. This will keep the buyer looking to procure his live inventory at lower money until he can see some profit for his end product. The bottom line here is that we will have more fat cattle to kill from now until March, which means that we are going to need to see the beef market pick back up, otherwise rallies are going to be hard to come by. I would look for the cash market to chop around in the mid $80’s to the lower $80’s until we get into the New Year, at which time I think we could see a little better demand scenario develop to help stabilize the market.

The salebarn trade of cattle was lower again on most all classes, fats, feeders, and cows. Fed cattle selling through the Sioux Falls, SD auction market were being called $1-$2 lower at $80-$82 on the beef cattle and $4-$5 lower on the Holsteins at $65-$70. Slaughter cows were $2-$3 lower at $30-$40 on the cutters and boners and $40-$45 on the breakers. Feeder cattle were mostly $1-$2 higher across the country yesterday. Kearney, NE had approximately 4,500 head of cattle on offer yesterday with their 5 weight steers bringing $95-$110, the 6 weight steers bringing $90-$98, the 7weight steers bringing $87-$97, and the 8 weight steers bringing $86-$94. The cash feeder cattle market may have found a little support from now until after the New Year as many salebarns in the country will begin shutting down for the holidays thus reducing feeder cattle receipts for the rest of the year.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 105,000 head, which would be 8,000 head below last week and 15,000 head below the same day a year ago. The week-to-date kill now stands at 355,000 head, which would be 4,000 head below the same pace last week with the industry looking for a 620,000 head production week. The boxed beef market was lower yesterday with the choice cutout closing $.58 lower to settle at $144.13 and the select cutout closing $.55 lower to settle at $133.57. Sales volume was good with 386 loads of beef sold (133.86 loads of choice fab cuts, 112.06 loads of select fab cuts, 34.51 loads of trim, 105.07 loads of grinds). The choice/select spread settled at $10.56 a loss of $.03.

The beef market was lower yesterday with continued discounting noted throughout the rib, loin, and round primals of the beef carcass. The chuck market was mostly steady yesterday as was the coarse ground beef market. Boneless beef markets were lower; especially the boneless cow 90’s, as processor demand wanes towards the end of the week. Domestic demand for beef remains weak and as such I think we can expect to see the beef market continue to drift lower. Packers have gotten serious about cutting kills and this will help to keep the market from falling out of bed, however over the course of the next couple of weeks I don’t see much of a rally coming out of the market. Past the first of the year I think we will see export demand pick up marginally and we will likely see a little better domestic demand as well. Here again though, we will be dealing with an increase in fed cattle production during the same timeframe, which will keep rallies in check. Our next major rally in the beef complex isn’t likely to come until mid March when buyers begin searching for middle meat items for spring/summer demand. Buyers should begin looking for pricing opportunities on middle meats via deferred month live cattle futures on any further weakness during the next 30-60 days. Export sales for the week of November 28-December 4, 2008 are as follows:
Beef: Net sales of 7,100 MT reported for Mexico (2,600 MT), Japan (1,600 MT), South Korea (1,500 MT), and Canada (1,300 MT), were partially offset by decreases for Vietnam (600 MT). Net Sales of 4,600 MT for delivery in 2009 were primarily for Mexico (2,000 MT) and Vietnam (l, 600 MT). Exports of 7,700 MT were mainly to Mexico (3,200 MT), Canada (1,500 MT), Japan (900 MT), South Korea (800 MT), and Vietnam (500 MT).
Futures Market Situation and Outlook:

December live cattle settled at $83.97 a gain of $1.37, February live cattle settled at $83.80 a gain of $1.52, and the April live cattle settled at $85.47 a gain of $1.30. In the feeder cattle pit, January feeder cattle settled at $87.35 a gain of $.80, March feeder cattle settled at $86.87 a gain of $.77, and the April feeder cattle settled at $87.52 a gain of $.35. The reported CME feeder cattle index for 12/9/08 was $88.74 a loss of $.51.

Yesterdays live cattle volume saw 13,798 contracts trade in the pit and 8,594 contracts trade on Globex. Live cattle open interest declined 690 contracts to come in this morning at 209,239. Yesterday’s feeder cattle volume saw 3,189 contracts trade in the pit and 1,719 contracts trade on Globex. Feeder cattle open interest declined 22 contracts to come in this morning at 21,119.

Live and feeder cattle futures settled sharply higher yesterday on oversold market conditions, discounts to cash, and general short covering and moderate fund buying. The market acted pretty good yesterday and holding front month live cattle futures above the $83 area keeps the door open to $85 in the near term, where we will run into our next area of resistance. The same can be said for front month feeder cattle holding above the $87 area, which would keep them open to the next area of resistance at $90. This will very likely be our trading range for the next couple of weeks, $80-$85 in the fat cattle and $85-$90 in the feeder cattle. The USDA released supply/demand numbers this morning, which look to be a little bearish to the corn and wheat markets due to increased carryout numbers. In the meats, the USDA lowered 08/09 beef production 110 mil lbs each. They raised this years import 9 mil lbs and left next years import numbers alone. Exports for this year were raised 19 mil lbs and they left next years number alone. The USDA also lowered domestic consumption 120 mil and 110 mil respectively for 08 and 09. Outside commodity markets are mostly higher this morning (i.e. metals/energies) with the Dollar Index sharply lower. The stock futures are pointing to a modestly lower open this morning. Cattle futures will likely open $.10-$.20 lower, and I would be interested in buying a lower open. 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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