December 12, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

A light fed cattle trade began to develop late yesterday in eastern Nebraska and western Iowa with about 7,000 head of cattle changing hands at $1.33-$1.35 dressed, which would be $1-$2 lower from the bulk of last weeks trade. Southern plains packers and cattle feeders were still at odds with price negotiations this week, with packers in that part of the country bidding $83-$84 and feedlots priced at $88-$89 live. I would expect to see trade become active sometime today in Texas and Kansas at $85-$86 and in the north at the above mentioned $1.33-$1.35 dressed. The fundamentals of the market remain largely unchanged from earlier in the week with numbers of market ready fed cattle remaining manageable and carcass weights coming down (steer carcass weights @855 lbs last week vs. 860 lbs the previous week). However, beef demand, or lack there of, remains the key issue. With cutout values continuing to plummet, packers are losing margin and as such will be looking to buy cattle cheaper and keep production levels curtailed, which will keep rallies in cash fed cattle values limited for the next several weeks. Going home for the weekend, cattle selling in the salebarns across the country are lower on the fed cattle and slaughter cows, however mostly $1-$3 higher on the feeder cattle. Buyer demand for feeder cattle has improved this week despite the lower trend to the fed cattle market. I believe buyers are looking for a better fed cattle trade next spring and are anticipating a marketing hole during the April-June timeframe, and as such are trying to procure animals that will finish during that timeframe. Look for a steady to firmer trend to the feeder cattle market into the first part of next week.

Cash Beef Situation and Outlook:

Yesterdays cattle kill was estimated at 126,000 head, which would be 2,000 head above last week and 2,000 head above the same day a year ago. The week-to-date kill now stands at 481,000 head, which would be 2,000 head below the same pace 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 $2.57 lower to settle at $141.56 and the select cutout closing $.84 lower to settle at $132.73. Sales volume was good on the lower market with 367 loads of beef sold (127.79 loads of choice fab cuts, 131.37 loads of select fab cuts, 49.97 loads of trim, 58.19 loads of grinds). The choice/select spread settled at $8.83 a loss of $1.73.

The beef market was lower again yesterday with lower priced rib and loin cuts finally showing up in the USDA cutout values. Yesterday did see some price strength starting to surface throughout the round and chuck primal as production cutbacks at the packinghouse level had packers offering chuck rolls and gooseneck rounds at higher money going into retail and finding buyers at those price levels. Ground beef and boneless beef markets were trading at lower money yesterday on a lack of retail interest on these items. It is said that there is ground beef product available on both the buy side and sell side. The beef market is going to remain under pressure until we get past the first of the year and we are going to need to see some demand surface from either domestic or foreign interests before we are able to turn the market around. Look for the beef to continue to drift lower into the first part of next week.

Futures Market Situation and Outlook:

December live cattle settled at $84.47 a gain of $.50, February live cattle settled at $83.82 a gain of $.02, and the April live cattle settled at $85.67 a gain of $.20. In the feeder cattle pit, January feeder cattle settled at $87.60 a gain of $.25, March feeder cattle settled at $87.32 a gain of $.45, and the April feeder cattle settled at $87.85 a gain of $.32. The reported CME feeder cattle index for 12/10/08 was $88.58 a loss of $.16.

Yesterdays live cattle volume saw 15,001 contracts trade in the pit and 7,374 contracts trade on Globex. Live cattle open interest declined 383 contracts to come in this morning at 208,876. Yesterday’s feeder cattle volume saw 3,271 contracts trade in the pit and 1,000 contracts trade on Globex. Feeder cattle open interest gained 526 contracts to come in this morning at 21,649.

Live and feeder cattle futures managed to settle higher yesterday on moderate short covering and light fund buying. The market did start to drift lower going into the close though on weakness in the equity markets, and of course will be under pressure early this morning due to the sharply lower stock market. Spreads were active again yesterday with Dec/Feb bull spreading prominent. Dec/Feb went out yesterday trading $.65 over. The market was also selling April and buying June on spreads yesterday with that spread settling at $3.32 premium the April. Option trading was rather quiet with no real features throughout the day, although Feb atm vol did come back into 26%. The market will be very volatile today with most attention focused on the fallout on Wall Street and where the cash fed cattle market will end up trading. Cattle futures have still not separated themselves from the equity markets and this will keep market participant on edge into the first part of next week. I still like being short April cattle and long June on spreads and I want to be looking for big breaks in June live cattle to buy some futures or call options as I think we are building a marketing hole during the May/June timeframe. Look for a sharply lower open to live and feeder cattle futures (i.e. $1.00-$1.50 lower) this morning and the market will need to come back and close above $83 in Dec and Feb live and $87 in front month feeder futures in order to stave off further selling into early next week. Have a Good Weekend 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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