December 15, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We left last week with a moderate fed cattle trade that developed in Nebraska and Iowa at mostly $82 live and $1.30-$1.33 dressed, Colorado at $83-$84 live, Kansas at $84 live, and in Texas at $85 live. For the week the USDA was reporting 18,000 head of cattle sold in Kansas, 39,000 head in Nebraska, 2,400 head in Colorado, 19,000 head in Iowa, and 400 head in Texas. The Texas trade took place late Friday afternoon and many cattle sales won’t be reported until today, at which time I will relay the information tomorrow morning. Most of last weeks trade was $2-$3 lower on a live weight basis and $5 lower on a dressed basis, which was in line with most expectations. Texas feeders were able to hold their market at $85 as they had the smallest showlist last week. Last weeks feeder cattle market was mostly lower early, however a firmer tone did start to develop late in the week mostly on weaned calves and true yearling cattle. Moisture concerns over the southern plains wheat crop had wheat pasture buyers looking to procure lightweight cattle at lower money. Slaughter cow and bull markets were mostly $1-$2 lower as well last week. Looking into this week, cash fed cattle markets don’t look all that positive as the lower boxed beef and drop markets continues to pressure packer margins. As a result we can expect to see them keep production levels curtailed and working from contract and formula supplies. Packers will also be buying for a short kill next week and the week after due to the holiday’s, which again will give them some leverage in the market. The feeder cattle market and slaughter cow markets could find some support for this week and during the holiday’s as many auction markets will begin to shut down for Christmas and New Year’s, which will severely curtail receipts.

Cash Beef Situation and Outlook:

Last weeks cattle kill was estimated at 607,000 head, which would be 14,000 head below the previous week and 44,000 head below the same week a year ago. The weekly slaughter produced an estimated 475-mil lbs of beef compared to 484 mil lbs the week before. Year-to-date beef production is running even with a year ago at 25.099 bil lbs, with the ytd cattle slaughter running .2% below a year ago at 32.401 mil head. From Thursday to Thursday of last week choice boxed beef lost $4.22 to settle at $141.56 and select boxed beef lost $4.41 to settle at $132.73 on moderate movement of 1,066 loads of fabricated cuts. Friday saw another lower day in the beef market with the choice cutout closing $.34 lower to settle at $141.22 and the select cutout closing $.34 lower to settle at $132.39. Sales volume on Friday was light with 235 loads of beef sold (74.49 loads of choice fab cuts, 73.23 loads of select fab cuts, 33.11 loads of trim, 54.31loads of grinds). The choice/select spread settled at $8.82 steady on the day and a gain of $1.67 for the week.

The beef market was lower last week on a lack of retail and export demand. The price declines were witnessed throughout all primal areas of the carcass with chuck and round cuts leading the way down along with coarse ground markets, which shows a lack of consumer demand for these items at retail. With that said though, there was some moderate strength beginning to develop in the chuck roll and inside/bottom round markets, especially the round cuts, as they dip below year ago levels and some were looking at these items as having some value. The boneless beef items were under pressure last week as well, however as we approach two holiday shortened production weeks we could begin to see some stabilization begin to surface in the boneless beef markets. The same could be said for some of the chuck and round cuts from the fed steer and heifer carcass as the upcoming slaughter reductions could help to stabilize recent price declines. Middle meats will continue to be under pressure as most holiday buying is wrapped up and we likely won’t see any major buying sprees in ribs and loins until after the holiday’s. Look for beef cutout values to be under pressure early this week and possibly finding some stabilization late. Overall though I would expect to see cutout values lower into the first week of January.

Futures Market Situation and Outlook:

For the week, December live cattle gained $1.77 to settle at $83.22, February live cattle gained $1.35 to settle at $82.80, and the April live cattle gained $1.57 to settle at $84.95. In the feeder cattle pit for the week, January feeder cattle gained $.52 to settle at $87.17, March feeder cattle gained $1.17 to settle at $86.45, and the April feeder cattle gained $.72 to settle at $87.12. The reported CME feeder cattle index for 12/11/08 was $88.57 a loss of $.01 for the day and a loss of $2.60 for the week.

Friday’s live cattle volume saw 16,596 contracts trade in the pit and 8,332 contracts trade on Globex. Live cattle open interest gained 1,377 contracts to come in this morning at 210,195. Friday’s feeder cattle volume saw 2,215 contracts trade in the pit and 986 contracts trade on Globex. Feeder cattle open interest declined 210 contracts to come in this morning at 21,437. For the week, live cattle open interest gained 729 contracts and feeder cattle open interest gained 776 contracts.

The latest commitment of traders report showed the small funds net short 15,404 contracts of live cattle futures/options a gain of 1,866 shorts. The commercial trader was net short 58,835 contracts of live cattle F/O a decline of 4,924 shorts. The index fund trader was net long 97,938 contracts of live cattle F/O a decline of 2,921 longs. The small spec trader was net short 23,699 contracts of live cattle F/O a gain of 138 shorts. In the feeder cattle, small funds were net short 4,025 contracts of feeder cattle F/O a decline of 85 shorts. The commercial trader was net long 2,415 contracts of feeder cattle F/O a gain of 181 longs. The index trader was net long 6,427 contracts of feeder cattle F/O a decline of 133 longs. The small spec trader was net short 4,816 contracts of feeder cattle F/O a gain of 132 shorts.

Live and feeder cattle futures ended the week with moderate gains on an adjustment in basis and commercial short covering. This week I think we will see futures continue to move closer to the cash market, and while we could likely see another lower cash trade I think we could again see some moderate strength in the futures. Early week support on front month live cattle will be found at $82.50 in the Dec and $82.25 in the Feb. In the feeder cattle both Jan and March will find some support at $86 early this week. Front month cattle will find resistance at $85 and front month feeders will find resistance at $88. Taking out support or resistance early this week would indicate a move of $2 in the direction of the breakout in both live and feeder cattle futures. There remain no deliveries against the December live cattle contract. Look for a $.10-$.30 higher open to 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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