December 16, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was at a standstill yesterday except for those cattle that sold through auction. A look at last weeks sales volumes and prices shows Texas/OK/NM feedlots selling 36,521 (39,854 the week before) head of fed cattle for $85 live, Kansas feedlots sold 21,269 (29,005) head of fed cattle for $84 live and $1.32 dressed, Nebraska feedlots sold 46,768 (41,713) head of fed cattle for $82-$83 live and $1.30-$1.33 dressed, Colorado feedlots sold 3,360 (5,258) head of fed cattle for $83-$84 live and $1.32 dressed, and Iowa/MN feedlots sold 20,031 (26,833) head of fed cattle for $80-$82 live and $1.31-$1.32 dressed. Movement looked to be moderate again last week, which is leading to a little larger showlist offering in Nebraska and Kansas and smaller in Texas. Packer bids were not being tendered yesterday with most feedlots beginning the week offering their cattle at $88 live in the south and $1.38-$1.40 dressed in the north. Market psychology received a shot in the arm yesterday with the higher settlements in the futures and boxed beef markets. The weather also turned quite a bit cooler in all areas of cattle feeding country, which will impede livestock performance. Overall though, the beef continues to be hard to move, however there was some business beginning to develop yesterday ahead of the two holiday shortened production weeks. The beef should begin to find some support in the upper $1.30’s to lower $1.40’s, which could help to stabilize the cash fed cattle market in the coming weeks. Rallies in the cash market will be limited in the near term though until we get past the holidays. For this week I am going to look for a fed cattle market that trades steady to possibly $1 higher at $85-$86 in the south and $1.32-$1.34 in the north.

Cattle selling in the auction markets are beginning the week with some moderate strength as we see fed cattle trading through the upper Midwest salebarns bringing steady to $1 higher money at $80-$83 on the beef fats and $70-$74 on the Holstein fats. Slaughter cows were $1-$2 higher with the cutters and boners bringing $30-$41 and the fat cows bringing $42-$53. Oklahoma City had an estimated run of 9,500 head of feeder cattle on offer yesterday with that market being called $1 lower early and fully steady to $1 higher late in the day. The calves were off a couple of dollars as buyer demand for calves was diminished due to a lack of moisture on wheat pastures and colder weather throughout the southern plains. The majority of the 5 weight steers in OKC yesterday were bringing $88-$100, 6 weights were bringing $85-$94, 7 weights were bringing $85-$92, and the 8 weights were bringing $85-$90. I would probably look for further strength in the feeder cattle market, especially on the true yearling cattle that will finish late spring/early summer.

Cash Beef Situation and Outlook:

Yesterday’s cattle slaughter was estimated at 118,000 head, which would be 9,000 head below last weeks date and 21,000 head above the same day a year ago. The industry will be looking for a 612,000 head production week. The boxed beef market was higher yesterday with the choice cutout closing $2.43 higher to settle at $143.65 and the select cutout closing $1.34 higher to settle at $133.73. Sales volume was light with 206 loads of beef sold (68.48 loads of choice fab cuts, 77.77 loads of select fab cuts, 13.94 loads of trim, and 45.89 loads of grinds). The choice/select spread settled at $9.92 a gain of $1.09.

The beef market was higher yesterday on retail buying ahead of the holiday shortened production weeks that lie ahead. Strength yesterday was being found in chuck short ribs, inside rounds, strip loins, and top butts. Most rib cuts were under pressure yesterday as were coarse ground beef markets. Boneless manufacturing beef was higher as processors were concerned about inventory ahead of the holidays. 90’s and 50’s could find a little support going through the holidays as cow and fed cattle kills will be down. It looks as though rib cuts will remain under pressure for the next several weeks now that the majority of the holiday buying is wrapped up. To counter act some of this weakness though, it is expected that chuck and round cuts could start to move both through domestic and export channels, especially considering certain round cuts are now at yearly lows. Loins will move in spurts but like the rib cuts, we likely won’t see any type of lasting rally in the loins until spring arrives. This will leave end meats to carry the burden of holding cutout values together. I would expect to see lower priced cuts like chuck, round, and ground beef items to begin moving better through retail once we get past the holidays. This should help stabilize boneless beef items as well. Look for choice cutout values to stabilize in the lower $1.40 area and the select cutout to stabilize in the lower $1.30 area going through the holiday.

Futures Market Situation and Outlook:

December live cattle settled at $84.15 a gain of $.82, February live cattle settled at $83.80 a gain of $1.00, and the April live cattle settled at $86.15 a gain of $1.20. In the feeder cattle pit, January feeder cattle settled at $88.12 a gain of $.95, March feeder cattle settled at $87.92 a gain of $1.47, and the April feeder cattle settled at $88.85 a gain of $1.72. The reported CME feeder cattle index for 12/12/08 was $89.22 a gain of $.65. Live cattle spreads: Dec/Feb settled at $.35 a loss of $.17, Feb/April settled at -$2.35 a loss of $.20 and April/June settled at $3.37 a gain of $.17. Feeder cattle: Jan/March settled at $.20 a loss of $.52 and March/April settled at -$.92 a loss of $.25.

Yesterdays live cattle volume saw 18,260 contracts trade in the pit and 6,932 contracts trade on Globex. Live cattle open interest gained 1,856 contracts to come in this morning at 211,967. Yesterday’s feeder cattle volume saw 1,915 contracts trade in the pit and 855 contracts trade on Globex. Feeder cattle open interest declined 238 contracts to come in this morning at 21,208.

Live and feeder cattle futures settled with decent gains yesterday on continued discounts to the current cash markets, winter weather concerns in cattle feeding country, and short covering by speculative accounts. There was also some liquidation out of December live cattle ahead of that contracts expiration at the end of the month and the movement of Jan feeder longs into deferred month contracts. There remain no deliveries against the December live cattle contract due to current discounts to the cash fed cattle market. Deferred month fat cattle spreads (i.e. April/June and June/August) also firmed up yesterday on ideas of winter weather beginning to hit the plains and in anticipation of this Friday’s cattle on feed report, which is expected to show another month of lower placements into the nations feedlots thus continuing to build on a moderate marketing hole in early spring. The report is expected to show cattle on feed numbers 6% below last year with placements during November running 5%-8% below last year and marketing’s during November running 10%-12% below a year ago. The market is anticipating the lower marketing rate and increased yearling cattle placements from August-October by pricing Feb/April at a $2.35 discount and the subsequent trend of lower calf placements throughout the fall by pricing April/June @$3.37 and June/August @$.80. Option trading was rather subdued yesterday with the main feature of the day looking to be unwinding of Feb live cattle $90 risk/reversals, where they were selling the $90 put and buying back the $90 call. The volatility skew flattened out further with atm volatility now trading at 25% from Feb-June. Flat price action looked pretty good in April and June live cattle futures as those months managed to take out and close above last week’s highs. Most feeder cattle futures, with the exception of April, came right up to last week’s highs and stopped. Follow through to the upside today and tomorrow would indicate a further appreciation of prices into next week and further adjustment of basis from positive to negative. Support for Feb live cattle for the rest of the week will be found at $82-$82.25 and in the April live cattle at $84-$84.50. Both Jan and March feeders will have support at $86. Resistance in Feb live cattle will be encountered at $85-$86 and in April live at $87-$88. Feeder cattle closed right up against resistance yesterday at $88 and holding above that level would keep the door open to $90-$92 in the near term. Look for a $.10-$.20 higher open to live and feeder cattle futures 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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