December 17, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was untested yesterday as both buyers and sellers spent the day watching price action on the futures board and in the boxed beef market to determine where cattle should be priced this week. Certainly the limit up move in the futures had cattle feeders emboldened to hold out for higher money until the end of the week. The beef market isn’t acting all that bad either this week, which will help to alleviate margins pressures at the packinghouse as well. Showlists look a little larger in Nebraska and Kansas and smaller in Texas this week, and with feeders in the panhandle pulling cattle forward the last couple of weeks will give them some bargaining power in this weeks price negotiations. Cattle performance in the northern feeding areas hasn’t been all that great since last weekend with snow and bitterly cold wind chills impeding daily weight gains, with more of the same type of weather slated for Nebraska and Iowa this coming weekend. This has packers paying higher money for northern fed cattle in the salebarns early this week, and I would expect to see this price strength spill over into the feedlot trade late this week. Packer bids were not being tendered yesterday with feedlot offering prices being raised up to $90 live and $1.40 plus dressed, and I would expect to see a late week trade develop at $87-$88 in the south and $1.36-$1.38 dressed in the north. Kills will be cut back the next couple of weeks for the holiday’s, however if weather becomes an issue and the beef market holds together we should be able to hold the fed market in the mid-upper $80’s into the first of the year. At which time we will have to see how aggressive the retail/wholesale guys come back to the beef market. We know we will have an increased fed cattle supply to kill through for the first couple of months of the new year, so it will be up to demand and weather to determine how high the fed cattle market can trade during this timeframe. Yesterday saw higher feeder cattle and slaughter cow markets in the salebarn trade and I would expect this to continue for the next couple of weeks as many sales shut down for the holiday’s thus curtailing receipts of replacement and slaughter cattle.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 125,000 head, which would be 2,000 head above last week and 3,000 head below the same day a year ago. The week-to-date kill now stands at 240,000 head, which would be 10,000 head below last weeks pace with the industry looking for a 620,000 head production week. The boxed beef market was higher yesterday with the choice cutout closing $.54 higher to settle at $144.19 and the select cutout closing $.85 higher to settle at $134.58. Sales volume was light with 228 loads of beef sold (86.98 loads of choice fab cuts, 66.80 loads of select fab cuts, 19.86 loads of trim, 54.73 loads of grinds). The choice/select spread settled at $9.60 a loss of $.31.

The beef market was higher yesterday as strength was being found in chuck and round cuts ahead of the holiday shortened production weeks. Gains in cutout values were tempered by sharp discounts in ribeyes as holiday buying for this item is all but complete. Moderate demand and price strength surfaced again in the short loin and top butt market. Yesterday saw a slight up tick in ground chuck prices with a mixed tone to the boneless beef markets, higher on the cow 90’s and lower on the fed cattle 50’s. Seasonals look to be well at play here as price strength and demand is beginning to show up in end meats with weakness coming into the middle meat complex. This will likely be the case for the next couple of months as the retailer will be aggressively featuring lower priced ground beef and roasting items after the New Year. I would also expect to see the export buyer find some value in lower priced beef items past the first of the year given recent weakness in the U.S. dollar. The U.S. dollar is another $.80 lower this morning trading under $80.00, and holding below this level keeps the door open to the mid-$70’s, which will make exports attractive, especially on chuck and round cuts that have been in free fall the last several weeks. I will continue to look for cutout values to find support for the next several weeks at $1.40 basis choice and $1.30 basis select.

Futures Market Situation and Outlook:

December live cattle settled at $86.57 a gain of $2.42, February live cattle settled at $86.80 a gain of $3.00, and the April live cattle settled at $89.15 a gain of $3.00. In the feeder cattle pit, January feeder cattle settled at $91.12 a gain of $3.00, March feeder cattle settled at $90.92 a gain of $3.00, and the April feeder cattle settled at $91.85 a gain of $3.00. The reported CME feeder cattle index for 12/15/08 was $89.43 a gain of $.21. Live cattle spreads: Dec/Feb settled at -$.22 a loss of $.57, Feb/April settled at -$2.35 steady on the day, and April/June settled at $3.60 a gain of $.22. Feeder cattle spreads: Jan/March settled at $.20 steady on the day and March/April settled at -$.92 steady on the day.

Yesterdays live cattle volume saw 24,418 contracts trade in the pit and 11,865 contracts trade on Globex. Live cattle open interest gained 259 contracts to come in this morning at 212,225. Yesterday’s feeder cattle volume saw 3,531 contracts trade in the pit and 1,083 contracts trade on Globex. Feeder cattle open interest declined 344 contracts to come in this morning at 20,863.

Live and feeder cattle settled sharply higher with some contracts posting limit gains on ideas of higher cash cattle markets for this week and winter weather hampering cattle performance in plains state feeding areas. This inspired a technical short covering rally that eventually pushed Feb and April live cattle and the first 4 contract months in the feeder cattle to limit bid. Technically the market had a very positive close with Feb fats closing above $86 and front month feeders closing above $90. We will need to see these price levels (i.e. $86 in the fats and $90 in the feeders) hold by the end of the week to confirm a near term bottom in cattle futures. The market has a lot of bearish supply/demand news already priced in and we have a huge net short fund and spec position sitting in the market. So could the lows be put in for awhile? Yea, it could be if beef demand were to pick up and we continue to see a pattern of adverse winter weather run through cattle feeding country every other week. The next major level of resistance on front month live cattle futures will be at $90 and in the feeder cattle at $94-$95.

Something I found interesting this morning was how the market acted at the top back in July vs. how it acts now. I have included a daily price chart of February live cattle below, and I want to point out how at the top of the market we were dealing with big premiums and everyone thought we were going to $1.25. It is interesting to note that on Friday June 20th we pushed futures into new highs at $117.65 only to close $1.45 off those highs to settle at $116.20. We spent the next 9 trading days in a consolidation type trade between $115-$117 before trading limit down on Monday July 7th, from which point the market never looked back. As noted on the chart below, on Friday December 5th the market was trading sharply lower into new lows at $80.60 and everyone was talking about $65 fat cattle and the futures were trading at big discounts. That day we closed $.85 off our lows at $81.45, spent the next six trading days in a consolidation type trade between $82-$84 before closing limit up yesterday. I don’t know if two Friday’s ago the market put in a bottom, however I thought the similarities in the price action between the top in July and what we are seeing now was interesting, and you probably want to go with it until it proves you wrong. Look for a $.50 higher open to live cattle futures and $1.00-$1.50 higher in the feeder cattle. 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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