December 22, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We left last week with a mostly steady cash fed cattle market and we had a cattle on feed report that came in mostly neutral to friendly. We’ll talk first about the cattle on feed report, which showed on feed Dec 1, 2008 at 11.345 mil head or 93.8% of a year ago (pre-report est. 93.9%), placed during November, 2.015 mil head or 94.8% of a year ago (pre-report est. 93.8%), and marketed during November at 1.575 mil head or 90.6% of a year ago (pre-report est. 88.8%). The report should be regarded as supply friendly with on feed totals running 6% below a year ago and placements lower for the 4th consecutive month in a row, although the placement number did come in a little larger than pre-report estimates. The marketing number, while 9% below last year, did come in higher then expectations despite two less slaughter days this year compared to last. The trend of placements being skewed towards heavier weight cattle continued with placements of cattle weighing over 700 lbs running 40,000 head or 5% above a year ago and placements of cattle weighing less then 700 lbs running 150,000 head or 12% below a year ago. Since September, we have now placed 531,000 head or 7% fewer cattle compared to a year ago. Of that, we see an increase of 169,000 or 5% of cattle weighing 700 lbs and over and a whopping decrease of 700,000 head or 17% of cattle weighing 700 lbs or less. The big cattle we know are going to begin hitting the market in the next couple of weeks and should last through mid March. The lighter cattle are either being put out on wheat or into a background yard, or are being retained by producers until the market improves and won’t start being placed until March/April, which puts them into an August forward marketing timeframe. This makes April/May/June very supply friendly at a time when beef demand ahead of spring/summer grilling season is at its best. We will have our usual run of heavier feeders that will come to market in January and be able to hit May/June, but with the dramatic decrease of lightweight fall placements and prospects for a better beef demand scenario going forward, I think we should still have a mid-upper $90’s fed cattle market late this spring/early summer.

Last weeks cash fed cattle market trade moderate numbers at $85 in Texas/OK/NM, steady with the week before. Kansas traded cattle at mostly $84 live, which was mostly steady with the week before, and Nebraska traded cattle at $82-$83 live and $1.32-$1.34 dressed, which would be steady on the live and $1-$2 better on the dressed. Movement looked moderate in the south and pretty decent in the north and I will report on totals tomorrow morning once everything is counted and reported to the USDA. For the week, feeder cattle markets were steady to $4 higher as weather hampered movement throughout the week and attitudes that the cattle market has turned higher kept buyers bidding higher on cattle last week. Slaughter cows also saw gains of $1-$2 throughout most of the week. This week looks like cash markets could be supported again as weather will be a concern in the northern plains hampering both cattle movement and performance. Many salebarns will be shut down for the holidays, which will also be supportive as livestock receipts will be curtailed. Look for steady to $1-$2 better on fats, feeders, and cows this week.

Cash Beef Situation and Outlook:

Last weeks cattle slaughter was estimated at 592,000 head, which would be 15,000 head below the previous week and 67,000 head below the same week a year ago. The weekly slaughter included a Friday kill of 120,000 head and a Saturday kill of 6,000 head and produced an estimated 464-mil lbs of beef. The year-to-date kill now stands at 32.933 mil head, .4% below a year ago with ytd beef production running .2% below a year ago at 25.564 bil lbs. From Thursday to Thursday of last week, choice boxed beef lost $.01 to settle at $141.55 and select boxed beef gained $2.34 to settle at $135.07 on moderate movement of 1,072 loads of fabricated beef cuts sold. Friday saw a higher day in the beef market with the choice cutout closing $.34 higher to settle at $141.89 and the select cutout closing $.36 higher to settle at $135.43. Sales volume on Friday was light with 233 loads of beef sold (88.69 loads of choice fab cuts, 72.01 loads of select fab cuts, 23.74 loads of trim, 38.26 loads of grinds). The choice/select spread settle at $6.46 a loss of $.02 for the day and a loss of $2.37 for the week.

The beef market was mostly steady last week as we started to see some interest in end meats from the retail and wholesale sectors of the market. The rib market was the major drag on the cutout market last week and the main reason the choice/select spread lost $2 last week. This will remain the case now for the next couple of months as end meats will have to support cutout values until spring. We should see another flurry of business in chucks and rounds after the New Year from both domestic and foreign buyers. For this week I will look for a mostly steady beef market as business will dry up by tomorrow as participants prepare for Christmas.

Futures Market Situation and Outlook:

For the week, December live cattle gained $2.78 to settle at $86.10, February live cattle gained $3.97 to settle at $86.77, and April live cattle gained $4.25 to settle at $89.20. In the feeder cattle pit, January gained $6.33 to settle at $93.50, March feeder cattle gained $6.77 to settle at $93.22, and the April feeder cattle gained $7.13 to settle at $94.25. The reported CME feeder cattle index for 12/18/08 was $91.17 a gain of $.82 for the day and a gain of $2.60 for the week. Live cattle spreads: (weekly chg.) Dec/Feb settled at -$.67 a loss of $1.19, Feb/April settled at -$2.42 a loss of $.27, and April/June settled at $3.62 a gain of $.42. Feeder cattle spreads: (weekly chg.) Jan/March settled at $.27 a loss of $.45, March/April settled at -$1.02 a loss of $.35, and April/May settled at -$.85 a gain of $.77.

Fridays live cattle volume saw 16,035 contracts trade in the pit and 8,437 contracts trade on Globex. Live cattle open interest declined 927 contracts to come in this morning at 212,712. Friday’s feeder cattle volume saw 2,459 contracts trade in the pit and 1,120 contracts trade on Globex. Feeder cattle open interest declined 182 contracts to come in this morning at 20,749. For the week, live cattle open interest gained 2,601 contracts and feeder cattle open interest gained 697 contracts.

The latest commitment of traders report detailing positions from 12/9-12/16 showed small funds net short 14,324 contracts of live cattle futures and options a decline of 1,079 shorts. The commercial trader was net short 58,939 contracts of live cattle F/O a gain of 104 shorts. The index trader was net long 96,935 contracts of live cattle F/O a decline of 1,004 longs. The small spec trader was net short 23,672 contracts of live cattle F/O a decline of 28 shorts. In the feeder cattle, small funds were net short 4,319 contracts of feeder cattle F/O a gain of 293 shorts. The commercial trader was net long 2,337 contracts of feeder cattle F/O a decline of 78 longs. The index fund trader was net long 6,393 contracts of feeder cattle F/O a decline of 34 longs. The small spec trader was net short 4,411 contracts of feeder cattle F/O a decline of 406 shorts.

Live and feeder cattle futures ended the week with solid gains as discounts to cash, weather concerns, and ideas cash markets would improve past the New Year had accounts stepping aside from shorts in the market. This week the futures market should be a little higher early and likely fade late as many traders move to the sidelines ahead of the Christmas holiday. The market feels good to me and I think we will come back from the holidays and be able to build on the recent gains that we have seen. Beef demand will pick up past the first of the year and as outlined above we are dealing with a cattle market that is very supply friendly for the late spring and early summer timeframe. Continue to look for near term breaks in the market as buying opportunities. Look for a $.20-$.40 higher open to 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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