December 31, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was untested again yesterday with only a few token packer bids of $83 going unmatched against feedlot offering prices of $88-$89 live and $1.38-$1.40 dressed. We could see a few short bought packers move bids closer to asking prices as soon as today, however it seems as though participants are going to try and hold out until Friday before trading any cattle. As mentioned earlier in the week, showlists are a little larger in the south as trade volume in that part of the country was rather light last week. But with that said, packers in that part of the country are also getting short on inventory and fed cattle numbers in that part of the country overall are by far burdensome. Packers will be buying for a full kill week next week and I still think there will be some meat business done after the first of the year, which leads me to believe they will want to own some cattle and at least keep the market steady. There will be a few more cattle ready for market in the north in the coming weeks, but the weather is forecast to get pretty nasty in that part of the country by the second week of January, which I think will be a supportive factor as well. For the balance of this week I will still call for a steady/$.50-$1 higher fed cattle trade. Fed cattle, slaughter cows, and feeder cattle selling through limited auction market schedules continue to bring mostly $1-$2 higher money and this should remain the case into early next week.

Cash Beef Situation and Outlook:

Yesterday’s cattle slaughter was estimated at 128,000 head, which would be 4,000 head above last week and 128,000 head above the same day a year ago. The week-to-date kill now stands at 253,000 head, which would be 5,000 head above the same period a week ago, with the industry looking for a 500,000 head production week. The boxed beef market was lower yesterday with the choice cutout closing $.75 lower to settle at $143.42 and the select cutout closing $.37 lower to settle at $135.40. Sales volume was good yesterday with 338 loads of beef sold (125.94 loads of choice fab cuts, 103.06 loads of select fab cuts, 52.25 loads of trim, 56.78 loads of grinds). The choice/select spread settled at $8.02 a loss of $.38.

The beef market was lower yesterday as packers continue to search for a clearing level on rib cuts and peeled tenderloins. Most cuts in the chuck and round primals were either trading slightly higher or holding steady. There was some strength noted in the short loins and strip loins yesterday along with top butts. Coarse ground beef markets found decent retail and wholesale buying interest again yesterday with higher prices being the end result. Boneless beef markets were quite a bit higher as well with most strength being linked to delivery dates immediately after the holidays. The beef should continue to find some support from active buying interest in end meats, ground beef, and boneless beef into the first of January.

Futures Market Situation and Outlook:

December live cattle settled at $85.87 a loss of $.10, February live cattle settled at $85.90 a loss of $.30, and the April live cattle settled at $89.40 a gain of $.05. In the feeder cattle pit, January feeder cattle settled at $93.97 a gain of $.52, March feeder cattle settled at $93.82 a gain of $.97, and the April feeder cattle settled at $94.75 a gain of $.87. The reported CME feeder cattle index for 12/29/08 was $90.45 a loss of $.85. Live cattle spreads: Dec/Feb settled at -$.02 a gain of $.20, Feb/April settled at -$3.50 a loss of $.35, and April/June settled at $3.42 a loss of $.02. Feeder cattle spreads: Jan/March settled at $.15 a loss of $.45, March/April settled at -$.92 a gain of $.10, and April/May settled at -$1.05 a gain of $.37.

Yesterdays live cattle volume saw 12,157 contracts trade in the pit and 7,174 contracts trade on Globex. Live cattle open interest gained 407 to come in this morning at 211,365. Yesterday’s feeder cattle volume saw 1,862 contracts trade in the pit and 661 contracts trade on Globex. Feeder cattle open interest gained 188 contracts to come in this morning at 20,379.

The live cattle futures were pretty choppy yesterday as the market opened higher as expected, broke early, rallied during midsession, and broke late into the close on profit taking. Feeders acted good all day long and managed to hold most of their gains going into the close and were being bid up on Globex after the pit closed. It was another low volume session yesterday, and this will likely be the case both today and Friday as many traders will be out due to the holiday. Keep in mind we will be open regular hours both today and Friday as well. There were no new deliveries against December live cattle and keep in mind here too that Dec will go off the board at noon today. Overnight the Mexican government cleared 5 more U.S. plants for import. Today will be the last trading day of the month and the year, so with the light volume we will need to be careful of exaggerated moves in either direction as both the bulls and bears try to keep their positions in line. I still think there is some upside in cattle futures and want to be a buyer on breaks. Feb and April cattle should be able to find some support at $85 and $88 respectively for the balance of this week. Resistance for both of these contracts will be found at last weeks highs of $88.50 in Feb and $91.00 in April. In the feeder cattle March will continue to find buyer support at $92 and resistance between $94-$94.60. We are right up against that resistance now so the market could drift lower; however I have been very impressed with the buying that has come in on the screen the last couple of days (feels like a fund or funds covering shorts) and would expect this buying to continue into the New Year. If March feeders can close above $94.70, I would expect them to run up to the $100 area, and this would drag fat cattle along with them. Look for a mixed open to live and feeder cattle futures this morning (i.e. $.10 higher to $.10 lower). Everyone Have a Happy New Year!!! 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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