December 4, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We started to see a few cattle begin to trade in the north and south yesterday at $3-$5 lower money, however volume was very light and it wasn’t enough to establish a market but the trend is definitely lower when compared to last week. A few thousand head of fed cattle exchanged hands in Texas and Kansas at $87 live and a few thousand head of cattle traded in Nebraska and Iowa at $1.37-$1.38 dressed. Falling futures prices, which is providing an opportune basis level on hedged cattle and faltering boxed beef prices along with packers getting serious about cutting kills are all combining to pressure the cash fed cattle market this week. As mentioned earlier in the week an increase in December contract and formula cattle is also giving packer buyer’s leverage in this week’s price negotiation. I would look for a more active trade to develop by later today in all areas of cattle feeding country at the above mentioned prices.

In auction market news, fed cattle selling through the Sioux Falls, SD market yesterday were being called steady to $1 lower as well with the beef fats bringing $80-$84 and the Holsteins bringing $69-$72. Slaughter cows were steady to as much as $4 higher on the lean cows with prices ranging between $36-$43 on the cutters and boners and $43-$48 on the fat cows. Surprisingly feeder cattle markets are holding up fairly well this week with many sales such as Kearney, NE and Torrington, WY calling their markets $2-$4 higher. Demand is reportedly very good for 5 weight steer calves that can be grazed or backgrounded through the winter. 500 lbs steers in Torrington yesterday were bringing $96-$115 and the 600 lbs steers were bringing $88-$96. Kearney had a decent run of yearling cattle with the 7 weight steers bringing $90-$99 and the 8 weight steers bringing $90-$95.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 113,000 head, which would be 14,000 head below last week and 17,000 head below the same day a year ago. The week-to-date kill now stands at 359,000 head, which would be 25,000 head below the same period a week ago with the industry looking for a 625,000 head production week. The boxed beef market was lower yesterday with the choice cutout closing down $2.66 to settle at $148.75 and the select cutout closing down $2.26 to settle at $138.40. Sales volume was light moderate with 338 loads of beef sold (102.38 loads of choice fab cuts, 121.29 loads of select fab cuts, 53.93 loads of trim, 60.78 loads of grinds). The choice/select spread settled at $10.35 a loss of $.40.

The beef was under pressure yesterday on a lack of domestic and international demand. Sharp discounts were being offered by packers in choice ribeyes, short ribs, boneless strips, and peeled tenders. Many other cuts throughout the beef carcass were being discounted yesterday as well, however not to the degree of above-mentioned items. Lower priced items such as coarse ground beef markets were being discounted as well. Boneless beef markets were mixed once again with moderate strength in the fed cattle 50’s and mostly steady on the boneless cow 90’s. Consumer pulls at most retail and wholesale chains have been lackluster this week, which has most of these buyers on the sidelines waiting for a better demand scenario to develop before committing to further purchases. This will likely keep the beef market under pressure until sometime next week when production cutbacks from this week kick in to support the market. Export sales for the week of November 21-27, 2008 are as follows:

Beef: Net sales of 3,800 MT resulted as increases for Mexico (3,100 MT) and Canada (700 MT), were partially offset by decreases for Japan (700 MT). Net Sales of 700 MT for delivery in 2009 resulted as increases for Vietnam (500 MT), Mexico (200 MT), and Canada (100 MT), were partially offset by decreases for Japan (100 MT). Exports of 6,100 MT were mainly to Mexico (2,800 MT), Canada (1,100 MT), Japan (800 MT), South Korea (600 MT), and Vietnam (400 MT).

Futures Market Situation and Outlook:

December live cattle settled at $83.82 a loss of $.52, February live cattle settled at $84.07 a loss of $.87, and the April live cattle settled at $86.05 a loss of $.47. In the feeder cattle pit, January feeder cattle settled at $88.35 a loss of $.65, March feeder cattle settled at $88.05 a loss of $1.05, and the April feeder cattle settled at $89.25 a loss of $.72. The reported CME feeder cattle index for 12/1/08 was $92.29 a loss of $2.06.

Yesterdays live cattle volume saw 23,642 trade in the pit and 9,261 contracts trade on Globex. Live cattle open interest gained 1,463 contracts to come in this morning at 214,837. Yesterday’s feeder cattle volume saw 2,037 contracts trade in the pit and 1,595 contracts trade on Globex. Feeder cattle open interest gained 252 contracts to come in this morning at 20,544.

It was the same old story in the cattle futures market yesterday as an early session rally faded midsession on weakness linked to the sell off in the equity markets. There were some fundamental factors at play yesterday as well, with lower cash fed cattle markets and lower boxed beef markets adding to the sell pressure. Option trading was rather quiet yesterday with the biggest feature of the day being the sales of February live cattle $84, $82, and $79 puts. Option volatility continues to run high with Feb atm vol @25% and April atm money vol @23.5%. Technically, the futures market continues to breakdown on any rally attempts on spec selling. Live cattle futures will be down testing contract lows at $83 in the December and $83.80 in the Feb. A close below these levels by Friday would open the door to the upper $70’s to lower $80’s. January feeder cattle contract lows are $87.80 and the March feeder cattle actually closed on a new contract low yesterday at $88.05. Here too, unless we can come back and close back above these levels by tomorrow, the market would appear to be heading down to the lower to mid $80’s in my opinion. Once we get the bulk of this weeks fed cattle trade behind us we could see a round of hedge lifting and short covering, which could help to support the market. Overnight equity futures are lower again so we will call for a $.10-$.20 lower 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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