December 9, 2008


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was non-existent yesterday with packer bids poorly defined and feedlot offering prices beginning the week at $89-$90 live and $1.40 plus dressed. A look at last weeks feedlot movement shows Texas/OK/NM feedlots selling 39,854 head of fed cattle (42,535 the week before) for mostly $87 live, with late sales as low as $85-$86. Kansas feedlots sold 29,005 head of fed cattle (44,080) for $85-$87 live and $1.36-$1.37 ½ dressed, Nebraska feedlots sold 41,713 head of fed cattle (62,038) for $85-$86 live and $1.36 dressed, Colorado feedlots sold 5,258 head of fed cattle (4,398) for $85 live and $1.37 dressed, and Iowa/MN feedlots sold 26,833 head of fed cattle (25,020) for $84-$85 live and $1.36-$1.37 dressed. Movement looked moderate last week, which is giving us a slightly larger showlist offering for this week in Kansas and Nebraska, while numbers for sale in Texas look to be a little smaller. The beef market still remains sluggish and as a result packers are already talking about cutting hours out of production later this week. For right now, until I see some better demand out of the beef market or we get an incredible rally on the futures board, I am going to call for a steady to $1 lower fed cattle market that trades mostly $86-$87 in the south and $1.35-$1.36 dressed in the north.

In auction market news, fed cattle selling in the upper Midwest salebarns were trading lower keeping pace with last weeks declines in the feedlot trade. Beef steers were bringing $78-$83 with the Holstein steers bringing $70-$72. Slaughter cows were lower bringing $29-$41 on the thin cows and $42-$46 on the fat cows. Oklahoma City had approximately 14,000 head of feeder cattle on offer yesterday with that market being called $1-$3 lower early in the day and moving to $1 lower late with the rally on the futures board. The majority of the 500 lbs steers in OKC yesterday were bringing $93-$103, the 600 lbs and 700 lbs steers were bringing $87-$93, and the 800 lbs steers were bringing $83-$90. I would look for continued weakness in the feeder cattle until midweek depending on what the futures board does.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 127,000 head, which would be 7,000 head above the same day a week ago and 2,000 head below the same day a year ago. The industry will be looking for a 620,000 head production week. The boxed beef market was mixed yesterday with the choice cutout closing $.87 higher to settle at $144.02 and the select cutout closing $.99 lower to settle at $135.01. Sales volume was light with 259 loads of beef sold (93.70 loads of choice fab cuts, 91.33 loads of select fab cuts, 13.30 loads of trim, 60.50 loads of grinds). The choice/select spread settled at $9.01 a gain of $1.86.

The beef market was mostly lower yesterday again yesterday with just a few pockets of strength being noted in the choice/select/no-roll chuck roll market. The rest of the complex looked to be under pressure, especially in items like ribeyes, knuckles, inside rounds, and short loins as retail demand for said cuts remains sluggish. Coarse ground markets were under pressure from last week as well as consumer pulls of ground beef over the weekend were slow. Yesterdays boneless beef markets were for the most part steady with very little activity, however with weakness in ground beef sales, one would have to assume that boneless markets would be under pressure towards the middle of the week as well. Imported beef markets were higher yesterday as a lack of product from overseas and recent strength in the U.S. dollar had importers bidding higher on foreign product. I will continue to look for a softer undertone to the cash beef market until at least late in the week.

Futures Market Situation and Outlook:

December live cattle settled at $83.10 a gain of $1.55, February live cattle settled at $82.67 a gain of $1.22, and the April live cattle settled at $84.80 a gain of $1.42. In the feeder cattle pit, January feeder cattle settled at $87.90 a gain of $1.25, March feeder cattle settled at $86.92 a gain of $1.65, and the April feeder cattle settled at $87.92 a gain of $1.52. The reported CME feeder cattle index for 12/5/08 was $89.78 a loss of $1.39.

Yesterdays live cattle volume saw 23,671 contracts trade in the pit and 8,491 contracts trade on Globex. Live cattle open interest gained 1,954 contracts to come in this morning at 211,420. Yesterday’s feeder cattle volume saw 3,746 contracts trade in the pit and 1,018 contracts trade on Globex. Feeder cattle open interest gained 221 contracts to come in this morning at 20,882.

Live and feeder cattle futures opened sharply higher yesterday and were able to hold onto most of those gains going into the close as ideas the market was oversold and too discount to the current cash market along with higher equity and outside commodity markets all combined for the higher trade. Yesterday was first notice day for December live cattle with no deliveries posted against the front month contract. This morning we find stock futures marginally lower along with some of the other commodity markets, which could give us a softer open to live and feeder cattle futures. Options’ trading was rather quiet yesterday with an even mix of calls and puts trading and no real feature throughout the day. Option volatility did increase again with most Feb at the money volatility trading around 28% and April and June vol trading around 25%-26%. There is probably some opportunity there, whether you are bullish or bearish to sell some slightly out of the money calls or puts and cover them with futures to take advantage of the volatility increase. The futures market could see some further strength this week as front month contracts narrow the basis between cash. There are some gaps left underneath the market from yesterday’s higher open that could be filled today at $82.50 in the Dec and $82.30 in the Feb. Otherwise there will be support at Friday’s lows of $80.65 in Dec, $80.60 in the Feb, and $85.45 in the Jan feeders. Resistance for today will be encountered at $83.70 in Dec live, $83.60 in Feb live, and $89.50 in Jan feeders. Look 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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