January 12, 2009


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We left last week with a fed cattle market that trades mostly $3-$5 lower with the bulk of business being done on Thursday. Texas feedlots reported selling 31,614 head of fed cattle for $84, Kansas yards sold 25,603 head of fed cattle for $84 live and $131.50 dressed, Nebraska feedlots sold 48,583 head of fed cattle for $83 live and $1.33-$1.35 dressed, Colorado feedlots sold 6,324 head of fed cattle for $83 live and $1.33 dressed, and Iowa feedlots sold 18,399 head of fed cattle for $83 live and $1.33-$1.35 dressed. Friday saw some light cleanup trade of 2,500-5,000 head apiece in Kansas, Nebraska, Iowa, and Colorado at prices steady with Thursday. Lower futures prices linked to fund liquidation and spec/technical selling forced cattle feeders to accept lower money for their live inventory last week. Compared to a couple weeks ago, feeder cattle markets were $4-$10 higher as we saw our first true test of the market since the holiday’s. Cattle feeders came back from the holiday break and actively pursued cattle to fill empty pens and fill what many perceive to be a marketing hole of fed cattle by late April/May. Last weeks slaughter cow market was mixed, $1 higher to $1 lower depending on what part of the country you were in. Looking into this week, we will have to see if the futures board can stabilize to keep the fed cattle market from moving any lower. Packers say they came out of last week with beef inventories that are very manageable after offering deep discounts on items that wouldn’t move and eventually getting said items sold. There will likely be more cattle offered for sale again this week in the north, however the weather in that part of the country isn’t going to be very good. The fed cattle market will likely trade on the defensive early with the possibility of prices firming late. The big feeding companies were very aggressive in feeder cattle procurement last week and I would expect to see more of the same this week. Slaughter cows should find some support this week, as winter weather in the northern plains will hamper livestock movement.

Cash Beef Situation and Outlook:

Last weeks cattle slaughter was estimated at 601,000 head, which included a Friday kill of 114,000 head and a Saturday kill of 9,000 head. The weekly slaughter was 90,000 head above the previous week and 33,000 head below the same week a year ago and produced an estimated 470-mil lbs of beef. Year-to-date beef production is running 27% below last year at 597 mil lbs with ytd cattle slaughter running 28% below last year at 764,000 head. From Friday to Thursday of last week choice boxed beef gained $.56 to settle at $143.75 and select boxed beef gained $1.26 to settle at $136.76 on increased movement of 1,181 loads of fabricated cuts sold. Friday saw further gains in the beef market with the choice cutout closing $1.73 higher to settle at $145.48 and the select cutout closing $.99 higher to settle at $137.75. Sales volume on Friday was light with 223 loads of beef sold (77.34 loads of choice fab cuts, 74.75 loads of select fab cuts, 33.43 loads of trim, 37.79 loads of grinds). The choice/select spread settled at $7.73 a gain of $.74 for the day and $.04 for the week.

Packers came into last week with push lists consisting of ribeyes, short loins, and peeled tenderloins that they needed to move. By Wednesday they had offered deep price reductions on said items and by Friday had most of the burdensome inventory cleared. End meats moved very well all of last week on good demand from retail and wholesale buyers along with grinders. Ground beef demand is very strong right now, and as a result we saw higher prices and very good movement all last week in the coarse ground market, so much so that grinders were buying two-piece and boneless chucks to put into the grind to suffice demand. The increased demand from the grinding sector also supported 90% cow beef and 50% fed cattle trim values. There was also said to be some light export demand supporting chuck roll and short rib values. I would look for a mostly steady beef market early this week as manageable inventories of beef to sell and reduced production schedules last week has packers optimistic towards the beef market coming into this week. There is talk that there will be active steak features going into Valentines Day, which along with sharply lower price levels on ribeyes, strip loins, and short loins the last several weeks, was thought to be price supportive.

Futures Market Situation and Outlook:

For the week, February live cattle lost $4.00 to settle at $83.10, April live cattle lost $3.93 to settle at $86.82, and the June live cattle lost $2.30 to settle at $85.70. In the feeder cattle pit for the week, January feeder cattle lost $1.50 to settle at $94.10, March feeder cattle lost $2.85 to settle at $92.67, and the April feeder cattle lost $2.15 to settle at $94.00. The reported CME feeder cattle index for 1/8/09 was $96.52 a gain of $.09 for the day and $3.60 for the week. For the week in live cattle spreads: Feb/April lost $.07 to settle at -$3.72, April/June lost $1.63 to settle at $1.12, and June/August lost $1.15 to settle at -$1.00. For the week in feeder cattle spreads: Jan/March gained $1.35 to settle at $1.42, March/April lost $.67 to settle at -$1.32, and April/May gained $.10 to settle at -$1.60.

Fridays live cattle volume saw 37,939 contracts trade in the pit and 16,227 contracts trade on Globex. Live cattle open interest declined 1,695 contracts to come in this morning at 208,318. Friday’s feeder cattle volume saw 2,075 contracts trade in the pit and 567 contracts trade on Globex. Feeder cattle open interest declined 1 contract to come in this morning at 20,591. For the week live cattle open interest declined 7,232 and feeder cattle open interest declined 31.

The latest commitment of traders report for business through last Tuesday showed in live cattle that small funds were net short 10,482 a decline of 4,466 shorts. Commercial traders were net short 68,555 contracts of live cattle a gain of 7,211 shorts. Index fund traders were net long 100,332 contracts of live cattle a gain of 1,705 contracts. Small spec traders were net short 21,125 contracts of live cattle a decline of 1,039 contracts. In the feeder cattle, small funds were net short 2,655 a decline of 199 shorts. Commercial traders were net long 421 contracts of feeder cattle a decline of 471 shorts. Index fund traders were net long 6,467 contracts of feeder cattle a decline of 324 longs. Small spec traders were net short 4,233 contracts of feeder cattle a decline of 596 shorts.

Last weeks futures market was plagued by long profit taking after the recent rally in prices, technical selling, and index fund liquidation. This forced cash fed cattle prices lower on the week and we will need to see some stability in the futures by midweek this week in order to stave off further losses in the cash market. The USDA released final production and carryout numbers for grains this morning and the numbers look pretty bearish for corn, beans, and wheat as quarterly grain stocks and 08/09 carryout projections were all well above pre-report estimates. On the meat numbers, USDA lowered 08 beef production 30 mil lbs and left 09 production numbers alone at 26.642 bil lbs. The USDA also raised 08 beef imports 30 mil lbs and raised 09 imports 85 mil lbs on strength in the U.S. dollar. The USDA raised 08 exports 15 mil lbs to 1.875 bil and left 09 exports alone at 1.920 bil. 2009 Pork production was lowered 90 mil lbs and 09 poultry production was lowered 198 mil lbs reflecting recent liquidation in those markets. The USDA numbers paint some optimism towards meat markets for 2009, so long as we can see some recovery in U.S. and world economies. This morning, outside commodity markets are all lower and they are calling corn and wheat down $.10-$.15 and beans down $.20-$.25 on the open. This likely won’t bode well for live and feeder cattle futures on the open either and I would look for cattle to be lower on the open and most of the day today in sympathy with other commodity markets. First weekly support for Feb live cattle will be found at $81, April live at $85, and March feeders at $90.50. Feeder cattle should find the most support this week as there remains good support for cash feeders in the country. Live cattle futures will likely be under pressure early this week as the market prices a lower fed cattle trade for this week and waits to see how early week beef demand plays out. Look for a $.10-$.30 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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