January 21, 2009


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

Yesterdays cash fed cattle market was untested with just a few bids surfacing in the south at $82-$83 and most feedlots priced at $87 in the south and $1.38 in the north. Last weeks market showed approximately 36,000 head of cattle sold in Texas at $84.50, 44,000 head of cattle sold in Kansas at $83-$84 live and $1.32-$1.35 dressed, and 71,000 head of cattle sold in Nebraska at $83-$83.50 live and mostly $1.35 dressed, all of which would be $.50-$1 higher on the week. Showlists are mostly larger in all feeding areas again this week except for Kansas as movement in the south was a little light and more cattle become available for market in the north. The beef market, while sharply higher all of last week and modestly higher the first couple of days this week, is going to start to drift lower as most near term buying in the market gets wrapped up. Fed cattle numbers will remain ample in the northern feeding areas of the country for another couple of weeks, which will keep rallies in the market in check, unless we see some sort of weather event or some new beef demand surfaces. With the board closing like it did yesterday we will need to see some sort of turnaround in order to stave off a lower fed cattle market for this week. The way things look right now we would have to call for a steady to $.50-$1 lower fed cattle trade for this week. Feeder cattle markets carry a mostly lower undertone early this week again, with sales such as Oklahoma City and La Junta, Colorado calling their markets mostly $1-$2 lower. Most of this weakness is being found in the bigger yearling type cattle as softness in the futures market and the inability of the fed cattle market to hold much of a rally has buyers trying to buy replacement cattle at lower money. With that said though, most of the major feeding companies remain aggressive buyers for cattle weighing 700 lbs-800 lbs as they try to fill empty pen space and get cattle placed into late spring and early summer. The sales that these guys show up at carry a mostly steady to higher undertone. There is also talk about the first of the year feeder cattle run beginning to dry up and that feeder cattle numbers will become shorter as we get into the end of January. Look for feeder cattle values to drift sideways to lower for the balance of the week.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 125,000 head, would be 1,000 head below last week and 1,000 head below the same day a year ago. Including Mondays 116,000 head slaughter the week-to-date kill now stands at 241,000 head, which would be 3,000 head behind last weeks pace with the industry looking for a 620,000 head production week. The boxed beef market was higher yesterday with the choice cutout closing $.75 higher to settle at $152.97 and the select cutout closing $.82 higher to settle at $145.67. Sales volume was light with 172 loads of beef sold (56.34 loads of choice fab cuts, 64.11 loads of select fab cuts, 10.22 loads of trim, 41.00 loads of grinds). The choice/select spread settled at $7.30 a loss of $.07.

The beef market was higher yesterday, however there were pockets of weakness beginning to show up in certain primal areas of the carcass. Discounts were beginning to surface in many items throughout the round complex as well as some weakness start5ing to develop in the loin complex. PSMO’s were the main area packers needed to offer discounts as some of the demand ahead of Valentines Day gets filled. Rib and chuck items were still trading steady to higher yesterday, however I think we could end up seeing some lower prices in ribeyes by the end of the week. Ground beef remains in very good demand and higher prices continue to be the norm there. I would start to look for cutout values to begin to drift lower by the end of the week as much of the near term demand we saw the last couple of weeks begins to wane.

Futures Market Situation and Outlook:

February live cattle settled at $82.62 a loss of $1.90, April live cattle settled at $85.35 a loss of $2.32, and June live cattle settled at $84.05 a loss of $2.15. In the feeder cattle pit, January feeder cattle settled at $93.00 a loss of $2.00, March feeder cattle settled at $91.75 a loss of $2.62, and the April feeder cattle settled at $93.50 a loss of $2.45. The reported CME feeder cattle index for 1/19/09 was $95.96 a loss of $.27. Live cattle spreads: Feb/April settled at -$2.72 a gain of $.42, April/June settled at $1.30 a loss of $.17, and June/August settled at -$.70 a loss of $.27. Feeder cattle spreads: Jan/March settled at $1.25 a gain of $.25, March/April settled at -$1.75 a loss of $.17, and April/May settled at -$1.42 a gain of $.02.

Yesterdays live cattle volume saw 25,642 contracts trade in the pit and 13,631 contracts trade on Globex. Live cattle open interest declined 2,419 contracts to come in this morning at 203,960. Yesterday’s feeder cattle volume saw 2,007 contracts trade in the pit and 992 contracts trade on Globex. Feeder cattle open interest gained 64 contracts to come in this morning at 21,226.

Cattle futures started the week on the defensive with live and feeder cattle ending yesterday’s session with sharp losses. Much of the weakness can be attributed to weakness in the equity markets and uncertainty over the banking sector. However, I think the market wasn’t very impressed with the way cattle sold in Texas late on Friday as many were expecting an $85 or better trade. Also there was some concern that the beef market is going to start to move a little lower. Technically the market does not look very good closing into new lows not seen since mid-December. $82 will now be an area that needs to hold in the Feb live cattle otherwise a test of contract lows of $80.60 will be in the cards. That same number in the April cattle comes at $85, otherwise contract lows of $82.45 will be in the cards. March feeders look like they want to go test psychological support at $90 and failing to hold that would keep downside targets of $84.20 in play. Keep an eye on the stock market because if that starts to fail again cattle will follow. 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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