January 22, 2009


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market turned moderately active in the north yesterday with sales running generally $1-$3 lower when compared to last week. The USDA was reporting 7,400 head of cattle sold in Nebraska at $81-$82 live and $1.32 dressed and 9,600 head of cattle sold in Colorado at $82.50 live and $1.32 dressed. Packers in Texas and Kansas were bidding $81-$82 with most feedlots opting to pass on those bids. Lower cattle futures and boxed beef markets were the catalysts for the lower trade yesterday, and it now looks like the southern trade will inevitably take place at $82-$83. Fat cattle at the Sioux Falls, SD auction market were also being marked about $1 lower yesterday with the beef fats bringing $80-$82 and the Holstein fats bringing $69-$72. Slaughter cow markets are firm by $1-$2 this week with the majority of the cutter and boning utility cows bringing $43-$48 and the breakers and whites bringing $48-$56. Most feeder cattle sales around the country are turning $1-$3 lower results. Sales like El Reno, OK and Dodge City, KS were calling their market that way yesterday with the majority of the 600 lbs to 800 lbs steer cattle bringing $88-$99. The fed cattle market is dragging the feeder cattle market lower as we get into the last half of January. Boxed beef values are expected to drift down to the mid-$1.40’s basis the choice cutout, which should begin to support cash fed cattle values at current price levels, given that packers are currently making $35-$40 per head. Much of this break has already been priced into the futures and this week’s cash market, which should mean that we could find some support down here for a week or two until we see what kind of demand develops into the first of February. Cash feeder cattle values could have a little more to loose, however the board has already priced in a lower $90’s CME feeder index with yesterdays price action. Cows should find some support at current price levels as there is very good demand for ground beef right now and imports from overseas are down due to production cutbacks in South America and Australia.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 123,000 head, which would be 11,000 head below last week and 6,000 head below the same day a year ago. The week-to-date kill now stands at 364,000 head, which would be 7,000 head below the same period a week ago with the industry looking for a 620,000 head production week. The boxed beef market was lower with the choice cutout closing $1.22 lower to settle at $151.75 and the select cutout closing $1.15 lower to settle at $144.52. Sales volume was good with 375 loads of beef sold (137.13 loads of choice fab cuts, 140.97 loads of select fab cuts, 15.27 loads of trim, 81.61 loads of grinds). The choice/select spread settled at $7.23 a loss of $.07.

The beef market was under pressure yesterday with price discounts now showing up in all major primal areas of the beef carcass. We talked the last several weeks about how most major retail and wholesale buyers were hand to mouth in their purchases and due to the production cutbacks through the holidays were forced to pay up for product to get their inventory positions back into comfortable levels. Most of that buying has been completed as of late last week, and now many of the major buyers of boxed beef have moved to the sidelines looking for opportunities in the marketplace. This had packinghouse meat salesmen offering ribeyes, chuck rolls, knuckles, and peeled tenders along with many other items throughout the beef carcass at lower money. It appears as though some of the export business we saw the last couple of weeks might have been sufficed as well with chuck rolls and short ribs becoming more available in the marketplace. Ground beef demand remains very robust at the retail level and in many instances demand outweighs availability of product. With packer margins in such good shape I would imagine they will want to take advantage of the current situation and overkill for current demand. I will continue to look for a lower trend to the boxed beef market into the end of the month, with choice cutout values targeting the $1.45-$1.48 area in coming weeks.

Futures Market Situation and Outlook:

February live cattle settled at $82.35 a loss of $.27, April live cattle settled at $85.20 a loss of $.15, and the June live cattle settled at $84.10 a gain of $.05. In the feeder cattle pit, January feeder cattle settled at $92.87 a loss of $.12, March feeder cattle settled at $91.35 a loss of $.40, and the April feeder cattle settled at $92.80 a loss of $.70. The reported CME feeder cattle index for 1/20/09 was $95.98 a gain of $.02. Live cattle spreads: Feb/April settled at -$2.85 a loss of $.12, April/June settled at $1.10 a loss of $.20, June/August settled at -$.72 a loss of $.02. Feeder cattle spreads: Jan/March settled at $1.52 a gain of $.27, March/April settled at -$1.45 a gain of $.30, April/May settled at -$1.90 a loss of $.47.

Yesterdays live cattle volume saw 21,553 contracts trade in the pit and 14,332 contracts trade on Globex. Live cattle open interest gained 3,070 contracts to come in this morning at 205,110. Yesterday’s feeder cattle volume saw 3,266 contracts trade in the pit and 1,808 contracts trade on Globex. Feeder cattle open interest gained 71 contracts to come in this morning at 21,263.

The futures market was under pressure again yesterday early in the session with technical selling flourishing linked to lower stock markets and the pricing of lower cash cattle markets for this week. We did manage to find some support around midsession as declines in the equity markets abated and hedge lifting came into the market as feedlots in the north began to sell cattle. Contract lows of $80.60 in the Feb live and $82.45 in April live are now a stones through away and one would have to assume that we will be down challenging those lows by early next week given all the negativity in the marketplace. Feeder cattle might have done their job to the downside for a minute with the March contract getting into the $90.50 area early in the session, which is pricing a $5.00 break in the CME index by the first of Feb. The cattle futures market will continue to be ultra sensitive to moves in the equity markets and we will have to see if the late rally in the Dow holds for a day or two. We have a lower cash market priced in for this week, so this along with squaring of positions ahead of this Friday’s cattle on feed report might stem some of the recent selling. Estimates for the report are on feed Dec 1, 93.9%, placed during December, 100.1%, and marketed during December, 99.3%. For the balance of this week, keep an eye on the above mentioned contract lows in Feb and April live cattle and the $90 area in March feeder cattle. Violating any of those price levels on the downside by Friday would open the door for another leg down in prices starting next week, unless we get a wildly bullish report Friday afternoon. Look for a $.10-$.30 higher 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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