January 5, 2009


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

We left last week with a cash fed cattle market that trades mostly $1 higher on a live weight basis and $2-$3 higher on a dressed basis. Cattle finally began trading late Friday in the Texas panhandle at $87 live and in Kansas at $86 live and $1.36-$1.37 dressed. Cattle in Colorado brought mostly $86 on Friday and there was further trade that took place in Nebraska and Iowa at $85-$86 live and $1.37-$1.38 dressed. Movement looked moderate with the USDA reporting 80,000 head of cattle sold on Friday in their afternoon report. I will report on totals in the morning once everything is counted and reported to the government. Despite talk of beef not moving and having enough cattle inventory around, packers paid higher money for fed cattle last week on strength in the futures board and the need for cattle to fund the first full kill week of 2009. I think beef movement isn’t all that bad, at least on the end meats and ground beef. Certainly there is a problem selling ribs and certain loin items, however the rest of the complex has some demand not only from domestic retail and wholesale channels, but also from foreign buyers. I also believe we will see some better beef business for the first couple of weeks of this month and I believe this will keep the packing community needing to kill some cattle to fill those orders. There will be more cattle coming to kill starting right now due to our increase in late summer placements of yearling cattle, which will keep the market from running away to the upside, but overall we should find some support in fed cattle prices in the mid $80’s. This week will likely find another increase in showlist numbers as January contract and formula cattle are available to the market. Early week beef demand will be key to see how fed prices trade, so for right now I will call for a steady market, with possibilities of another $.50-$1 higher. Futures will play an important role as well as we could very likely see some first of the year fund buying come back to the market. Last week’s feeder cattle and slaughter cow markets were mostly $2-$4 higher on a limited test as many sales were shut down for the holidays. Now that we will get back on normal schedules we can expect to see more cattle hit the market, however I think there will be good demand for feeders to get placed into April/May, which will keep the market supported. It’s dry on southern plains wheat pastures, which is going to start to force some lightweight cattle to move early in that part of the country and this could be a price limiting factor to cattle weighing less than 700 lbs.

Cash Beef Situation and Outlook:

Last week cattle slaughter was estimated at 507,000 head, which would be 57,000 head above the week before and 25,000 head smaller then the same week a year ago. The total included a Friday kill of 126,000 head and a Saturday kill of 33,000 head. The weekly slaughter produced an estimated 396-mil lbs of beef. From Wednesday to Wednesday of last week, choice boxed beef lost $1.27 to settle at $143.19 and select boxed beef gained $.93 to settle at $135.53 on light holiday movement of 785 loads of fabricated cuts. Friday saw mostly steady prices with the choice cutout closing steady at $143.19 and the select cutout closing $.03 lower to settle at $135.50. Sales volume on Friday was very light with 144 loads of beef sold (47.06 loads of choice fab cuts, 39.84 loads of select fab cuts, 25.63 loads of trim, 31.73 loads of grinds). The choice/select spread settled at $7.69 a gain of $.03, however a loss of $2.17 for the week.

The beef market was mostly steady to lower last week with choice cutout values getting hit the most from weakness in choice ribeyes and peeled tenderloins. The rest of the complex found some support from retail for chuck, round, and ground beef items. This should continue into the first couple of weeks of January as buyers come back to restock inventories. Moving higher priced middle meats will continue to be a price limiting factor as demand for these items won’t pick back up until early spring. I would also expect to see some export business come back to the market, which will be price supportive as well. Look for a sideways to slightly higher beef market for the first part of the week.

Futures Market Situation and Outlook:

For the week, February live cattle gained $1.00 to settle at $87.10, April live cattle gained $1.90 to settle at $90.75, and the June live cattle gained $3.08 to settle at $88.00. In the feeder cattle pit for the week, January feeder cattle gained $2.78 to settle at $95.60, March feeder cattle gained $3.77 to settle at $95.52, and the April feeder cattle gained $3.45 to settle at $96.15. The reported CME feeder cattle index for 1/1/09 was $92.92 a loss of $.01 for the day and a gain of $2.61 for the week. For the week live cattle spreads posted the following changes: Feb/April lost $.90 to settle at -$3.65, April/June lost $1.17 to settle at $2.75, and June/August gained $.35 to settle at $.15. For the week in feeder cattle spreads: Jan/March lost $1.00 to settle at $.07, March/April gained $.33 to settle at -$.62, and April/May lost $.30 to settle at -$1.70.

Fridays live cattle volume saw 18,745 contracts trade in the pit and 13,140 contracts trade on Globex. Live cattle open interest gained 2,291 to come in this morning at 215,560. Friday’s feeder cattle volume saw 2,201 contracts trade in the pit and 820 contracts trade on Globex. Feeder cattle open interest gained 252 contracts to come in this morning at 20,648. For the week live cattle open interest gained 5,122 contracts and feeder cattle open interest gained 357 contracts.

Live and feeder cattle futures settled with sharp gains on Friday on first of the year fund buying and short covering linked to higher cash cattle transactions. Gains were trimmed going into the close on local and spec profit taking. Futures continue to build gains off of support levels under the market set back a couple of weeks ago and I would expect this to continue into the first couple of weeks of January. There still remains a fairly sizeable net short spec position in the market and I would expect to see new fund buying come into the market, which will eventually force those shorts to cover. I also think there will be some support from the cash markets, which will keep us targeting the mid-$90’s in the fat cattle and upper-$90’s in the feeder cattle in the coming weeks. On any early week softness in the market, Feb live cattle will find support at $85-$86 and April live cattle will find support at $88-$89. Front month feeder cattle will have support early this week at $92. Feeders took out some important resistance at $94.50 basis March on Friday, which leads me to believe that higher prices are in the cards. 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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