January 6, 2009


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was untested yesterday with no packer bids being posted and feedlot offering prices beginning the week at $89-90 live and $1.40 plus dressed. A look at last weeks trade shows Texas/OK/NM feedlots selling 30,154 head of fed cattle (27,793 previous week) for $87 live. Kansas feedlots sold 30,487 head of fed cattle (36,927) for $86 live and $1.36-$1.37 dressed. Nebraska feedlots sold 54,076 head of fed cattle (64,671) for $85-$86 live and $1.38 dressed. Colorado feedlots sold 5,730 head of fed cattle (8,665) for $86 live and $1.35-$1.36 dressed. And Iowa/MN feedlots sold 20,387 head of fed cattle (25,462) for $86 live and $1.37 dressed. Compared to the week prior and the corresponding showlist numbers, movement looked pretty good in the south and moderate in the north, which is giving us a larger offering of cattle in the north (i.e. +20,000 head) and mostly steady to a couple thousand head smaller in the south. This would make some sense as the north is where we placed the majority of our bigger grass cattle late this summer and this is where we will see showlist numbers increase for the next several weeks. This is also likely to keep northern basis under a little pressure and keep premiums for fed cattle skewed to the south. This week’s cash fed cattle market still looks positive with higher settlements in both the futures and boxed beef markets yesterday. There seems to be some fill-in beef business after the holiday’s, which will keep packers in the market for fed cattle to process. I think we could see a mostly steady to possibly $.50-$1 higher trade by late week at $87-$88 in the south and $1.36-$1.39 dressed in the north. Rallies in the cash fat cattle market will be kept in check throughout the course of the next several weeks as fed numbers become more plentiful in the north, however an expected increase in domestic and foreign beef demand should keep support in the mid-$80’s viable.

Yesterday’s salebarn trade of cattle saw mostly higher prices with fed cattle bringing $1 higher on the beef cattle at $83-$86 and $71-$75 on the Holsteins. Slaughter cows were steady to instances of $1 lower at $35-$45 on the cutter and boning utility cows and $48-$53 on the breakers and white cows. Feeder cattle sales however begin the week solidly higher with Oklahoma City calling their market $4-$7 higher on the bigger cattle and $5-$10 higher on the calves with buyer demand on all classes of cattle called very good. The bulk of the 500 lbs steer calves in OKC yesterday brought $100-$116, the 6 weight steers brought $94-$104, the 7 weight steers brought $94-$99, and the 8 weight steers brought $92-$97. Due to reduced 4th quarter placements into the nation’s feedlots, there remains plenty of empty pen space and what many perceive as a growing marketing hole in late March through early June. Buyers are actively beginning to seek bigger feeders that will place into that marketing timeframe and as such we can expect to see continued strength in the cash feeder cattle market so long as the cash fat cattle or fed cattle board doesn’t fall apart.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 122,000 head, which would be 3,000 head below last week and 10,000 head above the same day a year ago. Last Saturday’s kill was revised up to 37,000 head, which will give us a new weekly total of 511,000 head for last week, with the industry looking for a 620,000 head production week for this week. The boxed beef market was higher yesterday with the choice cutout closing $1.78 higher to settle at $144.97 and the select cutout closing $.14 higher to settle at $135.64. Sales volume was light with 258 loads of beef sold (86.11 loads of choice fab cuts, 90.44 loads of select fab cuts, 16.68 loads of trim, 64.38 loads of grinds). The choice/select spread settled at $9.34 a gain of $1.64.

The New Year brought a mostly steady to higher tone to the cash beef market yesterday with most strength again biased towards the procurement of end meats. Retail and wholesale buyers were actively seeking chuck and round items along with ground beef product to fill inventory levels after the last two weeks of holiday production disruptions. After several sessions of discounting in choice and select ribeyes and peeled tenderloins, there at least seemed to be a reprieve in lower prices on these items, which also lent support to cutout values. It has also been rumored that there are some foreign interests shopping around for beef lending support as well. Boneless beef markets were a tick higher in both the 50’s and 90’s yesterday on renewed demand from the processing sector. Imported items like boneless bull and cow beef looked to be just a little lower yesterday. It seems like we could see a little strength in the beef market early this week as buyers come back to get inventory levels in comfortable shape. This should help to support cutout values into late week.

Futures Market Situation and Outlook:

February live cattle settled at $87.55 a gain of $.45, April live cattle settled at $90.40 a loss of $.35, and the June live cattle settled at $87.92 a loss of $.07. In the feeder cattle pit, January feeder cattle settled at $97.00 a gain of $1.40, March feeder cattle settled at $96.72 a gain of $1.20, and the April feeder cattle settled at $97.45 a gain of $1.30. The reported CME feeder cattle index for 1/2/09 was $94.52 a gain of $1.60. Live cattle spreads: Feb/April settled at -$2.85 a gain of $.80, April/June settled at $2.47 a loss of $.27, and the June/August settled at $.10 a loss of $.05. Feeder cattle spreads: Jan/March settled at $.27 a gain of $.20, March/April settled at -$.72 a loss of $.10, and April/May settled at -$1.55 a gain of $.15.

Yesterdays live cattle volume saw 20,435 contracts trade in the pit and 8,186 contracts trade on Globex. Live cattle open interest declined 120 contracts to come in this morning at 215,430. Yesterday’s feeder cattle volume saw 2,616 contracts trade in the pit and 803 contracts trade on Globex. Feeder cattle open interest gained 194 contracts to come in this morning at 20,816.

The latest commitment of traders report showed the small funds net short 14,948 contracts of live cattle futures a decline of 138 shorts. The commercials were net short 61,345 contracts of live cattle an increase of 1,715 shorts. The index funds were net long 98,457 contracts of live cattle futures an increase of 450 longs. The small speculators were net short 22,164 contracts of live cattle a decline of 1,114 shorts. In the feeder cattle, small funds were net short 2,855 contracts of feeder cattle a decrease of 530 shorts. The commercial traders were net long 892 contracts of feeder cattle a decrease of 621 longs. The index funds were net long 6,791 contracts of feeder cattle an increase of 125 longs. The small speculator was net short 4,828 contracts of feeder cattle an increase of 34 shorts.

Live cattle settled mixed yesterday with the feeder cattle market closing with solid gains as further short covering and cash strength unfolds in the market. Technically, Feb and April live cattle futures have had a tough time getting through overhead resistance at $88 and $91 respectively. This morning could be a different story though as overnight Globex futures are aggressively challenging those resistance levels. Feeder cattle and June forward live cattle futures have taken out their corresponding resistance areas already last week and it looks as though front month Feb and April could do it today. Feeder cattle especially look like they could attain upside price targets of $101-$103, as not only do we have strong cash strength behind the feeder cattle market, but we have a very positive technical picture and still a big net short spec position in the market. I think some of the same can be said for live cattle futures, as I believe we can see some moderate cash strength in the next couple of weeks, but more importantly we have a big spec short position in the market that I think will eventually come out and we are going to have hedgers that want to sell the market another couple of dollars higher from where we are at now. Here again though, I don’t know if the market will go straight up from here, as we will have the “Goldman Roll” starting on Thursday along with some index fund rebalancing, which could give us a quick break, however in the medium term I think higher futures prices are in the cards and would want to be a buyer of breaks and hold off on hedges for the time being. Look for a $.20-$.40 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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