January 8, 2009


Good Morning from the Chicago Board of Trade,

Cash Cattle Situation and Outlook:

The cash fed cattle market was at a standstill again yesterday as packers continue to not be interested in bidding on cattle, although there were a few light dressed bids of $1.35-$1.36 in the northern tier of feeding states. Feeders remain priced at $89-$90 live in the south and $1.40 dressed in the north. Yesterday morning I wrote that we should be able to hold the cash market steady this week for various reasons, barring any kind of sharp sell off on the futures board. Well, we got the sharp sell off, and now it looks as though steady might be a victory for cattle feeders, with $.50-$1 lower now likely in the cards. Talk of production cutbacks came to fruition in a big way yesterday with the daily kill being estimated at 107,000 head. It appears as though some of this near term quick ship business for beef could be getting satisfied and interest going into next week is starting to wane. This type of market sentiment along with lower settlements on the futures board is likely going to be a price limiting factor for the cattle market late this week and early next. Again though, I would view this as a temporary situation as I think the fundamentals of the fed cattle market are such to support a cash fed cattle trade in the mid-upper $80’s through January and lower to mid $90’s by the end of February.

The salebarn trade of cattle continues to be higher with fat cattle in Sioux Falls, SD yesterday bringing $84-$85 on the beef steers and $70-$73 on the Holstein steers. Slaughter cows in Sioux Falls were bringing $42-$49 with a couple of big white cows bringing up to $68. Feeder cattle sales continue to turn in higher results with El Reno, OK calling their sale $4-$7 higher on continued good buyer demand, especially on bigger cattle that will finish by late spring. 500 lbs steers in El Reno yesterday were bringing $104-$116, 600 lbs steers were bringing $94-$104, 700 lbs steers were bringing $93-$98, and 800 lbs steers were bringing $88-$98.

Cash Beef Situation and Outlook:

Yesterdays kill was estimated at 107,000 head, which would be 12,000 head below last week and 13,000 head below the same day a year ago. The week-to-date kill now stands at 352,000 head, which would be 4,000 head above the same period a week ago with the industry looking for a 620,000 head production week. The boxed beef market was lower yesterday with the choice cutout closing $1.31 lower to settle at $143.49 and the select cutout closing $.01 lower to settle at $136.24. Sales volume was very good with 547 loads of beef sold (235.93 loads of choice fab cuts, 161.14 loads of select fab cuts, 40.30 loads of trim, 109.31 loads of grinds). The choice/select spread settled at $7.25 a loss of $1.30.

The beef market was mostly lower yesterday as the last several days of lower ribeye and PSMO prices were being factored into cutout values. Packers purged some backlogged inventory yesterday by offering discounts on ribeyes, short loins, top butts, and peeled tenderloins. This strategy worked as we saw very good sales volume of 547 loads of beef sold with the majority of the increased trading volume comprised of the above mentioned cuts. We also saw increased loads counts along with higher price levels on coarse ground beef. For the most part chuck and round cuts were individually trading $.02-$.05 higher yesterday as there is still retail demand for many of these items. Boneless beef items were trading higher yesterday, especially the 50% fed cattle trim, as yesterdays reduced slaughter and intentions for more of the same into the end of the week had the processing sector of the market scrambling to get some product around them. Talk of further slaughter reductions into early next week should be a supporting factor to cutout values by early next week. Good support should be found on choice cutout values at $1.40 and select cutout values at $1.34-$1.35, give or take a couple of dollars. Beef exports for the week of December 26, 2008-January 1, 2009 are as follows:
Beef: Net sales reductions of 1,000 MT reported for 2009 marketing year (which began Jan 1.) were mainly for Mexico (400 MT), Taiwan (100 MT), and Peru (100 MT). A total of 16,600 MT were outstanding on Dec. 31 and carried over to the 2009 marketing year. Exports of 7,200 MT reported for Dec. 26-31, were mainly for Mexico (3,500 MT) and South Korea (1,700 MT). Accumulated exports for 2008 of 506,900 MT were up 28 percent from the 397,400 MT exported during the previous year. Exports of 300 MT for Jan. 1 were for Mexico (200 MT) and Canada (100 MT).
Futures Market Situation and Outlook:

February live cattle settled at $85.77 a loss of $2.77, April live cattle settled at $88.92 a loss of $2.40, and the June live cattle settled at $86.45 a loss of $1.75. In the feeder cattle pit, January feeder cattle settled at $94.50 a loss of $1.62, March feeder cattle settled at $93.27 a loss of $2.70, and the April feeder cattle settled at $94.27 a loss of $2.72. The reported CME feeder cattle index for 1/6/09 was $96.12 a gain of $.67. Live cattle spreads: Feb/April settled at -$3.15 a loss of $.37, April/June settled at $2.47 a loss of $.65, and June/August settled at -$.50 a loss of $.10. Feeder cattle spreads: Jan/March settled at $1.22 a gain of $1.07, March/April settled at -$1.00 a gain of $.02, and April/May settled at -$1.82 a loss of $.55.

Yesterdays live cattle volume saw 22,768 contracts trade in the pit and 12,463 contracts trade on Globex. Live cattle open interest gained 698 contracts to come in this morning at 217,534. Yesterday’s feeder cattle volume saw 3,619 contracts trade in the pit and 1,864 contracts trade on Globex. Feeder cattle open interest declined 225 contracts to come in this morning at 20,125.

Live and feeder cattle futures settled with sharp losses yesterday on some continued long profit taking after the recent rally in prices. There were also some concerns in the market that if packers are going to get serious about cutting kills into early next week that the cash fed cattle market would not live up to early week expectations. I think another factor in the sell off was positioning ahead of the “Goldman Roll” and this index fund rebalancing, which is supposed to begin today. Estimates vary between 15,000-19,000 cattle and 20,000-22,000 hog contracts that the index fund trader needs to move into different markets. These numbers seem high to me but it is quite apparent that they need to move some money around and this is likely going to be a price limiting factor until they get some of this stuff done. As mentioned in previous writing’s and as outlined above, such a break in the futures market would be a buying opportunity in my opinion as fundamentals of the cattle market would point to higher prices by spring. It will be interesting to see how the market handles some of this money movement over the course of the next couple of days. I would be prepared to take advantage of extreme moves in the market should they occur. Support numbers that I have for the rest of the week are as follows: Feb live, $85 and below that $83, April live, $88.80 and below that $87, March feeders, $93 and below that $90. 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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