DTN Early Word Opening Livestock

Meat Futures Should Open on the Defensive

(DTN file photo)

Cattle: Steady-$2 HR Futures: 50-100 LR Live Equiv $139.38 - .48*

Hogs: Steady/Weak Futures: 25-50 LR Lean Equiv $ 87.25 + .11**

* based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

The waiting game in cattle country will probably continue a few more hours Friday before traders seriously take up the necessary chore of marketing. Indeed, it's quite possible that feedlot sales will not surface until after the release of the Jan. 1 on feedFriday afternoon at 2 a.m. CST (trade guesses: on feed, up 7% to 8%; placed in December, off 2% to 3%; marketed in December off 1% to 2%). Opening bids should be around $122 live and $193 to $194 dressed. Live and feeder futures should open moderately lower, initially pressured by residual selling and long liquidations.

Look for the late-week cash trade to open with steady/weak bids. Assuming a kill of 465,000 Friday and 135,000 on Saturday, the weekly slaughter total close to 2.38 million head. Lean futures should open lower, checked by follow-through selling and technical concerns.

BULL SIDE BEAR SIDE
1)

Official scale tickets for the week ending Jan. 13 reflected the negative impact of bitter cold temperatures upon feedlot performance. For example, steer carcasses averaged 896 pounds, 4 lbs. lighter than the previous week.

1) Cattle futures suffered major bearish reversals on Thursday, suggesting that the early-year rally has run out of gas. Thursday's early highs (e.g., 126 basis spot February live) now constitute tough overhead resistance.
2) Given Thursday's crash in cattle futures increases, the odds are it is a friendly reaction to a possible confirmation of reduced placement in December (expected by the trade to fall below the previous year for the first time since last February). 2) The board's big break and the significant strengthening on the basis is negative for feedlot leverage, making it more difficult for sellers to hold for higher prices.
3)

According to the monthly Cold Storage report, wholesalers stocked 489.5 million pounds of beef in commercial freezers as of Dec. 31, essentially steady with the previous month but down 14% from the same time a year earlier.

3) Summer lean hog futures seem to be attracting more selling interest. April through August slumped by triple-digit Thursday with April and June closing below 40-day moving averages.
4) While lean hog futures have turned a bit defensive this week, general trade expectations are that exports are going to expand and temper the impact of larger supplies on the domestic market. 4) Frozen pork supplies as of Dec. 31 were down 2% from the previous month but up 3% from last year. Stocks of pork bellies were up 13% from last month and up 121% from last year. At the same time, total frozen poultry supplies were up 1% from the previous month and up 10% from a year ago.

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OTHER MARKET SENSITIVE NEWS

CATTLE: (verineherald.com) -- Competition in global markets is set to become more intense in the coming year, as global beef production is pegged to increase by 1.3million tonnes in 2018, according to Rabobank's latest Global Beef Quarterly report.

With production volumes expected to outpace domestic consumption, the report says exports will become ''more critical'' and ''shift the balance of power in favour of importers''.

The United States and Brazil are likely to see the biggest increases in beef exports, but the report says the expansion in global production will come out of all major producing areas, including Australia.

''In the US, beef exports are expected to increase by seven per cent in 2018, as their cattle herd expands for the third consecutive year,'' Rabobank senior animal proteins analyst Angus Gidley-Baird said.

''While beef consumption is also expected to increase, it will not keep pace with their production growth, and exports are expected to grow to 12 per cent of US production.''

Mr Gidley-Baird said widespread rains across parts of Queensland and northern NSW in spring reignited producer demand, ''shaking cattle prices out of their declining trend to rise through October and into November''.

''Seasonal conditions are expected to drive large swings in prices into the first half of 2018, given the low cattle supplies and producers' desire to restock their herds,'' he said.

''While domestic cattle producers will face some headwinds from increased global competition in 2018, limited domestic cattle supplies should continue to support a strong Australian market.''

Mr Gidley-Baird said Brazil was anticipated to increase its export program by five per cent in 2018.

''Brazil is actively accessing new markets and increasing their presence in existing markets, with plans afoot to accredit an additional 11 beef plants to access the Chinese market.''

If successful, Mr Gidley-Baird said Brazil would have 27 beef plants able to access the Chinese market.

Competition to supply beef into China will become particularly fierce, ''not only for Brazil, but also for the US and Australia''.

''China's import demand will be pivotal to balancing the increase in global exports.

''And next year, China are expected to increase their import requirement to 800000 tonnes of beef, due to the decline in their own cattle numbers.''

HOGS: (radioiowa.com) -- An official with a big pork processing plant, scheduled to open later this year in north-central Iowa, predicts the facility help boost the bottom-line for hog producers in the region.

The new Prestage Foods plant is scheduled to open in November near Eagle Grove. Prestage production coordinator Jesse Sumner says he's been getting a positive response from producers who are currently marketing their hogs through other companies.

"I think you see folks who maybe have not liked the returns the hog industry has seen the last two or three years, as you look at what the cutout for meat has been versus what their share has been, as far as what a hog was worth," Sumner said. "We've seen a spread that's been at all-time highs. There's been some frustration, so they're looking for ways to try and make the math work better." Initially, the plant will slaughter 10,000 hogs per day on one shift, with half of those hogs coming from Prestage's own barns. The other half will come from independent producers. According to Sumner, Prestage will eventually add a second shift to slaughter an additional 10,000 hogs per day, bringing total daily slaughter to 20,000.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

(BAS)

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