DTN Early Word Opening Livestock
Hog Paper Should Open Moderately Lower at Midweek
GENERAL COMMENTS:
Cattle: Steady-$2 LR Futures: Mixed Live Equiv $148.96 + .26*
Hogs: Steady Futures: 50-100 LR Lean Equiv $ 82.95 -1.70**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
For the past several weeks, lower futures and strong basis opportunities have triggered light-to-moderate cash cattle selling. Clearly, a similar scenario could be in play Wednesday. Indeed to stem midweek selling interest we may need to see a sharp rally in cattle futures. Opening bids should be around $125 to $126 on a live basis with asking prices close to $128 or better. Live and feeder seemed staged to open on a mixed basis with follow-through selling on one hand and short-covering on the other.
Hog buyers should resume work Wednesday with near steady bids. Given a $10 spread between the pork cutout and the latest cash index, processing margins remain attractive. That said, Saturday kill plans are currently no larger than 118,000 head, perhaps suggesting that packers are less than confident regarding short-term product demand. Lean futures are likely to open moderately lower, pressured by residual selling and renewed signs of struggling product demand.
| BULL SIDE | BEAR SIDE | ||
| 1) | Beef processing margins continue to improve, padded modestly by small advances in beef cutouts on Tuesday. | 1) | Tuesday's pullback in cattle futures pretty much confirmed what we suspected about Monday's rally (i.e., it was nothing but a dead cat bounce). |
| 2) | Live and feeder futures remain technically oversold. Furthermore, spot April live continues to find underlying support in the $121 to $122 area. | 2) | Though cash activity on Tuesday was very limited, the willingness of some to take steady money this early (i.e., $126) reveals an ongoing nervousness about the stability of futures and/or the weakening of basis. |
| 3) | While nearby lean hog futures chop around defensively, the April contract seems to have significant support above $66. | 3) | Tuesday's break in spring and summer lean hog futures worked to underscore the strength of overhead chart resistance and the inadequacy of fundamentals at this time to seriously challenge them. |
| 4) | The seasonal index for April lean hog futures is entering a period of gradual strengthening heading into contract expiration. | 4) | Better pork demand did not last for long. Carcass value fell sharply lower on Tuesday, giving back all of Monday's progress, pressured by sharp losses in the belly (off $7.46) and rib (off $3.17) primals. |
CATTLE: (The Cattle Site) -- Australia's largest privately owned cattle company has been advertised for sale, with industry experts suggesting the company's broad portfolio of beef assets could be worth $1 billion.
The Consolidated Pastoral Company (CPC) runs nearly 400,000 head of cattle across 16 stations, spanning 5.5 million hectares, and also operates two feedlots in Indonesia.
The sale of CPC has been one of the worst kept secrets in northern Australia, with the company now publicly advertising because of requirements by government.
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CPC's owner, European private equity firm Terra Firma, has advertised the business for sale "as a whole or in parts".
Northern Territory Cattlemen's Association president Tom Stockwell said the sale would generate interest from around the world.
"It is obviously a significant sale for the Northern Territory and northern Australia generally," he told ABC Rural.
"You would have to think with the way the market is going, there is still a lot of interest from people that are trying to get into the beef and live cattle supply game.
"CPC is one of the very big operators in the north. A really good suite of cattle stations, a good herd and good staff, and good stuff down the line and into Asia... a fair bit of intellectual property there with it as well I would say."
Chat to anyone in the northern cattle game and the common thought is, "Will Gina Rinehart buy this as well?"
In terms of value, the sale of CPC will dwarf the well-publicised acquisition of S. Kidman and Co in 2016, and if it sells for $1 billion will set a new record in Australia's cattle industry.
Mr Stockwell said Terra Firma's willingness to potentially split up the properties to maximise profit means the stations could be bought by a variety of players.
"There will be everybody from individual cattlemen that might be interested in trying to do a deal on one property or another, right through to global players that would like to buy the whole operation," he said.
"The present owners are a foreign investment group, so I guess there are always those big corporate investors that are looking for opportunities like that.
"There is also the Stanbroke model which saw a group of people get together and cut it up."
The portfolio of CPC stations includes the iconic Newcastle Waters in the Northern Territory, which boasts an impressive homestead complex often referred to as "the house that Kerry Packer built".
Terra Firma bought CPC in 2009 from James Packer.
ABC Rural has been told that Kerry Packer's former business partner Ken Warriner's remaining minor stake in CPC is also part of the sale.
The business is being offered for sale via agency Knight Frank and investment bank Goldman Sachs.
HOGS: (Successful Farming) -- Castrating pigs is not a favorite chore for pork producers, but it's necessary for meat quality and barn management. Now, scientists at the gene-editing company, Recombinetics, have developed a precision breeding method resulting in male piglets that remain in a prepubertal state, thus, ending the need for castration. Recombinetics has partnered with Nebraska-based swine genetics supplier DNA Genetics to evaluate, develop, and commercialize the castration-free (CF) swine trait. Research is being led by Tad Sonstegard.
SF: WHAT IS THE TIME LINE FOR THIS PROJECT?
TS: The basis of the knowledge for the castration-free trait came from research in human infertility and mouse physiology. Now work is progressing to develop castration-free pigs. We optimize everything in the lab first before we make the initial animals to ensure we can safely bring this to the marketplace. Within a year, we will move from development into breeding animals for evaluation of health and safety. We anticipate that the development and evaluation period will be completed within the next two to three years.
SF: WHAT ARE THE REGULATIONS ON GENE EDITING OF LIVESTOCK?
TS: There are currently no U.S. regulations in place to govern the use of advanced reproductive methods in animal agriculture. The FDA believes it has jurisdiction and authority because of guidelines it issued in early 2017, but those guidelines have not been accepted as law. Gene editing and advanced reproduction techniques are not covered under previous guidelines for transgenics because gene editing does not result in transgenic animals. We will continue to work closely with the appropriate regulatory agencies and participate in the discussion of how gene editing can address many animal health and welfare concerns in agriculture.
SF: THESE PIGS NEVER GO THROUGH PUBERTY?
TS: That is true for pigs intended for food production. However, we have to provide the ability to breed animals as part of the commercial genetics program. We have to restore fertility in a way that is commercially feasible while ensuring the pigs are taint-free and have improved health and welfare. Additionally, the castration-free pigs need to perform effectively in production systems in order to gain wide acceptance in the swine industry.
SF: WHAT ROLE WILL DNA GENETICS PLAY?
TS: It's important to have a commercial partner for a number of reasons. Our company doesn't own commercial swine genetics that deliver high-quality pork products. We also don't have the distribution network or expertise to manage, improve, and multiply these elite genetics.
We can do the gene editing to make castration-free pigs, but the DNA Genetics team has the experience to implement these improvements into commercial genetic systems.
Also, if we are doing experiments in commercially relevant pigs, then we can definitively prove whether or not it's better. I've visited the DNA Genetics facility. It's impressive the system they have for collecting data to do improvements.
John Harrington can be reached at harringtonsfotm@gmail.com
Follow John Harrington on Twitter @feelofthemarket
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