DTN Early Word Opening Livestock

Cattle: Steady-$2 HR Futures: 50-100 HR Live Equiv: $141.94 +1.59*
Hogs: Steady-$1 HR Futures: Mixed Lean Equiv: $ 72.76 - .04**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Look for another slow round in the cash cattle market. Bids and asking prices are likely to remain poorly defined with both sides closely monitoring the bullish tone of live futures for clues regarding cash potential. We expect live cattle to be priced around $125 or better, yet significant trade volume may not surface until the second half of the week. Live and feeder futures seem geared to open moderately higher, supported by bullish momentum and firming carcass value.

Hog buyers are expected to resume procurement Tuesday with bids steady to $1 higher. This week's slaughter should fall close to 2.36 million head, assuming that last week's aggressive chain speed cleaned up a good deal of delayed marketing. If that is the case, we should see a fairly significant drop in live and dressed weights. Lean futures seem set to open on a mixed basis thanks to follow-through selling and short-covering.

	BULL SIDE		BEAR SIDE
1)	Once again, beef cutouts surged sharply higher on Monday, further proof that the beef trade has finally turned the bullish corner toward seasonal demand.	1)	Discounts in the June and August contracts have widened further to the $16.50 to $17 area, wider than seen in the last several years, continuing to point to expectations of sharply lower cattle prices heading into the late spring and summer.
2)	New showlists distributed Monday were generally smaller than ready cattle numbers seen last week, especially in Nebraska and Texas.	2)	The trend of declining longs and increasing shorts continued in the week of April 17 for noncommercials in live cattle futures, causing their net-long position to decline to 29,100, off 5,900.
3)	Softer packer cash bids on Monday caused country receipts to fall to very low levels. Hog buyers should soon be forced to up their cash game in order to fund necessary kill levels.	3)	Frozen pork supplies as of March 31 were up slightly from the previous month and up 12% from last year. Stocks of pork bellies were up 21% from last month and up 188% from last year.
4)	Given the many weather disruptions seen through last summer, last week's large slaughter was probably tied more to finishing floors cleaning up and becoming more current rather than a serious undercount by government enumerators.	4)	Nearby lean hog futures suffered triple-digit losses Monday. Neither specs nor commercials in this market seem eager to anticipate constructive fundamentals that typically power the second quarter market.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Chicago Tribune) -- Beyond Meat burgers -- plant-based patties made to resemble, sizzle and even bleed like meat -- have the potential to wean wavering carnivores off animal-based proteins. Encouraging such a trend would seem to pose a serious financial threat to Tyson Foods, the largest U.S. meat processor.

Except Tyson has a stake in Beyond Meat and could someday buy the California-based company. Ditto with Memphis Meats, a Silicon Valley lab-grown meat startup and another Tyson investment. Consumers aren't likely to see slaughter-free chicken or steak in the grocery store anytime soon, but Tyson is preparing for that eventual possibility.

In the near future, alternative proteins won't take much of a bite out of Tyson's core business of beef, chicken, pork and prepared foods, which brought in more than $38 billion in revenue last year. But as more consumers shift toward foods they consider to be healthier and more sustainably sourced, Tyson's Chicago-based venture capital arm -- a team of three men -- wants to meet them there. Other food companies like Campbell Soup, General Mills and Kraft Heinz also have venture capital funds, a relatively new and growing trend in the traditionally stodgy processed food industry.

"If we are not aware of it and participating in our own disruption, we basically deserve what we get," said Tom Mastrobuoni, chief financial officer for Tyson Ventures. "Shame on us," added Reese Schroeder, the venture fund's managing director.

Tyson, like other giant food corporations, is using venture capital investments to partner with emerging food startups focused on sustainability and technology. Launched in 2016 with $150 million, Tyson Ventures now has stakes in four companies. The amounts of the investments are undisclosed, but it owns less than 20 percent of each startup. While Tyson could acquire these companies outright, other outcomes are also possible, including early exits and joint ventures.

Justin Whitmore, the boss and third member of the Tyson Ventures team, emphasized that Tyson's many farmers and ranchers will still be key to the company's global future. But he also acknowledged a shift in the company's mission since CEO Tom Hayes took over last year. Under Hayes, Tyson's striving to be a protein company, not just a meat company, Whitmore said.

"I can't express enough that we do see a world where there will be multiple types of protein products available. That could include (plant)-based protein next to pork, next to maybe even lab-grown protein, and consumers will have a choice," said Whitmore, Tyson's chief sustainability officer.

Only 1 of every 6 American consumers eat meat alternatives at least once a week, according to the global market research firm Mintel. But that number will likely grow, as reflected by an increasing number of faux meat options on restaurant menus, said Billy Roberts, senior food and drink analyst at Mintel.

The latest example: Last week, White Castle unveiled its Impossible Burger sliders, another plant-based burger, an unlikely pairing that reflects the changing times. In the Chicago area, Beyond Meat burgers are available at Epic Burger and TGI Friday's and in various grocery stores. And as of Friday, an online petition calling for McDonald's to add a vegan burger to the menu had more than 26,000 signatures.

Tyson's venture capital investments are "a really good way of diversifying in case interest in meat alternatives continues to take off," Roberts said.

Not every Beyond Meat consumer is going to appreciate that the plant-based burger company is partially owned by a massive meat conglomerate -- a potentially tricky marketing challenge for both companies, said Zain Akbari, a Morningstar analyst who covers Tyson. But in general, the venture capital investments represent a low-risk way of "dipping a toe" in emerging protein and technology trends, Akbari said.

Memphis Meats could end up having the most upside of Tyson's investments, Akbari said. Still in its infancy as an industry, lab-grown meat has to navigate numerous challenges, including figuring out how to make a product that people can afford while also clearing regulatory hurdles. But such a product could appeal to many consumers concerned about the environmental impact of meat production.

"If it does come together, it's a game-changer," Akbari said.

Tyson Ventures also has ownership stakes in Tovala, a Chicago-based startup that pairs a "smart" steam oven with a meal delivery service, and FoodLogiQ, a North Carolina-based supply chain technology company.

Going forward, the venture fund will have a particular interest in new automation technology in food and agriculture, said Schroeder, who managed Motorola's venture capital fund for years before joining Tyson.

That might include the "3-D printing of food," he said.

"It sounds kind of crazy, but there are companies out there trying to do that," Schroeder said. "There's a lot of cool tech and we're just scratching the surface."

HOGS: (Pig Progress) -- Uncertainty in global markets -- due to disease risk, trade disputes, and feed availability -- will create opportunities and challenges for the pork industry in the coming months.

That was the key message of the latest global Pork Quarterly, published by RaboResearch, part of Rabobank.

In a press release, it was explained that impacts of the China/US trade dispute will distort markets and weigh on pork values in North America, while creating some potential upside for producers in Asia, Europe, and South America.

Christine McCracken, senior analyst -- animal protein said, "The potential escalation of the China/US trade dispute -- along with ongoing NAFTA modernisation talks -- creates a heightened sense of risk."

She added, "Disease is also part of this uncertainty, including the threat of African Swine Fever (ASF) spreading in Europe. With so many threats, agility will be a key asset for pork producers in a volatile operating environment."

China: trade policy supportive to price Steep hog price declines (-30% YTD) are pressuring margins as the market remains oversupplied. Announced tariffs on US pork help to stabilise markets near-term, but are unlikely to fully offset market pressures.

The bank expects losses to continue, but gradually improve as the industry right-sizes production. Demand for pork will remain good, helped by spring festivals and low costs.

The follow-through on planned growth in 2018 is resulting in seasonal production records, at the same time delays in the ramp-up of new capacity and trade disruption soften demand.

Raboresearch sees little immediate change in production plans, as the industry has built a financial war chest to withstand the current downturn. With NAFTA renegotiations underway and the trade war with China heating up, plans to add production may be reconsidered until there is improved visibility.

In the EU, production growth and weaker exports are expected to limit the upside in margins in 2018. Gradual growth in pig herds reflects good returns over the past year and a rebound in productivity.

The EU is not expected to see a big pick-up in demand from China, but should pick up some growth to Japan and South Korea. The threat of ASF (and the risk to exports in that eventuality) remains an overhang on the market.

A surge in exports to China and Hong Kong is helping offset lost access to the nation's primary export market in Russia, according to the report.

Even so, Brazilian producers continue to struggle with weak pork prices and higher feed costs (following a moderately disappointing growing season). Based on current profit levels, Raboresearch expects slower growth in production in the year ahead.

John A. Harrington can be reached at john.harrington@dtn.com

Follow John Harrington on Twitter @feelofthemarket

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