DTN Early Word Opening Livestock

Cattle: Steady Futures: 25-50 LR Live Equiv $146.34 + ___FCKpd___0.82 * 
Hogs: Steady Futures: Mixed Lean Equiv $ 82.03 + $1.07 **
*based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue 

GENERAL COMMENTS:

Just when we think the cattle board is ready to stabilize, it finds another steep stairway to fall down. Live and feeder futures collapsed on Tuesday with triple-digit losses. This surge of selling was linked to another wave of long liquidation, technical selling, and beef demand worries. A small handful of scattered cash sales surfaced here and there as some producers move to take advantage of strong basis opportunity. Feedlot managers will wait for the CME dust to settle before taking a stab at pricing cattle. If futures can stabilize or basis levels soften, significant trade volume may be delayed until Thursday or Friday. Look for cattle futures to remain on the defensive Wednesday morning, opening moderately lower as specs continue to vacate long positions and technical traders follow the new bearish trend.

Expect cash hog buyers to resume midweek procurement with basically steady bids. The country trade may be crawling unevenly higher, but it's far from a runaway as live supplies remain fully adequate. It sounds like pork processors are planning a Saturday kill around 75,000 head. Lean futures are likely to open with mixed prices.

BULL SIDE	BEAR SIDE
Cool and rainy conditions continue to check spring fever (and meat demand) in much of the densely populated Northeast. There's still plenty of time for seasonal demand to fire. Indeed, beef cutouts firmed some on Tuesday with box demand described as "moderate to fairly good."	Aggressive long liquidation continues to be a major bearish force in cattle futures as technical weakness begets more technical weakness. On Tuesday, spot April closed at its softest level since Feb. 12.
With RSI readings in the low 20s (i.e., 30 is the standard threshold defining oversold conditions) cattle futures are significantly oversold and due for at least a corrective bounce.	Though Tuesday cash cattle trade was very light, there were enough scattered sales at lower money (i.e., mostly $132 in the South, $1 lower than last week; $212 in the North, $3 lower) to suggest that strong basis levels could further work to weaken feedlot selling resolve. Such basis temptation could increase even more at midweek.
The pork carcass value jumped significantly higher on Tuesday, impressively supported by stronger demand for bellies, ribs, hams, and picnics.	April lean hog futures will certainly go off the board in the lower 5% of trading values experienced over the past five years, as large pork production continues to be brought to town.
The number of gilts entering the herd during the December-February period was less than sow slaughter and the second smallest level of gilt retention since 2000. Gilt retention levels should start increasing in the next few quarters, further tightening market hog numbers.	Large premiums in summer lean hog futures appear to be slightly larger than thenormal seasonal advance. This could spell trouble if early second quarter remains so large.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Cow Calf Corner) -- Mexican beef exports have grown rapidly in recent years. Total beef exports began increasing in 2009 and have increased from about 28 thousand metric tons in 2008 to over 161 thousand metric tons in 2015, a nearly six-fold increase. Currently, Mexico is the tenth largest beef exporting country, exceeding Argentina for the first time in 2015. The U.S. is the largest destination for Mexican beef exports and the U.S. share of total Mexican beef exports has increased from around 60 percent a few years ago to 90 percent in 2015. Mexico also exports beef to Japan but the quantity and share of exports to Japan has decreased the past two years. Previous exports to Russia in 2011and 2012 have ceased because of issues with beta agonists.

Much of Mexico's beef export growth is due to Sukarne, the largest cattle feeding and beef processing company in Mexico. SuKarne ranks as the fifth or sixth largest beef packing company in North America. The company also handles pork and chicken. Meat+Poultry magazine lists SuKarne as the nineteenth largest meat company in North America with projected 2016 sales of 2.5 billion dollars. SuKarne has been processing over 1.2 million head of cattle annually and accounts for roughly 74 percent of total Mexican beef exports.

Sukarne announced in late March that a new feedlot and packing plant complex is beginning operations in Tlahualilo, Durango. This huge facility has affiliated feedlot capacity of nearly 300,000 head and the plant has capacity to process over 800 thousand head of fed cattle and cows per year. The majority of product from the new facility is expected to be exported. The plant will represent a substantial increase in demand for cattle across much of Mexico and will also require large amounts of feed grains for the cattle feeding operations. Much of the feed grain will be imported from the U.S.

The Mexican beef industry has changed dramatically in the past 10-15 years. There has been a significant and rapid expansion in federally inspected slaughter and widespread adoption of boxed beef technology which expanded domestic and international market opportunities. The SuKarne company can be credited with being well positioned and for recognizing and capitalizing on the tremendous opportunities in Mexican domestic and export markets in the past decade. However, this growth occurred simultaneously with and depended on a number of concurrent changes in Mexican food markets and infrastructure. Mexico has significantly expanded and improved highways over and around the nearly unlimited supply of mountains in the country. These improvements greatly increased the ability of Mexican beef companies to source, assemble and ship cattle over much longer distances to support large feedlots. Meat distribution systems similarly benefited from improved transportation infrastructure. The rapid growth and expansion of supermarkets and increased use of cold storage and refrigerated shipping all facilitated the growth of large scale meat processing and distribution. I witnessed the initial construction of the first rail port in Torreon, Mexico (near to Tlahualilo) some 24 years ago and it is the continued growth and expansion of these facilities that make importing feed grain for the large feedlot operation in the new Sukarne facility logistically and economically feasible.

There are several potential implications for the U.S. that result from these changes in the Mexican cattle and beef industry. Mexico has been the fourth largest source of U.S. beef imports since 2010 is likely to remain a strong and growing source of imports. Mexico was the third largest U.S. beef export market in 2015 and will likely remain a significant destination for beef exports, especially for specific cuts of beef. However, growing domestic fed beef production and significantly enhanced product differentiation, due to use of boxed beef in Mexico, likely mean that the potential for increased U.S. beef exports to Mexico is limited. Finally, Mexico has been the source of an average of about one million head of feeder cattle per year for many years. Increased demand for cattle to fill expanded feedlot capacity in Mexico is likely to push domestic cattle prices closer to a balance with the U.S. cattle market and will likely reduce both the incentive to export and the supply of cattle for export. Certainly in the short run, low cattle inventories and the need for herd rebuilding in Mexico will squeeze feeder cattle supplies and likely reduce U.S. imports of Mexican feeder cattle this year and beyond."

HOGS: (Globe Gazette) -- Opponents of a proposed hog processing plant in Mason City on Monday urged Clear Lake officials to take a stand against the project.

About a dozen people spoke against the proposed $240 million packing plant, which would be built by North Carolina-based Prestage Farms, during the public comment section of the Clear Lake City Council meeting.

"This packing plant, the decision, will impact this area for decades," said Clear Lake resident Chris Petersen, urging the council to pass a resolution of concern. "Quality of life. Everything we care about. This is our corner of the world and I think we need to be heard."

Many speakers, including Clear Lake resident Mary Kaye Johnson, were most concerned about potential environmental impact from the hog barns supplying the plant.

Prestage has said it plans to kill and process 10,000 hogs a shift at the 600,000-square-foot plant, which would be built between 43rd Street Southwest and the Avenue of the Saints in southwest Mason City.

"It's going to destroy our soil. It's going to destroy our water. It's going to destroy our area," Johnson told the council. "Where is all that manure going to go? Where's it going to go? What about the smell? It's going to be at your door. I promise you that."

Tom Willett of Mason City wants Clear Lake council members to ask Mason City to table the project for 90 days.

"I would like to see them ask the (Mason City) City Council to delay this so a lot more of these questions that people have can be answered," he said.

Although Clear Lake took no action as a result of Monday's comments, Mayor Nelson Crabb read a statement during the meeting saying council members had opposed large-scale animal confinements in the watershed in the past and would monitor the Prestage project.

"It may come to be that the City Council of Clear Lake would, perhaps, in the future possibly consider to take a position in opposition to such a proposal as being counter-intuitive to our community's primary economic engine, tourism, and the preservation and enhancement of our natural environment," Crabb said.

Jere Null, COO of Prestage Farms of Iowa, said the company does not plan to build confinement operations near Clear Lake and would discourage anyone it does business with from building there as well.

"We don't think it's appropriate to have hog farms in the watershed of Clear Lake," he said during Monday's meeting. "We don't think it's appropriate to have them in the city limits or anywhere around the vicinity of the lake."

He also said there is a surplus of hogs, including in the North Iowa-southern Minnesota region, and a need for more packing plants.

Null, who spoke during the public comment portion of the meeting, left shortly after making his comments.

Several of the subsequent speakers complained that he left before the meeting was over.

Null told the Globe Gazette he hadn't wanted to take over Clear Lake's meeting, noting that the project wasn't on the council's agenda.

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

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