DTN Early Word Opening Livestock

 
Cattle: Steady-$2 HR Futures: 50-100 HR Live Equiv $136.72 + $1.72*
Hogs: Steady-$1 LR Futures: mixed Lean Equiv $87.52 + 0.18**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Cattle buying interest should start to slowly develop today with the week's first bids evident here and there. Yet significant trade volume may not develop until Friday, especially if asking prices stay firm around $118-plus in the South and $185-187 in the North. Live and feeder futures should open on a firm basis, supported by residual buying interest and encouraging fundamentals.

Hog buyers should resume work this morning with bids of steady to $1 lower. Expect lean futures to open on a mixed basis with nearby Feb better supported than the deferreds.

	BULL SIDE		BEAR SIDE
1)	Cattle futures surged sharply higher at midweek, sparked by another higher round of Internet sales (i.e., $116.25-116.75, weighted average). Soon-to-be-spot Feb live close right at last week's high (117.37).	1)	Overbought momentum indicators, more formidable overhead resistance in the lower $120s, and the narrowing Feb spread are potential caution flags regarding live cattle market direction.
2)	Late-year beef demand continue to put on a fairly impressive show. Cut-outs closed sharply higher yesterday with the choice box surging over $201 for the first time in month.	2)	The larger November placement was compounded by the fact that the total was composed mostly of heavier weight cattle. More favorable feeding prospects in November spurred placements over 700 pounds to record levels, about 18 percent above a year earlier. Furthermore, that active placement pace seems to have carried into December.
3)	The advance in nearby Feb lean hog futures (leading cash higher) and resulting weaker basis remains supportive, along with the premiums on the summer months.	3)	For the week ending December 24, U.S. hatcheries set 220 million broiler eggs in incubators; up 3 percent from a year ago. At the same time, chicks placed totaled 180 million chicks; up 4 percent from 2015.
4)	For the week ending December 24, Iowa barrows and gilts averaged 279.2 pounds, 0.6 pounds lighter than the week before and 3.9 pounds below	4)	With pork producers clearly in the expansion groove, rising deferred lean futures premiums are more likely to accelerate growth rather than slow it.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Queensland Country Life) — Global beef supply is starting to outstrip demand but Australian farmgate prices are expected to be shielded by domestic fundamentals running counter to the international trend.

For Australian beef exporters, the opportunity - against a backdrop of rising world supply exerting downward pressure on beef prices - will lay in enhancing value proposition, particularly in relation to supply chain assurances, say the experts.

A new report from big agribusiness financer Rabobank on the global outlook for animal protein says the supply-driven global meat market in 2017 will be a boon to consumers but a challenge for producers and processors.

Rabobank global animal protein strategist Justin Sherrard, based in Utrecht, Netherlands, said in some parts, the supply/demand balance had already tipped.

"For example, in the United States, per capita consumption (of animal protein) jumped by 5 per cent in 2015, a further 1pc this year and is forecast to grow by another 2pc in 2017 and we can see prices softening to encourage this increase in consumption," he said.

Strong supply growth out of the US, Brazil and Argentina will lead the rise in global beef supplies, according to Rabobank.

Mr Sherrard said while price always mattered in trade markets, it was not the only consideration for importers.

"Brazil has already overtaken Australia to become the leading beef exporter to China in volume terms, and as Brazil is producing more beef, it is well-placed to keep growing exports to Asia and North America," he said.

Brazil's protein exports are forecast to jump by around 5pc in 2017, driven by the available supply and a weak Brazilian real.

Mr Sherrard believes Brazilian exports to the US will pick up in 2017 but will not overtake Australian trade with the US.

"Despite this new competition, the opportunity for Australian beef exporters is to retain and enhance the value proposition of Australian beef -- that is, delivering the right product, at the right price and with the right supply chain assurances, into the markets that want and will reward this product," he said.

Poultry is leading the trend to affordable protein, which has been the case for some time.

"However, beef remains an important part of protein consumption and certain cuts compete with poultry for affordable protein -- typically in traditional, slow cooked dishes in developing countries," Mr Sherrard said.

"Different beef cuts lead on quality and although these are less affordable, poultry and pork cannot compete in this part of the market.

"We do not foresee major shifts in any of these patterns."

Local beef prices in Australia are expected to remain relatively firm as domestic supplies stay restrained. Lamb prices are also expected to hold up with ongoing strong domestic demand.

Rabobank's senior animal proteins analyst in Australia Angus Gidley-Baird said in contrast to what was happening on a global scale, Australian beef production was set to ease slightly in 2017, to its lowest level in over a decade, as the domestic herd continued to rebuild after years of drought.

"It is this constrained local supply, together with restocker demand, that is expected to create a floor in the domestic beef market," he said.

Mr Sherrard said a major theme in 2017 would be the increasing onus on producers to mitigate consumer concerns around animal health and welfare by adapting production models and supply chains.

"Maintaining high standards of animal welfare is not new to the animal protein industry," he said.

"What is new is who defines the details of animal welfare standards.

"In our view, food retailers, foodservice companies and some branded meat companies are now taking a more active role in setting these standards, and in providing consumers with assurance that their standards are being met."

This complexity is creating new growth opportunities for producers and processors who read the market well and respond swiftly, according to Rabobank.

HOGS: (meatfyi.com) — With China's Lunar New Year festivities fast approaching, pig farmers in the world's biggest pork market have little to cheer. As they fatten herds to meet peak demand, a slump in retail prices and a spike in feed costs are grinding up profits.

A wave of imports has squeezed pork retail prices 10 percent since they hit record levels in June on a domestic supply shortage. Meantime, the price of soymeal has hit a 2-1/2 year high in Sichuan as farmers buy up stock to feed up pigs for the New Year "golden season".

As Chinese consumers tuck into cured pork and stews for the holidays - starting in late January this year - farmers will have to soak up profit margins that have halved in six months during a buying spree that accounts for a quarter of annual pork consumption.

While profits are still close to historically high levels, the fall comes on top of food safety scandals and belt-tightening as economic growth stalls. China's pig farmers also face a growing concern: appetite for what is traditionally the country's favorite meat is waning in favor of cheaper alternatives like mutton and poultry.

"We're in the hottest season for pork consumption...but the scale of the increase (in demand) is lower compared with previous years," said Fang Yonghui, analyst with pork consultancy Soozhu.com.

In Sichuan, China's largest pig farming province, accounting for 10 percent of national pork production, profit margins have slumped 45 percent to 650 yuan per pig since May, when they touched their highest on records going back to 2009.

Fang expects profit margins nationwide to average 300-400 yuan per pig next year. That's well up from the average of the past five years, but down from bumper levels earlier this year.

In the eastern province of Shandong, meanwhile, some are bracing for things to get worse.

"2016 was a money-making year," said one Shandong farmer with 1,000 breeder pigs, speaking on condition of anonymity. "And in 2017, it's likely going be loss-making. Many dare not expand the herds even if they are making profits now."

-- John A. Harrington FEEL OF THE MARKET

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