DTN Early Word Opening Livestock
Meat Futures Staged to Launch 2017 With Firm Opening
GENERAL COMMENTS:
Cattle: Steady-$2 HR Futures: 50-100 HR Live Equiv $137.31 - .32*
Hogs: Steady Futures: 50-100 HR Lean Equiv $ 87.05 + .69**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Feedlot country will be typically quiet Tuesday as packers focus exclusively on the distribution of new showlists. We expect the early-year offering to be about steady with last week. Our guess is that bullish-minded producers will initially price showlists around $120 to $122 in the South and $195 plus in the North. A serious market test could easily be postponed until Thursday or later. Live and feeder futures should open higher, supported by early-year short-covering and recent cash premiums.
The cash hog market seems set to open the new month and year with basically steady bids. Processing margins have eroded a bit from the extraordinary height of the fourth quarter. Nevertheless, they remain extremely attractive and should continue to support packers, perhaps aggressively, depending on how live hogs tighten over the next 30 to 60 days. Lean futures are set to open at least moderately higher, boosted by follow-through buying and constructive fundamentals.
| BULL SIDE | BEAR SIDE | ||
| 1) | Bullish momentum from the late-year cash cattle market is expected to wash through at least the first half of January. Besides the traditional strength of retail beef buying following the holidays, first of the month paychecks should at least help preserve recent gains in cutouts. | 1) | New spot February live cattle will start out nearly $2 below live business on Friday, a soft basis that should discourage feedlot resolve in holding for higher asking prices. |
| 2) | For the week ending Dec. 22, actual beef exports totaled 18,700 metric tons (a marketing-year high), up 14% from the previous week and 18% from the prior four-week average. | 2) | Overbought momentum indicators in cattle futures, and more formidable overhead resistance up to the lower $120s, are potential caution flags regarding market direction. |
| 3) | The pork carcass value closed moderately higher on Friday, boosted by better demand for loin, picnic, rib and belly cuts. | 3) | The strong price gains in lean hog futures last week was accomplished on light volume with limited changes in open interest, suggesting limited new buying interest from noncommercials and creating some doubt regarding the sustainability. |
| 4) | The sell-off in hog weights the past two months suggests that at least some of the increase in hog slaughter this fall was due to early movement of numbers rather than a reflection of the sizeable inventory that USDA printed. | 4) | The seasonal index for February hogs points mostly lower into contract expiration. The bearish hog report could well create a moderate to sharp break moving forward, getting the index back into seasonal mode. |
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CATTLE: (Sid Richardson Museum) -- The Sid Richardson Museum will join the three-state (Texas, Oklahoma and Kansas) 2017 celebration of the 150th anniversary of the Chisholm Trail. "Hide & Horn on the Chisholm Trail" will run from Friday, January 6, 2017, through Sunday, May 28, 2017. Visitors will view rarely seen items from the cattle trail era, "Guests of Honor" on loan from the Rees-Jones Collection of Dallas, another private collection and the Sid Richardson Museum. This focus exhibition will be on display concurrently with the museum's ongoing exhibition, "Legacy," which depicts the clash of cultures of the 19th century American West.
According to the Texas State Historical Association, after the Civil War, the growing demand for beef was supplied by Texas Longhorn cattle. Sturdy and able to graze on whatever plant material was available, the breed was particularly suited to cattle drives. From the feeder trails in South Texas across Indian Territory (Oklahoma) to railheads in Kansas, the Chisholm Trail was the major route out of Texas for livestock. The market provided a steady source of income for Texas ranchers. In its brief existence from 1857 to 1884, the Trail had been followed by more than five million cattle and a million mustangs, the greatest migration of livestock in world history. The Trail was named after the Scot-Cherokee trader Jesse Chisholm.
"Predating the arrival of the train and discovery of oil, the Chisholm Trail era was an indispensable, early chapter in Fort Worth's history," said Mary Burke, director of the Sid Richardson Museum. "Being a waypoint along the trail spurred the city's early growth and helped define its Western heritage, which even Tuesday differentiates Fort Worth from any other city."
HOGS: (Dow Jones) -- Smithfield Food Inc., the world's biggest pork producer, is buying grain elevators and purchasing grain directly from farmers, a move that hits grain handlers already reeling from multiyear lows in corn and soybean prices.
The Virginia-based company bought two Ohio grain elevators in September. For the first time, it can ship grain directly from Ohio to feed the pigs that Smithfield slaughters at its Tar Heel, North Carolina, packing plant - the world's largest, processing about 32,000 hogs daily.
Smithfield now buys 65 percent of its animal feed directly from farmers, up from the 10 percent of feed it directly bought in 2010.
The direct buying strategy aims to lower feed costs and could provide a model for other large meat companies that still largely rely on commercial grain handlers, such as Chicago-based Archer Daniels Midland Co. Grain can account for up to 60 percent of Smithfield's costs. The company's expenses in 2015 totaled $4.67 billion.
In 2014, Smithfield canceled a grain handling contract with CHS Inc, the largest U.S. farmer-owned cooperative, which had previously supplied a Smithfield feed mill in Yuma, Colorado. Smithfield has canceled contracts with other smaller grain handlers since 2010.
"They take the Walmart approach and go right to the source," said a CHS Inc employee who declined to be identified because he was not authorized to speak publicly.
Smithfield also aims to work directly with farmers to influence farm management, from crop rotations to fertilizer and fungicide applications that could result in higher-quality grain that speeds weight gain in hogs. Smithfield could have a say in the seeds that are planted for the grain to feed the hogs it slaughters to produce the pork it sells.
"In a dirt-to-fork story, you have to start with the dirt," said Joe Kerns, president of animal agriculture consulting firm Kerns Associates. "This is the first foray."
Smithfield, purchased by China's WH Group in 2013 for $4.9 billion, plans to continue reducing reliance on grain handlers, said Robbie Montgomery, Smithfield's grain origination manager.
"That's key to our strategy, our farmer relationships. It's not us buying from a dealer; it's us buying from a farmer," Montgomery said.
John Harrington can be reached at feelofthemarket@yahoo.com
Follow John Harrington on Twitter @feelofthemarket
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