DTN Early Word Opening Livestock

Red Hot Cattle Futures Staged For Firm Opening

(DTN file photo)

Cattle: Steady-$2 HR Futures: 25-50 HR Live Equiv $132.78 - 2.00*

Hogs: Steady-$1 HR Futures: 25-50 HR Lean Equiv $ 83.50 - 1.64**

* based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Bullish cash expectations among cattle feeders have certainly been cranked up in recent days by exploding live and feeder futures. We could start to see a few preliminary bids Wednesday, but they will surely be well under higher asking prices. Our guess is that ready steers and heifers will be priced around $120 to $122 plus in the South and $195 plus in the North. Look for futures to open at least moderately higher, supported by follow-through buying and firm cash expectations. 


After moving inadequate numbers on Monday, hog buyers didn't waste any time in correcting their procurement strategy. Specifically, they quickly moved to write much bigger checks. Not surprisingly, country movement improved significantly on Tuesday. Look for renewed bids Wednesday to be steady to $1 higher as packers worked to fund an aggressive kill schedule through the end of the week. The Saturday slaughter is expected to be around 240,000 head. Lean futures seem likely to begin moderately higher thanks to follow-through buying and spillover support from the cattle complex.

BULL SIDE BEAR SIDE
1) For the second consecutive session, cattle futures exploded higher on Tuesday with spot February closing up to the 300-point limit. Apparently anticipating stronger feedlot sales, the spot settlement (i.e., 119.52) was the highest scored since June 10. 1)

Early-year beef demand seems to be really struggling. Cutouts fell hard again Tuesday with the choice box collapsing nearly $4, closing at the lowest level since Dec. 14. Supplies were described as "moderate to heavy."

2)

The surging board lends the cash cattle market potential in more ways than one. Generally, psychology gets a shot in the arm, and significant weakness in the basis means greater leverage for feedlot managers.

2)

While prices on short loins and strip loins increased through December, they could see some setbacks going into the weaker demand period of midwinter before turning higher once again into the spring.

3)

While the cash hog trade got off to a slow start on Monday, short-bought buyers had to kick procurement into high gear with dressed bids surging more than $2.

3)

The pork carcass imploded on Tuesday, crashed by eroding demand for hams, bellies and picnics.

4)

Hog weights are forecast to move sideways to lower in the coming weeks on a seasonal basis and are roughly four pounds below this time last year.

4)

Though lean hog futures followed cattle paper higher Tuesday, the buying of spot February remained quite cautious with the lead contracts stopping well under resistance at 67.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Feedstuffs) -- The World Trade Organization recently issued a decision that could provide further momentum for U.S. beef exports to Indonesia. The ruling addressed a complaint filed by the Office of the U.S. Trade Representative and its counterpart agency in New Zealand, which contended that Indonesia's import restrictions on a range of products -- including beef -- violate its obligations as a WTO member.

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As the complaint was making its way through the WTO process, the Indonesian government eased several of its restrictive measures on imported beef, which resulted in increased trade in 2016.

"Indonesia has been heavily regulated in terms of the way it controls its importers — what they can import, when they can import, how they can import it," explained Joel Haggard, U.S. Meat Export Federation (USMEF) senior vice president for the Asia-Pacific. "They began to loosen some of those restrictions early in the spring, but the commercial effects really came into place late last year."

One really big positive change for the U.S. and other exporters, Haggard said, was the elimination of the restrictions on the products that can be imported. "Some of those cuts would be items like knuckles and some of those hind-quarter cuts, plus some offal items. Livers and hearts are now eligible. Those items were previously not allowed to be imported, and now they are," he said.

Through November, U.S. exports to Indonesia reached $33 million -- a new single-year record.

According to Haggard, however, the WTO ruling is still important because it may help address the volatile and unpredictable nature of Indonesia's import policies. This, he said, would increase U.S. exporters' level of interest in the market and allow Indonesian importers to secure the products most in demand.

"Indonesia's relaxation of its rules may be a part of their strategy to show that they are coming more into line with the WTO, but they still have controls in place that limit free behavior of importers to import what they want, whenever they want. The capriciousness of the import regime has been one of the main factors in lowering the interest level of the United States industry in the market," Haggard said.

If the changes stay for a while, Haggard said he thinks more program business will be developed, "and if the United States can get new plants listed, then I think we'll be able to expand our volumes."

HOGS: (Winona Post) -- One of the largest hog farms in Winona County plans to expand two feedlots outside St. Charles. Holden Farms of Northfield, Minn., applied to build new barns and add several thousand sows to their herds. Between the two sites, the farm hopes to increase its herd by 1,734 animal units (one sow is 0.4 animal units). Both sites would remain just under Winona County's 1,500-animal-units-per-site limit, though the expansion was large enough to trigger a mandatory review by the Minnesota Pollution Control Agency (MPCA).

With almost 40,000 sows and 200 contract farmers across Minnesota and Iowa, Holden Farms describes itself as one of the largest family-owned pork producers in the country. Fifth-generation farmer and Sow Division General Manager Nick Holden explained that the company has owned the two hog operations outside St. Charles for more than a decade. "We've been down in that area for a long time and we've got great employees and good neighbors that we work with," he stated. Holden says the farm wants to continue being a good neighbor. The proposed would add 8-10 jobs, mostly farm hands.

The expanded hog feedlots would produce around 8.7 million gallons of manure annually, and Holden has secured deals with local landowners to apply that manure as fertilizer to over 4,000 acres across northwestern St. Charles Township and parts of Elba Township.

There are numerous homes within a mile of the two Holden Farms feedlots. Wells that supply drinking water to the city of Utica, Berea Moravian Church, Whitewater State Park, Lazy D Campground, and SEMA Equipment lie within two miles of the fields where the manure would be applied. A designated trout stream, Trout Run Creek, is 2,100 feet from the nearest manure application site. The South Branch of the Whitewater River — also a trout stream — lies 2,640 feet away.

Because of the porous, cracked bedrock in the area, both the project sites and the manure applications fields are in areas at "high risk to groundwater pollution," according to the MPCA. However, MPCA staff wrote in an Environmental Assessment Worksheet (EAW) completed for the project that, "The MPCA does not expect significant potential impacts to surface water resources from the project's land application of manure activities," and "the MPCA anticipates the project will not contribute to the existing water quality issues."

In annual water quality reports, the MPCA has also warned Southeastern Minnesotans about water pollution caused by nitrates in synthetic fertilizer and manure. Asked about the potential for pollution from manure, MPCA Planner Nancy Drach said, "Manure applications — there are very specific requirements by the state [and county setbacks] for land applications." There are rules in place to protect ground and surface water, she stated.

Before Holden Farms can get its general feedlot permit from the MPCA, it needs to complete the environmental review process. Holden Farms had to complete a 186-page EAW, in which farm consultants and MPCA experts studied the potential for runoff and odor. Right now the MPCA is seeking comments from the public about the proposed expansion. A 30-day public comment period window opened on January 2.

Once the comment period closes, the MPCA will review the comments and decide whether a more in-depth study of potential environmental effects is necessary. That study is called an Environment Impact Statement (EIS). If no EIS is needed, the project can move ahead with MPCA permit approval.

Holden Farms will also need a conditional use permit (CUP) approval from the Winona County Board.

The MPCA will host a public informational meeting on Thursday, January 12, from 7-8:30 p.m. at the St. Charles Community Center at 830 Whitewater Avenue, in St. Charles. There will be no public hearing at the meeting, but information on the project and how to make comments will be presented.

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

Follow John Harrington on Twitter @feelofthemarket

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