DTN Early Word Opening Livestock

 
Cattle: Steady-$2 HR Futures: 50-100 HR Live Equiv $131.13 + .64*
Hogs: Steady-$1 HR Futures: 50-100 HR Lean Equiv $ 85.80 +1.15**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Activity in feedlot country Tuesday will no doubt be limited to the distribution of new showlists. The midmonth offering could be about steady. While last week's limited movement may have caused some ready steers and heifers to be carried over, it's also possible that harsh winter weather is working to strip the finish from the country's front-end supply. Although asking prices will probably be poorly defined Tuesday, our guess is that bullish feedlots will start out thinking around $122 plus in the South and $195 plus in the North. Look for live and feeder futures to open moderately higher thanks to follow-through buying and ongoing evidence of cash strength.

Movement of market hogs over a large swath of production country could be rather dicey Tuesday depending upon snow and ice conditions. With that uncertainty in mind, look for opening bids to be generally steady to $1 higher. Monday's slaughter was somewhat abbreviated tied to the Martin Luther King holiday (probably around 370,000 head). Given the fact that processing margins remain very profitable, we assume that packers will once again put together a fairly aggressive Saturday kill. Look for lean futures to open moderately higher as well, supported by positive fundamentals and challenging winter conditions.

	BULL SIDE		BEAR SIDE
1)	Extremely tight fed supplies and a softening patience (thanks to Friday's impressive rally in futures) inspired feedlot managers to patience and leverage late last week, enough to push live sales in the South ($119) and dressed sales in the North ($190) $1 and $2 higher, respectively.	1)	Trade volume in feedlot country was relatively limited on Friday and that probably means that showlists distributed Tuesday will be generally larger than last week.
2)	Noncommercials continued adding their net-long commitment in live cattle futures during the week ended Jan. 10, adding 3,700 contracts to reach 92,300 net long. Furthermore, increases in open interest later in the week, suggested further buying interest.	2)	Retail meat spending has been known to struggle in the second half of January/early February thanks to the taxing need to service credit cards often overused during the holiday season.
3)	The pork carcass values closed last week on a strong note, jumping more than a buck higher essentially thanks to ham primals surging nearly $10.50 higher.	3)	The seasonal index for February lean hog futures is to lower price levels in the next couple of weeks followed by a turn back higher as the contract moves towards expiration.
4)	During the week ending Jan. 10, noncommercial traders saw their net-long position in lean hog futures increase by 2,200 contracts to approximately 33,700 contracts.	4)	Though the hog board is holding in a narrow range (i.e., 63 to 66 basis February), some sense that the sluggishness suggests first quarter price potential has already been dialed in.

OTHER MARKET SENSITIVE NEWS

CATTLE: (southwestfarmpress.com) -- The beef industry will see growth in production and consumption in 2017, which will keep pressure on cattle and beef prices.

While annual average cattle prices will be lower year over year in 2017, prices will likely average close to fourth quarter 2016 prices for calves, feeder cattle, and fed cattle. Seasonally, prices may be higher at times, compared to late 2016 prices. However, uncertainty over the new U.S federal administration, global markets, and volatility in futures markets will continue to cloud expectations, and could significantly alter current forecasts for 2017.

Beef production increased more than expected in 2016 as feedlots marketed cattle aggressively, resulting in larger than expected cattle slaughter. Slaughter numbers will continue higher in 2017 as a result of larger 2015 and 2016 calf crops.

Total beef production increased year over year by roughly 5.2 percent in 2016, and will likely increase another 4.5 percent in 2017. That would put total beef production back to levels close to 2012.

Herd expansion continued in 2016, but may slow to little or no growth in 2017. Feeder cattle supplies will be higher through 2018, but may taper off after that. While domestic feeder cattle supplies are growing, at least 350,000 fewer calves were imported from Mexico and Canada in 2016, compared to 2015, and it appears that cattle imports will remain small in 2017.

Retail beef prices will continue adjusting downward in 2017 to encourage consumers to increase consumption in the face of larger beef supplies. Larger supplies, combined with increased pork and broiler production, could increase total meat supplies by a projected 2.8 percent in 2016 year over year, with a similar increase expected in 2017.

The new year should see another record in total meat production in the U.S. Increasing meat exports will be a critical factor in limiting price declines. Beef and cattle trade responded as expected in 2016, with beef and cattle imports declining and beef exports increasing. The improved net trade flow of beef moderated the 5.2 percent increase in 2016 beef production into a projected 2.1 percent increase in per capita domestic beef consumption.

It is likely that the U.S. will return to being a net beef exporter, with exports again exceeding imports in 2017. Per capita beef consumption bottomed out at about 54 pounds in 2015 as beef production declined, but increased to a projected 55.5 pounds in 2016, a 2.6 percent increase. Assuming no major changes or disruption to beef trade in 2017, additional export growth is expected, along with further moderation in imports, which should hold domestic beef consumption to a less than 2 percent year over year increase in 2017.

HOGS: (pig-world.co.uk) -- Global meat prices fell by 7% year-on-year in 2016, according to the latest figures from the Food and Agriculture Organization (FAO) of the United Nations.

"After reaching a six-year low during March 2016, however, there was some modest recovery during the middle of the year," commented AHDB Pork in an analysis of the FAO report.

"Prices then stagnated, dropping back 2% after reaching a peak in August. The largest price falls for the year as a whole were recorded for bovine and poultry meat, due to challenging trade and too much supply in the market. Pigmeat was less affected, due to falling supplies and strong demand from China.

"However, pork prices are likely to experience more pressure looking forward, as Chinese demand slows while abundant US supplies enter the global market."

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

Follow John Harrington on Twitter @feelofthemarket

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