DTN Early Word Opening Livestock
Cattle Paper Set to be Well Supported in Opening Rounds
GENERAL COMMENTS:
Cattle: Steady/firm w/Thurs Futures: 25-50 HR Live Equiv $131.67 - .76 *
Hogs: Steady-$1 HR Futures: 25-50 HR Lean Equiv $ 84.16 + .06 **
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
The cash cattle trade suddenly caught fire Thursday as short-bought packers jumped toward higher asking prices in order to secure slaughter needs. Such aggressiveness meant live sales in the South as high as $122 to $123, $3 to $4 higher than last Friday. At the same time, dressed deals in the North were marked at $194 to $195, generally $5 higher than last week's weighted averages. Although we could see some clean-up action here and there, most business appears to be done for week thanks to Thursday's moderate to fairly active trade volume generated in most areas. Live and feeder futures should open moderately higher, encouraged by spillover buying and impressive evidence of packer spending.
Hog buyers are expected to complete procurement chores Friday with bids steady to $1 higher. While processing margins have certainly tightened from the extreme of the fourth quarter, packer profits remain attractive, certainly handsome enough to justify fairly aggressive chain speed. Assuming that Friday's kill will total close to 425,000 head, followed by a Saturday slaughter close to 240,000, the weekly kill should total just under 2.3 million. Lean futures are expected to open some higher, supported by the premium of the cash index and spillover bullishness from cattle markets.
| BULL SIDE | BEAR SIDE | ||
| 1) | Extremely tight fed supplies have once again forced cattle-hungry packers to expand credit lines in order to meet higher asking prices. Thursday's spending spree was all the more impressive in the face of struggling wholesale beef prices. | 1) | For the week ending Jan. 7, cattle carcass weights jumped higher: all cattle averaged 837 pounds, 4 lbs. heavier than the previous week and 5 lbs. greater than 2016; steers averaged 905 lbs., 5 lbs. greater than the prior week and 3 lbs. bigger than last year; heifers averaged 836 lbs., 3 lbs. heavier than the week before and 1 lbs. lighter than 2016. |
| 2) | Live and cattle futures also rolled higher on Thursday with spot February landing the highest advance for a lead contract seen since June 10. Bulls seem to be eager to knock on the door of long-term resistance between 122 and 123. | 2) | Beef cutouts fell significantly lower Thursday, just as the cost of live cattle surged sharply higher. In short, packer margins just went from bad to worse. |
| 3) | The cash hog market continues to build a premium over spot February futures. Not only does this speak well of good packer demand for live inventory, it clearly backstops a board sell-off anytime soon. | 3) | Assuming that finishing floors can't get any more current than they are right now, the odds are higher that pork producers could slip behind in marketing over the next several months, especially if winter weather continues to be disruptive. Premiums in deferred lean futures may not be helpful either. |
| 4) | Stronger than expected cattle and beef prices through the first quarter now promise to provide excellent cover for hog and pork prices. A rising tide can lift all boats. | 4) | If herd expansion was firmly on track as of Dec. 1, market forces since then have offered nothing but further encouragement to pork producers (e.g., relative cheap feed prospects for as far as the eye could see; slow but steady growth in the premiums of deferred lean futures. |
CATTLE: (foodmarket.com) -- Beef features once again claim the top spot across proteins with 27% of feature volume this week. Pork moves into second place with 24% of ad space, while seafood slides with 22%. Chicken feature volume came in at 18% this week, while turkey saw a slight bump to 5%, getting a lift from increased features within the ground turkey complex.
P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]
This week, the index for chicken parts ticked upwards to $2.68 per lb., which compares to $2.54 per lb. this week in 2015. Last week, the index was $2.60, helped out by aggressive featuring on boneless skinless breasts. Last week's ads averaged $3.36 per lb., compared to $3.70 this week.
Beef roasts remain below year ago levels at an average $4.23 per lb., down nearly 9% YOY. The steak complex is also down nearly 25 cents per lb. from year ago, at $6.58. Looking at ground beef, 80% lean is featured at $3.19 per lb. on average, a 13% drop from year ago.
In the pork complex, hams are still popping up in circulars as the last of the holiday inventory gets a push. Ham features average $1.82 per lb. The rib complex is averaging $2.59 per lb. this week, down 30 cents per lb. from a year ago. Pork chops are running nearly on par with 2015 at this time, at $3.12 per lb. on average. Loin roasts are offered as low as $1.49 per lb. in some areas.
The consumer price index for all urban consumers increased 0.3% in December on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. Recent trends continued in the food indices, as the food at home index declined again, offsetting an increase in the index for food away from home and leaving the overall food index unchanged for the 6th consecutive month.
The food at home index fell 0.2%, its 8th consecutive decrease. Four of the six major grocery store food group indices fell in December. The index for meat, poultry, fish and eggs fell 0.4% as the beef index alone fell 0.8% and the index for eggs decreased 3.9%.
Overall for the year 2016, the food index declined, falling 0.2%. The index for meat, poultry, fish and eggs declined 5.4% in 2016, compared to a 2.2% drop in 2015. The index for eggs alone fell 33.8%. In addition, the index for food away from home rose 2.3% in 2016, following a 2.6% increase the previous year. Over the last 10 years, the food index rose at an annual rate of 2.3%, while the food at home index rose at a 2% rate and the food away from home index increased at a 2.7% rate.
HOGS: (brownfieldagnews.com) -- Mexico is expanding its hog herd, and a market analyst says it could significantly impact demand for U.S. pork.
Steve Meyer, vice president of pork analysis for EMI Analytics, says Mexico is taking steps to grow its breeding herd by nearly 20 percent.
"They can't feed hogs as cheaply as we can because we have an advantage on the feed side. But, they have a free trade agreement with Japan. So that allows them to ship high-value product to Japan, keep their lower-value product at home perhaps. And that means they would compete with us in Japan and Mexico."
Mexico was the top destination for U.S. pork in 2016, followed by Japan.
Meyer says President-elect Trump's criticism of the North American Free Trade Agreement is another potential headwind for exports.
"My concern is more with the Mexican domestic supply situation, then if you add any trade things on top of that (it) would just add to those. So I think we've got some challenges with Mexico regardless."
Brownfield spoke to Meyer at Minnesota Pork Congress in Minneapolis Wednesday.
John A. Harrington can be reached at john.harrington@dtn.com
Follow John Harrington on Twitter @feelofthemarket
(BAS)
Copyright 2017 DTN/The Progressive Farmer. All rights reserved.