DTN Early Word Opening Livestock
Feedlot Cash Premiums Likely to Spark Higher Cattle Futures Opening
GENERAL COMMENTS:
Cattle: Steady-$2 HR Futures: 25-50 HR Live Equiv $131.01 - .66*
Hogs: Steady-$1 HR Futures: 50-100 LR Lean Equiv $ 84.98 + .82**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
According to the standard playbook, the cash cattle trade will be quiet Monday as packer limit activities to the collection of new showlists. We expect the offering to be steady to somewhat smaller than last week. Since nothing succeeds like success, feedlot managers will not hesitate to price ready steers and heifers higher, probably around $125 in the South and $200 in the North. Yet cash traders are not likely to seriously square off until Wednesday or later. Live and feeder futures seem staged to open moderately higher Monday, supported by the premium status of feedlot sales and technical buying interest.
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The cash hog market seems likely to open with bids steady to $1 higher compared with Friday. As we begin the fourth week of January, the trade is still looking for the new year's first slaughter schedule (i.e., chain speed so far has been skirting either holidays or weather). Accordingly, it's been tough to assess the longer-term accuracy of the Dec. 1 weight breakdown. Let's hope we start getting better clues. Lean futures are also set to trade moderately higher in the early going, boosted by short-covering and the fact the spot February will start $1.71 below the cash index.
| BULL SIDE | BEAR SIDE | ||
| 1) | The cash cattle market is clearly on a roll, one strongly driven by very tight fed supplies. Most analysts believe that such country leverage is likely to remain relatively positive through though the end of the first quarter.. | 1) | Beef cutouts remain on the defensive, closing significantly lower on Friday. Typically, consumer meat spending in late January and early February falls lower in the list of priority. |
| 2) | CME bulls are throwing quite a party so far this year with live cattle open interest ballooning by 33,000 cars just since Jan. 1. Yet we remain 70,000 below last week's fire code limit, plenty of room to rock on. | 2) | So far, beef export sales for 2017 are definitely less than inspiring. For the week ending Jan. 12, new biz totaled no more than 3,712 MT, kicking off the new yearto a slow start. |
| 3) | Net pork export sales for the week ending Jan. 12 totaled 25,400 metric tons, down 58% from the previous week, but up 44% from the prior four-week average. At the same time, actual exports were quite respectable, totaling 23,300 MT. | 3) | The long-term market trend of lean hog futures is still bullish but a couple of hundred points off its rally highs. A move to new highs on the April and June contracts is needed for the bullish trend to remain in place. |
| 4) | The pork carcass value closed solidly higher on Friday, supported by impressive demand for ham and belly items. | 4) | In the week ending Jan. 17, commercial traders in lean hog futures added 3,000 contracts to their short position, which now stands at 98,000 contracts. It seems like pork producers are willing to sell into the strength in the market as all contracts out through October are offering positive margins. |
CATTLE: (wnax.com) -- R-CALF leaders are hoping to get the new Congress to reinstate mandatory Country of Origin Labeling. R-CALF CEO Bill Bullard says the recent move by USDA to propose an amendment to COOL to add venison to voluntary reporting requirements doesn't achieve want consumers really want, which is origin information on beef and pork.
He thinks there's a good chance they'll get the support of the new administration to convince Congress to restore Country of Origin Labeling for beef and pork.
Bullard also says R-CALF also wants to work with Agriculture Secretary nominee Sonny Perdue on several issues, including mandatory labeling.
Comments on the USDA proposal on adding venison to COOL must be submitted by March 14 of this year.
HOGS: (feedstuff) -- According to Iowa State University livestock economist Lee Schulz, first-half 2017 pork production will rise based on hogs that are already in the pipeline, with second-half output also likely topping the record levels of 2016.
"Additional packing plants coming on line in 2017 and 2018 will help ease capacity constraints," Shulz said. "The additional capacity is good news for producers as more competition for their hogs will give producers a bit more leverage."
Packers will want to hold market share, Shulz added. "To do so, they'll need to get after hogs. Packers want to spread fixed costs over as many hogs as possible. Plus, no packer wishes to give up shelf space, foodservice or export markets. Those are all incentives to pay a higher price for hogs to secure a quantity level that captures operating efficiencies."
Weekly slaughter topping 2.5 million hogs for several weeks last fall stressed capacity. Plus, total pork packer gross margins (cutout plus byproduct minus hog carcass) have been extraordinary, rivaled only by the pork packer gross margins of 2014, Schulz explained, adding, "No wonder new packing plants are under construction and the industry is in an all-hands-on-deck mode to get operational as soon as possible. The key going forward is whether packers will be able to grow sales, particularly to key export markets."
John A. Harrington can be reached at john.harrington@dtn.com
Follow John Harrington on Twitter @feelofthemarket
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