DTN Early Word Opening Livestock

 
Cattle: Steady weak w/Wed Futures: Mixed Live Equiv $133.37 + .81* 
Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 88.17 -1.36**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Feedlot managers agreed to accept lower bids on Wednesday, moving light to moderate numbers in the process. Country movement seemed more pronounced in the North than the South. Yet we will be anxious to check out Mandatory reports when actual volume is reported later Thursday. At this point, we assume there are still plenty of cattle on showlists (probably prices around $120 plus/$192 plus). Live and feeder futures seem geared to open on a mixed basis with the latter likely to lose more ground to the former.

Look for hog buyers to remain in the spending mode. Not only are market hog numbers slowly tightening, processing margins remain quite attractive. Saturday kill plans should total close to 130,000 head. Lean futures should begin with uneven price action with nearby issues more successful in attracting buying interest than deferred contracts.

	BULL SIDE		BEAR SIDE
1)	Beef cutouts closed sharply higher at midweek as improving buying interest seems to be extended for the second consecutive week.	1)	The cash cattle trade broke significantly lower on Wednesday as extreme board discounts and historically strong basis levels seriously undermined bargaining power.
2)	Most agree that feedlot country remains extremely current, furthermore, we are hearing many complaints of extremely muddy conditions, conditions that may continue to limit weight gain and total tonnage.	2)	Given national feeder receipts through the month and a larger feeder pool as of January, many analysts are already assuming that the January placement probably towered above the prior year for the third consecutive month.
3)	The cash hogs remain quite strong as ready numbers of barrows and gilts slowly tighten. Recognition of such helps explain the premium structure of lean hog futures.	3)	During the week ending Jan. 28, U.S. hatcheries set 220 million broiler eggs, up 1% from a year ago. At the same time, 179 million chicks were placed for meat production, also up 1% from 2016.
4)	For the week ending Jan. 28, Iowa barrows and gilts averaged 282.1 pounds, .3 lbs. lighter than the previous week and 2 lbs. smaller than 2016.	4)	The pork carcass value was hit hard on Wednesday with all primals experiencing softer demand except the rib and butt.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Omaha World Herald) -- Eyeing that pack of steaks? Beef should keep getting cheaper at the supermarket this year, with supplies growing.

The number of U.S. cattle grew for the third straight year in 2016, as ranchers continued to rebuild their herds thanks to good hay and pasture conditions.

The U.S. Agriculture Department counted nearly 94 million cattle on Jan. 1, according to its annual inventory report published Tuesday. That's up 2 percent from a year ago, and was a bigger increase than many analysts expected, said ag economist Gary Lohr of the Denver-based Livestock Marketing Information Center.

Numbers of beef cows and calves were both up 3 percent, also higher than expected, Lohr said. He said a smaller increase was expected, with cattle prices declining through much of 2016.

The continued growth trend is a turnaround for the industry compared with the first part of this decade.

Several years of drought helped reduce the nation's cattle herd to a 63-year low by 2014. Dry conditions meant less forage and hay to feed livestock, so ranchers culled cattle, shrinking the U.S. herd in 2014 to its smallest size since 1951.

Then, with fewer cattle available to market, grocery store prices for beef spiked. Prices hit record highs in 2014 and again into 2015.

Those higher prices helped further depress already-declining U.S. beef consumption, which fell a total of 15 percent in the past decade. Meanwhile, consumption of cheaper-per-pound chicken rose 5 percent, the USDA said. Health concerns about red meat were another factor. But since the drought eased, ranchers have been rebuilding. The total U.S. herd size was up 1 percent in January 2015, 3 percent in January 2016 and now, up 2 percent.

Grocery prices have fallen in response to the greater supply. The price of a pound of ground beef at retail fell steadily through 2016 and was down to $4.04 in December, from a high of $4.71 a pound in February 2015.

The USDA predicts that the trend will continue over the next decade, forecasting beef production to grow nearly 12 percent and consumer prices to fall nearly 11 percent, thanks to lower feed costs and strong demand here and abroad. That could reverse an ongoing decline in U.S. meat consumption, the USDA said. Beef consumption per person is forecast to increase by 2.7 percent by 2025.

"With that kind of value presented to consumers, consumers are going to opt for beef as opposed to chicken or pork," Lohr said. Thanks in part to record supplies of cheap grain, "we are in unprecedented territory as far as the amount of meat available to consumers." Nebraska's total cattle herd didn't grow in 2016, staying flat at 6.5 million, but the state kept its No. 2 position in the country, behind Texas. And the Beef State remained the nation's biggest cattle feeder, fattening the most animals for slaughter.

"Our state is uniquely positioned with a ready supply of water and feedstuffs that make it a prime place to feed cattle," said Greg Ibach, director of the Nebraska Department of Agriculture. He said the department continues to attend trade shows to promote the state's feedlot industry and attract business.

HOGS: (Cincinnati Enquirer) -- The country's bacon reserves are at the lowest levels in half a century.

In other words, pig farmers can't keep up with the world's sizzling appetite for those fatty, smoky strips of sheer eating pleasure.

The Ohio Pork Council, a Columbus-based non-profit, reported Tuesday that demand for frozen pork belly, frequently made into bacon, is outpacing supply.

"Thursday's pig farmers are setting historic records by producing more pigs than ever," said Rich Deaton, president of the organization. "Yet our reserves are still depleting."

There are literally not enough little piggies going to market.

In December 2016, frozen pork belly inventory totaled 17.8 million pounds, the lowest level since 1957, according to the U.S. Department of Agriculture.

As a result, prices are on the rise. The council reports pork belly prices have increased 20 percent in January. Officials said increased foreign demand might account for the decline in inventory. Hog farmers export approximately 26 percent of total productions, the council said.

"While bacon may become more expensive for consumers, rest assured pork industry will not run out of supply," said Deaton.

(AP) --- An insatiable demand for bacon depleted frozen pork belly supplies in the U.S. to a record low level for December, but the pork industry is confident it can keep up with demand and avoid any serious shortages.

Bottom line: A pound of it may cost a little more as winter wears on, but prices should stabilize by summer.

The U.S. Department of Agriculture reported last week that pork bellies in cold storage fell to 17.7 million pounds last month, the lowest December inventory since records began in 1957. In comparison, more than 52.3 million pounds of pork bellies --- the cut of the hog from which bacon is derived --- remained in storage in December 2015.

"Veterans of the industry say clearly this is record-breaking stuff," said Russell Barton, a market reporter for protein analyst firm Urner Barry. "December is the lowest on record. They really haven't ever seen a situation like this before."

Pork bellies are usually stockpiled in freezers at the end of the year and the first few months of the next year to get through the summer peak months when bacon consumption is highest, Barton said. This season, bacon demand was high enough that fresh pork bellies were used as quickly as they were produced, leaving significantly less meat to store.

Prices at the wholesale level already are showing an increase. Tuesday's pork belly prices were at $1.71 a pound, about 37 percent higher than this time last year, Barton said. Retail bacon prices haven't jumped significantly but could climb as the industry works to catch up.

"What this says is there was excellent product movement in the fourth quarter of 2016," said Steve Meyer, a pork industry economist for Express Markets Inc., which tracks industry trends for retailers and foodservice companies.

Meyer isn't concerned about the short-term stockpile shortage because he expects pork production to increase about 3 percent this year.

The popularity of bacon has increased as the pork industry has figured out new ways to sell the product. To keep pace with increased pork demand, the industry is building at least four new processing plants in Iowa, Minnesota, Missouri and Michigan in the next few years.

The variety of bacon treats has soared in recent years to include delicacies such as jalapeno bacon, bacon apple pie, doughnuts with bacon and chocolate chocolate-covered slices, said Brooks Reynolds, an Iowa commercial insurance agent who created the Blue Ribbon Bacon Festival, which attracts more than 10,000 bacon enthusiasts to Des Moines on Feb. 18.

"People will pay what it costs to buy bacon because they love it," he said.

Demand also has increased as bacon has become an ingredient in menu options at restaurants including Subway and Bruegger's Bagels, and as McDonald's started selling breakfast all day.

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

Follow John Harrington on Twitter @feelofthemarket

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