DTN Early Word Opening Livestock
Cattle Paper Likely to Open With Mixed Prices
GENERAL COMMENTS:
Cattle: Steady Futures: Mixed Live Equiv $130.52 - .52*
Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 90.53 - .15**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Light trade volume developed at midweek in several areas of cattle feeding country with live prices ranging from steady to $1 higher (i.e., $120 on the South and $119 in the North). Look for moderate trading to surface sometime Thursday or Friday. Asking prices are around $122 in the South and $192 plus in the North. Live and feeder futures are geared to open on a mixed basis, tied to a combination of follow-through selling and short-covering.
After soft bids failed to generate market numbers on Tuesday, short-bought hog buyers were forced to roll out the big guns at midweek. Dressed bids jumped as much as $2.73 on Wednesday, successfully attracting more than 12,000 head basis the national report. Accordingly, we suspect that the cash market will once again sport a firm undertone Thursday with opening bids ranging from steady to $1 higher. At this time, the Saturday hog kill is expected to total close to 153,000 head. Lean futures seem likely to open with uneven prices thanks to light bull-spreading and profit-taking.
| BULL SIDE | BEAR SIDE | ||
| 1) | Light cattle sales surfaced in parts of Kansas and Texas on Wednesday at $120, $1 higher. Given the combination of extreme basis levels and faltering cutouts, such strength speaks volumes about the lightness of feedlot supplies. | 1) | Live and feeder futures broke hard at midweek, erasing all of this week's advance. The failure to fully close the late January gap and move above that resistance in actively traded April provides a bearish market bias. |
| 2) | Beef exports increased 11% in volume (1.19 million metric tons) and 1% in value ($6.34 billion) from 2015. December exports totaled 116,847 metric tons, up 24% year-over-year. This was the largest monthly volume since July 2013 and the largest ever for December. | 2) | Beef cutouts continued to struggle Wednesday with the select box especially under pressure. Furthermore, supplies were described as "moderate to heavy." |
| 3) | December pork exports totaled 222,635 MT, up 18% year-over-year, valued at $564.2 million, up 20%. Pork export volume reached a record 2.31 million metric tons (MT) in 2016, up 8% year-over-year and 2% above the previous high in 2012. | 3) | For the week ending Feb. 4, U.S. hatcheries set 219 million broiler eggs in incubators, up 2% from a year ago. At the same time, chicks placed totaled 177 million chicks, up 1% from 2016. |
| 4) | For the week ending Feb. 4, Iowa barrows and gilts averaged 281.4 pounds, .7 pounds lighter than the prior week and 2.1 pounds smaller than 2016. | 4) | For the week ending Jan. 31, commercial traders added 8,000 contracts to their net-short position in lean hog futures, which now stands at 103,000. |
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CATTLE:(foodmarket.com) -- Randy Blach, who leads the producer-run market analysis contractor, CattleFax, told Radio Oklahoma Ag Network Farm Director Ron Hays that the idea of getting more transparency into the cattle markets is a good thing that will benefit everybody involved. He says tools such as the online cattle trading platform, FedCattleExchange.com, have already begun to raise that level of transparency and suggests that this is something the industry has really needed.
"Price discovery is such a fundamental part of the way we do business and it is all the way up and down the system, and at the cash level it's imperative," Blach said. "I don't see wholesale or retail markets as being an opportunity for us to establish a base price."
FedCattleExchange.com gives traders a test of the value of cattle earlier in the week, as opposed to watching whatever activity happens late in the day on Friday afternoons.
"That's not very helpful for anybody in the marketplace," Blach said. "Anything we can do to see points of price discovery, earlier in the week, will be very, very helpful for what we're all trying to achieve in the long-run."
In the meantime though, Blach says the industry should keep an eye on the things that exaggerate the market trends that cause high degrees of volatility, such as keeping trade avenues open, monitoring cash flow in and out of the market and managing risk.
"I think the industry is working very hard on that," he said, "and trying to figure out how do we tweak this and tweak that."
HOGS: (NPPC) -- The Trump administration has extended the deadline for submitting comments on a regulation related to the buying and selling of livestock, a move hailed by the National Pork Producers Council, which opposes the Obama-era rule.
The so-called Farmer Fair Practices Rules, written by the U.S. Department of Agriculture's Grain Inspection, Packers and Stockyards Administration (GIPSA), include two proposed regulations and an interim final rule, comments on which now are due by March 24.
NPPC is most concerned with the latter, which would broaden the scope of the Packers and Stockyards Act (PSA) of 1921 on the use of "unfair, unjustly discriminatory or deceptive practices" and "undue or unreasonable preferences or advantages." Specifically, the regulation would deem such actions per se violations of federal law even if they didn't harm competition or cause competitive injury, prerequisites for winning PSA cases.
"We're very pleased that the Trump administration has extended the time we have to educate regulators about the devastating effects this rule would have on America's pork producers," said NPPC President John Weber, a pork producer from Dysart, Iowa. "The regulation likely would restrict the buying and selling of livestock, lead to consolidation of the livestock industry -- putting farmers out of business -- and increase consumer prices for meat."
USDA in 2010 proposed a number of PSA provisions -- collectively known as the GIPSA Rule -- that Congress mandated in the 2008 Farm Bill; eliminating the need to prove a competitive injury to win a PSA lawsuit was not one of them. In fact, Congress rejected such a "no competitive injury" provision during debate on the Farm Bill. Additionally, eight federal appeals courts have held that harm to competition must be an element of a PSA case.
"Eliminating the need to prove injury to competition would prompt an explosion in PSA lawsuits by turning every contract dispute into a federal case subject to triple damages," Weber said. "The inevitable costs associated with that and the legal uncertainty it would create could lead to further vertical integration of our industry and drive packers to own more of their own hogs.
"That would reduce competition, stifle innovation and provide no benefits to anyone other than trial lawyers and activist groups that will use the rule to attack the livestock industry. And for those reasons, we'll be asking the administration to withdraw the rule."
An Informa Economics study found that the GIPSA Rule, including the interim final rule, would cost the U.S. pork industry more than $420 million annually, with most of the costs related to PSA lawsuits brought under the "no competitive injury" provision.
The deadline for submitting public comments on the Farmer Fair Practices Rules was extended to March 24 from Feb. 21; the effective date of the interim final rule was pushed back to April 22 from Feb. 21
John Harrington can be contacted at john.harrington@dtn.com
For more from John Harrington, see www.feelofthemarket.com
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