DTN Early Word Opening Livestock

 
Cattle: Steady Futures: 25-50 HR Live Equiv $132.01 + .45* 
Hogs: Steady-$1 HR Futures: 25-50 HR Lean Equiv $ 90.84 + .81**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

The cash cattle trade should experience a typically quiet Tuesday with bids and asking prices poorly defined. Both sides will be eager to glean signs of price direction from the board, which has been locked in a relatively narrow trading range for most of the month. At this point, we assume asking prices will probably start out around $122 in the South and $192 to $194 in the North. Significant trade volume could easily be delayed until Thursday or Friday. Live and feeder futures seem set to open moderately higher, supported by early-week short-covering and cash premiums.

Cash hog sales were modestly higher on Monday, but negotiated receipts were quite light. This probably means that packers will be forced to show a little more aggressiveness Tuesday. Look for opening bids to range from steady to $1 higher. The weekly kill is expected to be around 2.35 million head. Lean futures seem geared to open higher with early-week buying tied to follow-through buying and ongoing cash strength.

	BULL SIDE		BEAR SIDE
1)	The early-week boxed beef trade showed signs of extending last week's recovery in carcass value (i.e., from Friday to Friday, the choice and select cutouts advanced by $2.86 and $3.39, respectively). Cutouts closed solidly higher on Monday with demand described as "moderate to fairly good."	1)	Still basis remains strong and deferred discounts wide, maintaining a bearish tilt to cash prospects later in the month. Furthermore, the succession of lower lows and lower highs confirms the short-term downtrend in actively traded April.
2)	New showlists just distributed in feedlot country look generally smaller with only Nebraska offering a few more ready steers and heifers.	2)	After adding fractionally to their net-long commitment in early February, noncommercials pared their net-long position in live cattle futures to 91,000 contracts during the week ended Feb. 14, down 5,400 from a week earlier.
3)	The pork carcass value also got off to a good start Monday (i.e., up .81), boosted by better demand for fresh cuts and bellies.	3)	The spread between cash hog prices and the cutout is narrowing and swings in the cutout value will now have more of an impact in the country trade.
4)	Although pork processing margins have certainly narrowed since late January, the $8.39 premium the wholesale cutout continued to hold over the most recent cash index (i.e., $77.07 as of February 17) implies decent packer profits and plenty of incentive to aggressively feed chain speed.	4)	The fact that spot April lean hog futures remain more than $6 below the cash index indicates that many traders are nervous about a bearish shoe soon to drop, perhaps both in terms of supply and demand.

OTHER MARKET SENSITIVE NEWS

CATTLE: (oklahomafarmreport.com) -- U.S. beef has been rapidly building momentum in South Korea, and received a further boost this week as Costco officially began converting its imported chilled beef selection from Australian beef to 100 percent U.S. product. The move follows a multi-year effort by the U.S. Meat Export Federation (USMEF) to persuade store managers that sales of U.S. beef - a popular item at Costco - would match or exceed Australian beef sales due to revived consumer confidence in the safety of U.S. beef.

Costco currently has 13 warehouses in Korea, with two new locations scheduled to open this year. On Feb. 13, Costco began transitioning two of those warehouses to 100 percent U.S. chilled beef. The others will be converted in May.

In total, Costco's move represents an opportunity for about 15,000 metric tons (mt) of incremental new beef business in 2017, said Jihae Yang, USMEF director in Korea. Yang noted that the theme of U.S. beef promotions in Korea has gradually moved from food safety to consumer enjoyment and product quality.

"While USMEF still reassures Korean consumers that U.S. beef is a safe product, we are now able to focus more on the outstanding flavor of U.S. beef," Yang said. "Tasting demonstrations at Costco and other popular stores have been very successful in getting consumers to taste U.S. beef and increase awareness of our product."

USMEF is also providing support to Costco to ensure a smooth transition to U.S. chilled beef, helping re-acquaint customers with the full range of U.S. beef cuts.

"Korean consumers love the high quality of U.S. beef and really enjoy the flavor of our product," added Dan Halstrom, USMEF senior vice president for marketing. "In Korea, Costco is the gold standard when it comes to imaging food products, especially beef. USMEF, along with our partners in the U.S. beef industry, have been working hard to recapture market share in Korea. We've been able to do that, but mostly on the frozen side. The marquee items at Costco are the chilled beef cuts and we finally have that chilled section of the meat case back."

U.S. beef exports to Korea totaled 179,280 mt in 2016, up 42 percent year-over-year. Export value reached $1.06 billion, up 31 percent from a year ago and breaking the previous value record (from 2014) by 25 percent. Chilled beef exports to Korea totaled 24,572 mt in 2016, up 47 percent year-over-year, valued at $216.4 million (up 43 percent).

U.S. beef captured 42 percent of Korea's imported beef market in 2016, up from 35 percent the previous year, while Australia's market share fell from 57 percent to 49 percent. But Yang notes there is still room for further growth, citing pre-BSE data from 2003.

"Prior to the December 2003 market closure, U.S. beef accounted for the majority of imported beef sales in Korea and 49 percent of total sales - including domestic beef," she explained. "So while U.S. beef has made excellent progress in Korea, the market still holds strong growth opportunities."

Korea's per capita beef consumption set a new record in 2016 at more than 25 pounds (product weight), up about 5 percent year-over-year and increasing by one-third since 2009 - so U.S. beef is not only gaining market share, but also contributing to growth in overall consumption. Korea's demand for imported beef remains strong, and based on customs clearance data U.S. beef topped Australian beef in Korea's January imports, continuing a trend that began late last year.

"Regaining Costco's chilled beef business is a milestone on several fronts," says Joel Haggard, USMEF senior vice president for the Asia Pacific region. "Not only will U.S. sales soar at this iconic beef retailer, but Costco's beef merchandising decisions are a bellwether for overall Korean consumer sentiment toward U.S. beef."

HOGS: (Sioux City Journal) -- The developers of a pork plant under construction in Sioux City are moving forward with plans for a second shift that will eventually increase the total number of jobs to around 2,000, nearly double the original estimate.

The expansion will raise the cost of the Seaboard Triumph Foods project by $31.4 million, to just over $300 million.

To help finance the larger investment, the company has asked the state for an additional $3.3 million in tax incentives.

In May 2015, the Iowa Economic Development Authority awarded $13.2 million in tax credits and sales and use tax refunds. At its monthly meeting in Des Moines Friday, the board is scheduled to consider a revision to its agreement with the company, a joint venture between Missouri-based Seaboard Foods and Oklahoma-based Triumph Foods.

The sprawling 600,000 square-foot plant, which would have the capacity to slaughter 10,000 to 12,000 hogs per day, is nearing construction in the city's Bridgeport West Business Park. It's expected to open July 31 with a single shift and around 1,100 employees.

Company leaders have talked openly in the past about the possibility of adding a second shift, but the request to the IEDA is the first public commitment to the expansion.

"We've been planning to do that and it just seems like a good time to do it," said Irving Jensen III, Seaboard Triumph Foods director of community relations and government affairs. "We feel very confident in the labor market right now and it just seems like a lot is happening in the industry and it seems like a logical time to move forward."

Jensen said the expansion would be modest since most of the complex has already been built. The addition would expand the footprint to about 950,000 square feet, and would increase freezer space, Jensen said.

The company expects to start up the second shift by May 2018, with total employment anticipated to increase to about 2,000.

A smaller number of jobs would qualify for state incentives. Under its revised application with the state, the company pledges to create at least 256 jobs under the state's High Quality Job Creation Program, or HQJP, program, up 54 from May 2015, and no fewer than 713 jobs under the state's Targeted Job Withholding Tax Credit program. The latter is reversed for new or expanding employers in border cities like Sioux City.

The expansion would increase the company's tax credits under the Targeted Jobs by $2.4 million, from $7.65 million to $10 million, over a 10-year period. Under HQJP, the company's refund of sales and use tax on construction materials would grow by $601,950, from $3.16 million to $3.76 million.

Since the fall of 2015, hundreds of construction workers have been deployed to build the sprawling plant, which is modeled after Triumph Foods' state-of-the-art plant in St. Joseph.

The new factory's annual payroll in excess of $50 million and spending on economic materials, supplies and services is expected to ripple through the local economy, creating new sales for a host of ancillary businesses, from truck drivers to pallet makers to cold storage warehouses.

John Harrington can be contacted at john.harrington@dtn.com

For more from John Harrington, see www.feelofthemarket.com

(BAS)

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