DTN Early Word Opening Livestock

Look for Cattle Paper to Open Moderately Higher at Midweek

(DTN file photo)

Cattle: Steady-$2 HR Futures: 25-50 HR Live Equiv $132.21 + .20*

Hogs: Steady/firm Futures: Mixed Lean Equiv $ 89.92 - .92**

* based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

As long as cattle futures seem geared to move toward cash premiums, it's a good bet that feedlot managers will dig in their heels with higher asking prices. Some showlists have been priced as high as $123 to $124 in the South and $193 to $195 in the North. Some preliminary bids should start to surface Wednesday, but they may not be much better than $116/$186. Such a wide spread between bids and asking prices could delay the development of significant trade volume until Thursday or Friday. Live and feeder futures should open moderately higher, girded by follow-through buying and country optimism.

The cash hog trade has been less than inspirational so far this week, and country movement has been rather slow. Since we have moved into the last third of the month (i.e., when contracts are typically less plentiful), buyers may have to start writing bigger checks again in order to fund still aggressive chain speed. Lean futures are set to open on a mixed basis thanks to residual selling on one hand and short-covering on the other.

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BULL SIDE BEAR SIDE
1) Inspired by the ongoing tightness of fed supplies and the successful determination of feedlot resolve, nearby live futures closed significantly higher on Tuesday with spot February live closing above 119 for the first time since Jan. 25. 1)

The importation of Mexican feeder cattle so far this year has been fairly aggressive. Through the first seven weeks of 2017, imports have totaled 160,415 head, 70% more than the same period in 2016 and 45% greater than the three-year average.

2)

The choice box continued to attract decent buying interest Tuesday, closing as high as $191.81, the best value seen since Feb. 2.

2)

The Feb. 1 Cattle on Feed report scheduled for release Friday afternoon is expected to once again document accelerated placement activity. Private guesses seem to be anticipating a total at least 10% greater than last year.

3)

The hog basis currently is very strong and unless the cash market is on the brink of a major collapse, April lean futures would seem to have limited downside price risk. Furthermore, since the April contract is trading in the lower 15% of recent historical trading values, higher prices on the April could easily develop.

3)

The pork carcass value slumped by nearly a dollar on Tuesday, especially pressured by a $7.48 drop in the belly primal.

4)

Negotiated hog receipts were again limited on Tuesday, a situation that could easily force packers to find more spending money in order to fund fairly aggressive slaughter plans through the end of the week.

4)

This week's Urner Barry hog slaughter poll points to an average industry participant response of 2,306,000 head, 4.4% greater than 2016. Such an increase fits better with bearish December inventory.

OTHER MARKET SENSITIVE NEWS

CATTLE: (cattlenetwork.com) -- Beef producers and consumers often ask about beef trade, why we import and export? The simple answer is we are trying to receive the highest value for the product produced. The following facts might be helpful to understand the beef industry: the U.S. is the largest producer, largest consumer, fourth-largest exporter and the largest importer of beef in the world according to USDA/Foreign Agricultural Service.

A large majority of beef exports would include high-quality cuts hence high value beef cuts as well as variety meats that have limited demand in the U.S. The combined variety meats for beef and pork are a high portion of the volume of export products; however, the value of variety meat products does not match the value for beef and veal.

Variety cuts would include items such as tongue, heart, tripe, oxtail, and sweetbreads. When was the last time you purchased one of these variety meats? A couple of example of the value of exporting variety meats: 1) the price spread from exporting tongue has ranged between $3 to $12 per head (average tongue weigh 4 pounds), 2) beef liver exported has received $0.50 to $0.80 per pound or $10 to $16 per head (average beef liver weigh 20 pounds), and 3) omasum and abomasum (compartments of the ruminant animal's stomach) exported has received $1 per pound. Many variety meats have limited or no value in the U.S., so the export market provides additional revenue for each carcass.

Beef is exported from the U.S. to numerous countries, the actual quantity, products and value fluctuates from year to year. However, the major countries the U.S. exports to according to the USDA Foreign Agricultural Service are Japan, Mexico, South Korea, Canada and Hong Kong.

According to the USDA Foreign Agricultural Service, the U.S. is the largest producer of beef, so why import beef? The U.S. has a competitive fast food service industry with a high demand for hamburger. Ground beef production requires the addition of lean to mix with the trim from heifers and steers harvested in order to produce the ground beef product. Cull cows and bulls are a good source of lean product to incorporate with the trim; however, there is not enough of this lean meat produced in the U.S. Manufacturers could (and do) use some of the chuck and rounds, both lean cuts, to grind into hamburger. However, this is relatively expensive since roasts, value-added cuts (flat iron steak, Denver steak, and chuck eye steak) sell at a higher price than hamburger.

This demand for lean meat at a cost-efficient price leads to imports of the given product. A majority of the imported beef is lean beef that comes from Australian beef, New Zealand dairy beef, and cull cows from Canada.

Global marketing is a complex system that includes many agricultural products as well as non-agricultural products. Beef is only one of the many agricultural commodities traded and trade is an important tool as we strive for higher value U.S. beef.

HOGS: (GLOBE NEWSWIRE) -- Smithfield Foods has announced the launch of an antibiotic-free line of fresh pork products under its Pure Farms™ brand. The Pure Farms™ product line meets the highest level of USDA standards with minimal processing and no antibiotics, steroids, hormones or artificial ingredients. The full line of products will be available in fresh pork cuts, ham cuts and packaged pork cuts such as breakfast sausage and bacon in both retail stores and food service beginning this month.

"The Pure Farms™ brand is ideal for families looking to enjoy the highest quality, antibiotic-free pork," said Ken Sullivan, president and chief executive officer for Smithfield Foods. "We're proud to provide our customers and consumers with a broader range of products to meet a variety of needs and preferences, including antibiotic-free."

As the only company in the industry to report antibiotics usage since 2007, this new product line further affirms Smithfield's continued leadership of practices that uphold highest standards of transparency and strengthen consumer trust. Smithfield also recently refined its definition of 'prevention' as related to antibiotics use in farm animals, providing a practical explanation to consumers and customers that offers greater clarity. These efforts are driven by an internal antibiotics task force, which supports Smithfield's commitment to industry-leading antibiotics initiatives.

"This new line from Pure Farms™ reflects Smithfield's continued commitment to meeting the needs of all consumers with good food that is made the right way," said Stewart Leeth, vice president of regulatory affairs and chief sustainability officer for Smithfield Foods. "This commitment led to the creation of this new line and other bold steps we continue to take to ensure our products exceed our customers' and consumers' expectations."

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

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

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