DTN Early Word Opening Livestock

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Cattle: Steady to $2 HR   Futures: Mixed   Live Equiv $143.73  +1.17* 
Hogs:   Steady            Futures: Mixed   Lean Equiv $ 87.10  - .82**
 
* 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 start to take on some definition both in terms of preliminary bids and asking prices (e.g., $128 South, $202 North). Market watchers will be focused on the FCE auction later Wednesday for clues of greater cash potential. Still, our guess is that significant trade volume will not surface until sometime Thursday or Friday. Live and feeder futures seem set to open on a mixed basis thanks to follow-through selling and midweek short-covering.

Hog buyers have tried hard so far this week to control spending in the country. Yet negotiated receipts have been quite limited. They may find it necessary Wednesday to start stretching a bit for live inventory. It sounds like Saturday kill plans will total close to 120,000 head. Lean futures are staged to open on both sides of unchanged with light trade volume.

	BULL SIDE		BEAR SIDE
1)	Beef cutouts jumped higher again on Tuesday with the choice box closing as high as $212 (i.e., the highest since June 24). Furthermore, box demand was described as "moderate to fairly good."	1)	The non-stop erosion of live cattle futures in the face of positive fundamentals is quite disturbing, promoting defensive market psychology and potentially crippling country leverage.
2)	New rally highs in live cattle futures last week affirmed the short-term uptrend with support in the $114 to $115 area. Similarly, the long-term downtrend was breached with expiring February eclipsing the December high, suggesting a trend shift higher.	2)	Feedlot bargaining power may be further compromised by the reality of extraordinary profit margins, encouraging many to score a bumper hay crop while the sun shines.
3)	Though the jury is still out, nearby lean hog futures are beginning to steadily edge toward the cash index. Historically, the April board looks oversold. And remember, long-term key support levels have yet to be breached, keeping the long-term market trend neutral to positive.	3)	The pork carcass value quickly surrendered much of Monday's progress, essentially torpedoed by a $7.72 decline in the belly primal.
4)	Just steady hog bids on Tuesday generate rather modest receipts. Assuming the Saturday kill will total close to 120,000 head, packers may find it necessary to put more coal on the cash fire in order to collect sufficient market hog numbers.	4)	If the December Hogs & Pigs report nailed the size of the fall pig crop, market hog supplies should grow even more ample over the next several months.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Bloomberg L.P.) -- So much for the winter blues. It's been so balmy across part of the U.S. that Americans have been firing up their grills at a time that's usually better suited to sipping hot cocoa.

U.S. consumers, buoyed by optimism about the economy as well as record warm temperatures in February, have been buying up burgers like it's summertime. Beef is on a roll, with wholesale prices rallying to the most expensive since July. It's surprising since the usual time for outdoor barbecues typically kicks off closer to May.

And it's not just grilling that's propping up beef prices. People are getting out the house more often to enjoy the weather, frequenting restaurants and ordering up premium cuts such as steaks. Overseas demand has also risen, with a boom in shipments to countries including Japan and South Korea. All that is chipping away at bigger production and drawing the interest of hedge funds. Money managers added to their bullish bets on cattle for the first time in four weeks.

"We really, in all honesty, haven't had winter, and it has enabled a lot of grilling options to stay viable," said Don Close, the vice president of food and agribusiness research at Rabobank International in St. Louis, where he's seen February temperatures as high as 80 degrees Fahrenheit (27 Celsius). "We've got solid movement on the low-priced items and have preserved good clearance on high-end items."

The gains for beef prices have boosted the cattle market. Cattle futures traded in Chicago capped a third straight weekly gain, rising 0.9 percent to $1.15975 a pound in the longest winning streak of 2017. The April contract is up about 0.9 percent this year.

Fund managers are positioned for more gains. The cattle net-long position, or the difference between bets on a price increase and wagers on a decline, climbed 1.3 percent to 98,170 futures and options in the week ended Feb. 28, according to U.S. Commodity Futures and Trading Commission data released three days later.

Grilling enthusiasts can thank higher-than-normal sea-surface temperatures in the western Atlantic and Gulf of Mexico for the spring-like weather. There were also more winds from the south blowing heat northward. As of Friday, 6,172 records were set for daily high temperatures over the last 30 days across the U.S., according to the National Centers for Environmental Information. In contrast, there were just 281 cold records. The official first day of spring isn't until March 20.

Prices in the cash-cattle market are so good for the animals that ranchers are "pulling them forward," or sending them to market rather than fattening them up for longer, Close said. Animals are coming to slaughter lighter, with average weights in the week ended March 4 down about 0.7 percent from a year earlier, government data show. The smaller weights are helping to offset rising weekly slaughter levels, which are running about 8 percent higher than last year.

Still, there are also signs that demand is running stronger than the increased slaughter volumes.

Margins have turned positive for beef processors. The meatpackers were making $20.05 a head as of March 3, HedgersEdge data show. That compares with losses of as much as $82.85 in January and is the best for this time of year since at least 2014.

Improving macroeconomic environments in the U.S., European Union and China will continue to support beef demand this year, analyst Rajesh Singla of Societe Generale SA said in a Feb. 15 report. American consumer confidence unexpectedly surged last month to the highest level since 2001.

Exports are also eating away at bigger domestic supplies. Volumes in December were 24 percent higher than a year earlier at 116,847 metric tons, a record for the month, according to the most recent data from the U.S. Meat Export Federation.

Still, prices may be getting high enough now to discourage retailers from stocking up. Wholesale beef is already at the most expensive since July. That could mean fewer promotions during the typical springtime boom for beef. And even more cattle are expected to flood the market in the next several months, increasing the likelihood that the rally in prices will stall.

"If you run up the price too soon, it sows seeds of weaker demand and quantity for the traditional grilling season," said Altin Kalo, an analyst at Manchester, New Hampshire-based Steiner Consulting Group, an economic and commodity-trading adviser. "You run the risk of impacting futures going into post-Easter and Memorial Day," which in previous years marked the start of the summer barbecue season, he said.

HOGS: (nationalhogfarmer.com) -- The value of a hog is determined, of course, by the total value that all of its parts will garner in downstream uses. Sometimes those downstream values make a positive impact and sometimes they don't help so much. All downstream values are susceptible to short-term anomalies, but they usually follow some long-term patterns. Let's consider a few important ones and what they mean for the industry.

Much has been made of the value added recently by the belly wholesale cut in recent weeks, and the attention is indeed well deserved. Belly prices began increasing in December. That timing is remarkable for two reasons. First, it rarely happens in December as the historic seasonal trend is flat at best and usually downward. Second, the rally began after monthly records for slaughter and pork production in September, October and November and just as a soon-to-be-record-large December had commenced.

Stocks of frozen bellies had declined slightly in November, a month in which they usually gain about 15 million pounds. They fell slightly again in December, a month in which they usually gain another 15 million pounds. They declined again in January! Belly usage was, to say the least, robust this winter.

As belly inventories tightened, the belly primal value exploded from roughly $1 per pound in early December to over $1.80 in early February. Skin-on bellies eclipsed $1.90. Derind bellies went above $2.20. The increase in bellies prices added roughly $13 per hundredweight to the cutout value at their peak. About half of that value has been lost as of last week, but the bump was helpful for both packer and producer bottom lines.

While recent usage has been spectacular and led to a sharp short-run increase in prices, this is really nothing new. Bellies prices have been improving for many years as much higher quality bacon has become a condiment on many, many sandwiches and has benefited from significant attitude changes relative to animal fats and flavor. While bellies as a percent of the cutout have been volatile in the past few years, but the trend is still upward.

Unfortunately, ribs are a different story. Except for a 2015 surge, that price has been trending decidedly lower. The primary reason is that spareribs have gotten bigger and end-users have pushed per-unit prices lower to control the plate cost of ribs in restaurants. Though their price is lower, the impact is small since spareribs account for only about 4.5% of the cutout value.

Loins represent a bigger problem They account for just over 25% of the cutout value, and their value has relentlessly declined. But just as the cutout value is driven by the value of the component cuts, so wholesale cut values are driven by the value of sub-primal cuts. The chart below shows loins (again the bright red line) as a percentage of the cutout value and the three primary components of loins, also as a percentage of the cutout value. The sharp decline for boneless loins has been pronounced, but back ribs and tenderloin have fallen as well.

No matter how you slice them, loins and spareribs are problems; bellies are the star and butts, picnics and hams have basically held steady as contributors to the cutout value. It's possible that a new commitment to muscle quality will almost surely help loins and tenderloins. Color, ultimate pH and water-holding capacity are the keys to adding value back to these cuts that should be our flagships.

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

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