DTN Early Word Opening Livestock

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Cattle: Steady to $2 HR   Futures: 50-100 HR   Live Equiv $144.85  +1.12* 
Hogs:   Steady to $1 HR   Futures: Mixed       Lean Equiv $ 86.45  - .65**
 
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Once again this week, cattle buyers wasted no time in grabbing the bull by the horns. We thought packers might stall until the second of the week before getting serious about procurement. But short-bought packers were forced to put oars in the water as early as Wednesday. Moderate trade volume surfaced in most areas. Live prices in the South were marked at mostly $124 to $125, about steady with last week. Dressed deals in the North were sealed at mostly $200 to $202, steady to $2 higher. Live and feeder futures should open solidly higher, boosted by cash market strength and residual buying interest.

Look for the cash hog market to open Thursday with steady/firm bids. Reacting to firmer packer bids, country receipts did improve somewhat at midweek. But if processors are banking on a 2.3 million kill this week, they will probably find it necessary to hold bids fairly steady through the end of the week. Lean futures seem set to open on a mixed basis thanks to short covering, long liquidation and light bull spreading.

	BULL SIDE		BEAR SIDE
1)	Once again, short-bought cattle buyers have taken a big step into the cash market as early as Wednesday, agreeing to fully steady to firm spending. Such behavior reaffirms two bullish realities: 1) ready numbers remain tight; and 2) improving carcass value supports decent processing margins (i.e., packers like their biz).	1)	Despite steady waves of bullish fundamental news, live cattle futures remain stuck in a lateral trading range. Right or wrong, board bears remain convinced that a thunderstorm on bearish shoes is getting ready to drop.
2)	The wholesale beef demand through the late winter remains very impressive. Cutouts jumped significantly higher once again on Wednesday with box demand again as described "moderate to good."	2)	For the week ending March 4, U.S. hatcheries set 224 million eggs in incubators, up 3% from a year ago. At the same time, chicks placed totaled 180 million chicks, up 2% from 2016.
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 closed moderately lower at midweek, pressured by struggling demand for loins and picnics.
4)	While the spot hog trade seems lackluster, the longer-term expectation is that pork exports are going to expand and temper the impact of larger supplies on the domestic market.	4)	For the week ending March 4, Iowa barrows and gilts averaged 281.8 pounds, .6 lb. heavier than the prior week and only 1.1 lbs. lighter than 2016.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Agrimoney.com) -- US beef supplies are clawing back market share in Japan, even without the completion of the Trans-Pacific Trade Patnership, government officials said.

"Tight supplies of Japanese and Australian beef should continue to create opportunities for US beef in the Japanese market," the US Department of Agriculture's Tokyo bureau said.

The bureau raised its forecast for Japanese beef imports by 15,000 tonnes, to 745,000 tonnes.

This level of imports has only been exceeded once, back in 2011.

US beef has been losing market share in Japan, the world's third-ranked beef importer, since 2003, when restrictions were bought in following the detection of BSE.

These restrictions have eased since 2013, but since 2015 there has been stiffening competition thanks to a Japanese trade deal with Australia, which gave supplies from that country a significant tariff advantage over those from the US.

And US beef exporters were dealt a blow this year when the US president officially withdrew from the Trans-Pacific trade partnership, dashing their hopes for a level playing field with Australian producers.

But with Japanese import demand at near-record levels, ample US supplies are winning market share.

The higher imports are the result of a prolonged slump in Japanese beef production.

Japanese beef production is seen easing in 2017 to 460,000 tonnes, thanks to lower slaughter.

Aside from one year in 2001, this would be the lowest level of production since 1980.

The Japanese beef industry is still dealing with a shortage of cattle, thanks to a lower calf crop back in 2014 and 2015, which has reduced slaughter numbers.

The bureau forecast total beef consumption flat year-on-year, at 1.25m tonnes.

The US is seen as the big beneficiary of increased Japanese imports, thanks to ample demand, with exports from the main competitor Australian restricted due to herd-rebuilding there.

The total US market share is seen climbing to 42%, up four points, while Australian market share falls three points to 51%.

Last week Steiner Consulting noticed the strength of US exports to Japan, as well as South Korea.

"Shipments to Japan in the last four weeks have averaged 1174 tonnes (33%) more than a year ago while shipments to South Korea have averaged 499 tonnes (22%) more than last year," Steiner Consulting said.

The bureau also noted "additional tailwinds," for US beef prospects in Japan, thanks to the launch of a number of US brands.

"With marketing strategies appealing to the story behind the product and exacting product specifications, which can include grade, breed, finishing weight, and even specific feeder calf suppliers, Japanese meat importers have made a significant investment in expanding future US beef import volumes," the bureau said.

"If these brands succeed, Japanese retailers and food service outlets could generate additional demand for high-value US chilled cuts in 2017 and beyond.

HOGS: (agrinews-pubs.com) -- While acknowledging that his company's presence in the market could change it, Dr. Ron Prestage, president of Prestage Farms, said he hopes to have a positive impact.

"I think these new plants are going to be the biggest source of optimism for pork producers across the entire country," Prestage said.

That being said, Prestage acknowledged concerns about how his plant could change the dynamics of the U.S. hog market.

When the Prestage Farms of Iowa LLC hog processing plant in Webster County comes online, likely in the latter part of 2018, it is expected to process around 50,000 hogs a week. Many of those hogs will come from Prestage contract growers, and those hogs will change status to packer-owned.

"When we open the doors of this new plant, all of my hogs, about 30,000 head a week that we produce in Iowa, they are all born in either North Carolina or Mississippi, we don't have any sows in Iowa, they will become reclassified as packer owned. With Prestage out of the negotiated sales thing, I don't know what's going to happen," Prestage said.

"We sell about a third of the negotiated sales that are quoted (in the U.S.) and are the starting point for what determines what I'm going to get paid in North Carolina or Oklahoma," he said.

Prestage used the examples of other states to illustrate how five new hog processing plants — his own in Iowa; Seaboard Triumph Foods in Sioux City, Iowa; Clemens Food Group in Coldwater, Mich.; Moon Ridge Foods in Springfield, Mo.; and Prime Pork in Windom, Minn. — will help pork producers by increasing competition among packers for hogs.

"In North Carolina, 100 percent of our pigs go to Smithfield. We don't have any other choice. Smithfield bought Premium Standard, and they're the only game in town. In Oklahoma, we sell all our hogs to Seaboard. They are both good companies, I have nothing negative to say about either one of them," he said.

Prestage said packer margins over time point to a lack of competition for farmers.

"Go back and look 25 to 30 years at what the total margin was that was made by producer to produce a pound of pork and a packer to process it and sell it. Essentially, you had about 75 percent of that margin between the two entities, producers and packers, went to the producer," he said.

A change in that distribution shows how competition for pigs has dropped.

"Thursday, producers are fighting for about a quarter of that combined margin, between the two, and the packers are keeping 75 to 80 percent, and they don't have the volatility," Prestage said.

He said the investment that packers have, by percentage, is less than farmers.

"People in this room have their skin in the game, and your money invested and your capital and your operations to produce a pound of pork. The way I calculate it, bottom line is you have 80 percent of the capital investment required for that chain," he said.

While he doesn't know what will happen to the negotiated sales once the pigs for the Iowa plant become packer-owned, Prestage reassured producers he has a plan.

"The plan is that I want to buy, first shift only, as many of that last 20,000 head a week that I intend to kill, by negotiated sale," he said.

"I would not be able to do that if there was not going to be an excess of shackle space," Prestage said.

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

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