DTN Early Word Opening Livestock

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Cattle: Steady/firm w/Wed   Futures: 25-50 HR   Live Equiv $146.08  +1.23* 
Hogs:   Steady-$1 LR        Futures: Mixed      Lean Equiv $ 87.14  + .69**
 
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

While a few clean-up deals are certainly possible through the morning (especially in the North), it feels like the cash cattle market is essentially done for the week. Once again, tight-fisted feedlot managers and appreciating wholesale values have conspired to sell live inventory on a steady/firm basis. And once again, we exit on Friday fully expecting beef producers to price new showlists higher on Monday with a certain degree of confidence (e.g., $128 in the South; $204 plus in the North). Live and feeder futures seem staged to open moderately with the help of follow-through buying interest, cash premiums and swelling carcass value.

Given the fact that hog buyers didn't seem to have much trouble collecting numbers on Thursday (e.g., the national report totaled 10,749 negotiated dressed sales on Thursday, all flushed out with lower money), we suspect that packers will resume late-week procurement with bids steady to $1 lower. Assuming Friday's hog kill totals close to 425,000 head with the Saturday effort right at 120,000, weekly slaughter should amount to no less than 2.312 million head, 4% larger than 2016. Lean futures are expected to open on a mixed basis linked to a slow combination of follow-through selling interest and pre-weekend short-covering.

	BULL SIDE		BEAR SIDE
1)	Beef exports in January totaled 96,488 metric tons, up 17% from a year ago. Total exports were valued at $515.5 million, up 18% greater than last year and the highest ever for the month of January.	1)	Despite wave after wave of bullish cash and product news, nearby live futures continue to languish in deep discounts. At this rate, wells pumping positive fundamental news could run dry before the board's stubborn psychology can be broken.
2)	For the week ending Feb. 25, cattle carcass grew smaller: all cattle averaged 820 pounds, 2 lbs. lighter than the prior week and 7 lbs. smaller than 2016; steers averaged 878 lbs., 2 lbs. below the prior week and 9 lbs. lighter than last year; heifers averaged 822 lbs., 2 lbs. smaller than the week before and 12 lbs. lighter than 2016.	2)	The World Board's estimate of U.S. meat production for 2017 was increased from the previous report as higher-than-expected beef production more than offset lower forecast pork and turkey production.
3)	January pork exports were up 21% from a year ago in volume (202,667 mt) and jumped 26% in value to $508.6 million.	3)	Serious doubts that the current firmness in both the hog and pork product markets can be sustained in the coming months continues to weigh on lean futures market.
4)	Net pork export sales last week totaled 18,100 metric tons, up 8% from the previous week and 4% from the prior four-week average. Increases were reported for Japan (9,200 MT), Mexico (5,000 MT), Australia (1,000 MT), Chile (800 MT), and the Philippines (500 MT). Reductions were reported for Hong Kong (100 MT).	4)	The seasonal index for April lean hog futures is entering a period of gradual easing prior to a typical rebound in values heading into contract expiration early next month. Additionally, pork exports last week totaled 21,400 MT, down 11% from the previous week and 7% from the prior four-week average.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Feedstuffs) -- The U.S. Department of Agriculture's February "Cattle on Feed" report provided some unique insight into feedlot capacity. The monthly report provides numbers of feedlots with 1,000 of more head, but this represents only 7% of the industry's capacity, according to American Farm Bureau Federation economist Katelyn McCullock. The other 93% of the 30,000 feedlots in the U.S. held less than 1,000 head in 2016 . The 7% marketed more than 87% of the total cattle sold last year, she said.

Smaller-sized feedlots did increase capacity, adding 2,000 lots (locations), compared to 2015 and increased the number of head marketed during 2016 by just more than 200,000 head year-over-year.

SPONSORED CONTENT Sprinkler systems enhance cool cell performance in poultry houses UNDEFINED NAN, NAN "This relatively large increase in small feedlots is driven by cheap feed, but is unlikely going to be a long term trend," McCullock said. In fact, over the last decade, feedlots with 1,000 head or less have fallen by 65%. The largest increases have been in feedlots with 50,000 head or more, which have increased 28% since 2006.

Larger feedlots continued to add both capacity and numbers, increasing the number of lots with 50,000 or more head by two, and the number of head marketed increased by 710,000. The number of head marketed in this largest capacity category represented 34% of the total cattle marketed, McCullock noted.

The smallest proportions of cattle were marketed in feedlots with 1,000-31,999 head capacity. The number of lots increased in several of these capacity categories: 1,000-1,999, 2,000-3,999, 4,000-7,999, 8,000-15,999 each added 10 new lots last year. Feedlots with 16,000-49,999 lost 12 lots total.

"Larger feedlots have an easier time weathering negative margins using economies of scale. But, as we saw in 2016, inexpensive feed/weak calf prices enticed farmer feeders (<1,000 head) to hold animals and use their own feed."

These facilities on farmer feeder operations are fluid and tend to operate when the market conditions are favorable, she added. "When conditions are less favorable those facilities remain empty and producers sell calves and corn."

Mid-sized operations, on the other hand, have less flexibility, McCullock explained. In the smaller mid-sized categories, feedlots added capacity as seen in the 1,000-15,999 head capacity groups. In the larger mid-sized categories (16,000-49,999 head capacity), those that could not grow, exited.

"These categories are never completely stagnant and change as the markets calls for."

HOGS: (missourifarmerFriday.com) -- Sharply lower pork belly stocks continue to prompt headlines in the mainstream media.

An analysis from the Livestock Marketing Information Center (LMIC) shows frozen belly inventories were at the lowest Jan. 31 level in nearly 40 years. The lower levels have prompted some concern over bacon availability.

"Frozen belly stocks are very seasonal and tend to begin the year rather large then dwindle into the summer months," LMIC said in its March 1 analysis.

This could suggest a counter-seasonal pattern in 2017, since the rest of the market is holding somewhat similar to USDA projections coming out of the December Hogs and Pigs Report.

"Inventories of hogs destined for slaughter weighing over 180 lbs. were pegged to be up 2 percent from a year earlier, giving a perspective on what to expect for pork production during the first 90 days of 2017," LMIC said.

Wholesale belly prices started 2017 valued at $1.16 per hundredweight, up 12 cents from a year ago. Since the USDA released low end-of-year totals in late January, belly prices climbed over 50 cents in a week, and have continued to run high, and stocks decreased sharply in January.

Lean hog prices have showed steady growth over the first two months of the year, after starting 2017 priced around $52/cwt.

"Late January hog carcass prices appreciated $10 from the start of the year, and were up another $10 over the course of February," LMIC said in the report.

January pork production was up 3 percent from a year ago. Slaughter was up 4 percent from a year ago, while carcass weights were down about a pound.

Beef and pork exports continue to strengthen. Beef tonnage exported was up 12.6 percent in 2016, while pork exports grew by 4.5 percent.

According to USDA's Foreign Agricultural Service, U.S. beef was exported to 123 different countries, with pork sold to 110 countries. The largest increase in beef exports was to South Korea, although Japan remains the largest importer of U.S. beef, followed by South Korea and Mexico.

Mexico remained the largest customer for U.S. pork, followed by Japan, Canada and China.

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

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