DTN Early Word Opening Livestock

 
Cattle: Steady-$2 HR Futures: 50-100 HR Live Equiv $159.02 + $1.81*
Hogs: Steady-$1 HR Futures: 50-100 HR Lean Equiv$ 84.26 + $1.25**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Tuesdays are typically quiet in the cash cattle world, and today should be standard fare in that regard. Indeed, we don't expect to uncover many clues regarding bids or asking prices. Regarding the later, it seems safe to assume that ready cattle will be priced at least $2-3 higher (e.g., $150 live plus on a live basis). Significant trade volume should be delayed until Wednesday or Thursday. Live and feeder futures should open solidly higher, boosted by follow-through buying and tall feedlot premiums.

The cash hog trade continues to firm as market support continue to slowly tighten. Look for cash bids to open steady to $1 higher. Preliminary ideas of slaughter this week are around 2.26 million head, near steady with last week and roughly 5 percent greater than 2016. Lean futures are geared to open moderately higher, supported by light bull spreading and an appreciating cash trade.

	BULL SIDE		BEAR SIDE
1)	Cattle futures came roaring back on Monday, signaling that Friday's sell-off was more related to overbought charts than souring fundamentals. Until further notice, the bull market remains alive and well.	1)	Last week's cattle slaughter increase to 612,000 head last week and it could inflate by another 5,000 to 10,000 this week. The feedlot gun is currently loaded to steadily walk the weekly kill up toward 650,000 by midsummer.
2)	Beef cut-outs closed sharply higher on Monday for the seventh-consecutive session. Grill season has been born with great fanfare and appears to be growing at every turn.	2)	June lost more ground on cash yesterday. A historically large index roll in live cattle futures commenced on Friday and will remain a market factor through mid-week, potentially adding to front-end selling pressure.
3)	The pork carcass valued jumped more than a buck higher to start the week with all primals making decent contributions except the picnic.	3)	May lean hog futures is set to expire on Friday and still remains $5 over the latest cash index. At best, the front end of the board seem dead in the water regard further rally potential.
4)	While the June lean hog issue rallied further on Monday, the soon-to-be-spot contract continues to trade in the lower 5 percent of trading values for the contract measured over the last 5 years. In other words, the early summer board has plenty of blue sky from an historical point of view.	4)	Given the sluggishness of deferred lean hog contracts, few seemed to be worried that expanded chain speed later this year will have much problem finding sufficient slaughter numbers.

OTHER MARKET SENSITIVE NEWS

CATTLE: (radioiowa.com) -- U.S. Agriculture Secretary Sonny Perdue visited a cattle growing operation near the central Iowa town of Nevada on Friday.

Perdue praised the operation of the Couser Cattle Company, and the American beef industry in general. "If our young people of America were as vaccinated, healthy, as cared for, fed as well, we wouldn't have a problem with health in America today. So, that's a testament to what you are doing to these cattle," according to Perdue.

He told a crowd of around 200 that he is going to China with Governor Terry Branstad to open up the American beef import market there. Perdue credits Iowans for making trade with China possible.

"What you all did here in Iowa in 1984 is having impact in 2017," Perdue says. "You know what you did? You were hospitable to a group of five young Chinese men who came to Iowa to learn what was the magic and the majesty of American agriculture." One of those men later became the president of China and is a friend of Governor Branstad, and one of the reasons Branstad is set to become ambassador to China.

Perdue promised to get Iowa beef exports into China. "These are technical discussions that are tough — but we are going to stay at it — because people do business with people," Perdue explains. "And we want them to trust us that we are sending them a healthy, wholesomeproduct. We are going to bring them to places like the Couser family and show them how that beef is produced. We are going to take them to the processors and show them how it's handled there." The former governor of Georgia held a town hall meeting with farmers after his remarks.

HOGS: (Rabobank RaboResearch Food and Agribusiness) -- Rabobank analysts see a positive overall outlook for the pork sector, with the demand market continuing through the second quarter, supporting margins along the supply chain.

The global pork picture looks promising throughout the second quarter and heading into the third quarter of this year, according to Rabobank RaboResearch Food and Agribusiness analysts in their "Global Pork Quarterly Q2" report.

RaboResearch analysts find a relatively stable global pork market as increased production from the Americas is being absorbed in the main Asian import markets.

"The overall outlook is positive right now," says Justin Sherrard, Global Strategist Animal Protein at Rabobank. "The demand market will continue throughout Q2, supporting margins along the supply chain."

All eyes have been on what is going on in China's hog industry, and Rabobank analysts have not lost sight of what is taking place there. They report that the "steady, regulatory-driven relocation of pork production will support good price level and stabilize imports in the coming months." Rabobank analysts predict that Chinese local supplies will start to recover in the third quarter, as investments that have been made in the past few years will be coming online.

Export eyes are also on Japan and South Korea, where pork markets are performing rather well.

Pork consumption in Japan is seeing steady growth, up 4.4% January-February year-over-year, marking three consecutive years of increased consumption. This is good news for countries, such as the United States, exporting pork to Japan. While Japanese consumption ticks up, domestic production has slipped 0.5% the first two months of 2017 compared to a year ago. Imports to Japan increased 5.3% in January-February compared to a year ago, following an 8.9% increase in 2016. The United States upped its exports to Japan by 8%, but Canada and Mexico increased exports by 11 and 13%, respectively.

South Korean pork production is growing, but so are imports. Rabobank analysts found South Korean hog slaughter increased 2% year-over-year, after seeing a 4% increase last year. Imports grew by 38% year-over-year in the first months of 2017, with the United States being the main supplier. Targeted promotions have been found to make an impact on consumption habits, focusing on the quality and taste of products other than bellies "which have an important place in the traditional diet of South Korean consumers."

A booming pig market in the European Union sees pressure on supply as prices are rapidly rising. Analysts predict this scenario will continue as summer approaches following record prices for piglets in the first quarter. "Exports remain the wild card for the market's price top, with high prices limiting the competitive position and resulting returns," the Rabobank report says.

Speaking of wild card exports, U.S. producers are looking for exports to determine price levels as production is forecast to be up 4% this year. "Current low prices are supportive and also challenge supply from the main export competitor, the EU."

Even though Brazil meatpackers were rocked by a large food fraud probe that brought the safety of Brazilian meat into question and closed some markets, Rabobank analysts found that the scandal had little, if any, impact on pork export volumes or related prices.

With all this said, the pork sector in the United States has started off 2017 strong, with strong exports and moderate growth in hog numbers. "Hog futures started the year at $55 per hundredweight and climbed steadily through January, peaking in late-February at $77 per hundredweight." At this same time, hog slaughter was 2.5% above levels of a year ago, but hog numbers started to climb in March, averaging 6% above March of last year, cutting into a good portion of the price lift. Though the first quarter ended with prices in the mid-$60s per hundredweight (still profitable according to Rabobank analysts), those prices are disappointing considering the trajectory previously seen.

U.S. pork exports are shining bright, up 18% in January and February when compared with that term last year. "Mexico continues to be the biggest customer for U.S. pork, and volumes to that market were up 30% in the first two months of the year, with Mexico continuing toccount for one-third of total U.S. exports."

U.S. supply remains to be a moving target, as new plants will be coming online and hog numbers aren't lining up with what's reported in USDA hog reports. "This has added a good deal of volatility to hog prices, which we expect to continue as two sizable pork plants come online" at the end of the third quarter, according to Rabobank analysts. "We expect U.S. pork supply to increase by 3% to 4% in 2017, which will require exports to keep the upward trend started in Q1 in order for producers to enjoy another profitable year."

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

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