DTN Early Word Opening Livestock

Meat Futures Set to Open Trading Week With Mixed Prices

John Harrington
By  John Harrington , DTN Livestock Analyst
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Cattle: Cash Steady Futures Mixed Live Equiv $132.18 - .08*

Hogs: Cash Steady Futures Mixed Lean Equiv $78.57 + .85**

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

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

GENERAL COMMENTS:

Early week activity in the cattle trade will be typically limited to the distribution of new showlists. Since trade volume totals seemed to be on the short side last week, the early month offering could be somewhat larger. On the other hand, well-margined packers should be relatively short bought, especially given last week's larger kill of 648,000 head (11,000 more than the previous week and 33,000 greater than 2016). Our guess is that asking prices will start out around $110 to $112 in the South and $174 to $175-plus in the North. Live and feeder futures should open on a mixed basis thanks to a light combination of short-covering and long liquidation.

The cash hog market seemed to stabilize late last week, leveling out from aggressive erosion pretty much through the entire month of September. It will be interesting to see this week if some kind of temporary recovery can be extended. Opening bids this morning are likely to be about steady. On the other hand, last week set another slaughter record for the early fall (i.e., 2.534 million head). It will be an ongoing challenge to command enough pork demand to clear wholesale channels with the least amount of price pain. Lean futures are likely to open mixed as well with nearbys more pressured than deferreds.

BULL SIDE BEAR SIDE
1) First-of-the-month paychecks typically help fund greater beef spending at both grocery and restaurant levels. 1) The larger placements now on feedlot books against the fall to early winter timeframe will counter-seasonally boost beef production from the third quarter into the fourth quarter.
2) Although Japanese imports of U.S. frozen beef fell by more than a quarter in August thanks to hiked tariffs, such lost biz was more than offset by a nearly 55% surge in shipments of U.S. chilled beef. According to Japanese sources, overall imports of U.S. beef in August were up nearly 20% compared with 2016. 2) The premium in Dec live cattle has widened to just over $6, potentially slowing marketing and causing carcass weights to spike even more. Furthermore, there is still a gap in the Dec daily chart left from last Monday's sudden price break, which could remain as formidable resistance.
3) October is National Pork Month, and it's a good bet the planned featuring and promotion will help stabilize/firm wholesale and retail price action. 3) The front-loaded nature of the market hog weight breakdown seems somewhat worrisome since it remains unclear how long it will take for the new packing plants to get fully ramped up and shoulder their share of the expanding production.
4) Friday's impressive rally in deferred lean hog futures may suggest that many traders believe the bearish implications of the new Hogs & Pigs report are already built into the board. 4) South Korea has just authorized three plants in Brazil to export pork to the Asian nation. U.S. pork continues to face intensifying competition along the Pacific Rim.

OTHER MARKET SENSITIVE NEWS
CATTLE:

(AP) -- As John Locke looked down from a helicopter at his roughly 200 cattle struggling with Harvey's rising floodwaters, he saw about 20 becoming entangled in a barbed wire fence and feared the worst.

Bundled in a lifejacket, the 38-year-old rancher jumped in to try and help. But by the time he reached the Brahmans, a beef cow species that originated in India and is known for its distinctive hump, most had already freed themselves and headed for higher ground with the rest of the herd.

"I thought they were going to die, and they're fine, which is kind of a theme for the whole thing," Locke said.

The damage Harvey inflicted on Texas' cattle industry hasn't been calculated yet, but there's evidence that it might be less than initially feared and perhaps not as costly as Hurricane Ike. That came ashore in 2008 as a weaker storm but with more salty storm surge that wiped out pastures for months. Even though Harvey unleashed catastrophic flooding on counties that are home to 1.2 million beef cattle, which is more than a fourth of the state's herd, there were apparently only a few instances in which large groups of cows drowned.

To be sure, some ranchers were walloped by Harvey, including at least one family that lost hundreds of cattle in flooding that reached the rooftops of low-lying homes near Beaumont, said Bill Hyman, who heads the Independent Cattleman's Association of Texas. And even surviving cattle can bring increased costs, as they can face longer-term health problems from standing in water for days, having gone long periods without eating and stress.

Hyman said he expects the association's membership to fall by 5 percent because some affected ranchers, especially older ones, will leave the business.

But whatever damage Harvey did cause shouldn't trigger a short-term rise in beef prices, said David Anderson, a Texas A&M University professor and agricultural economist. Texas is the nation's top cattle producer, with cow and calf sales averaging $10.7 billion annually between 2011 and 2014. But there are 30 million beef cows in the U.S. and most of the Texas beef industry's feed lots and packing plants are concentrated in parts of the state that escaped the storm.

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"Individual ranchers are going to see huge financial effects," Anderson said, including livestock killed; replacing destroyed homes, feed, fences and equipment; and purchasing medicines to protect cows from post-Harvey health problems. "But I don't think we're going to see much at all in the way of market impacts, changes in calf prices for other ranchers, or in the consumer beef prices."

One sign that Harvey might not have been as bad on ranchers as had been feared is that there were, in the early weeks after Harvey, fewer than 10 applications to a federal program that provides aid for livestock carcass disposal, said assistant state conservationist Mark Habiger, who cautioned that it's still too early to declare that a crisis was averted. Federal officials urged ranchers to burn cattle killed in the storm because the soil is so saturated that burying them could spread contamination.

When Ike hit Texas nine years ago, it cost the ranching industry at least an estimated $37 million, killing up to 5,000 cattle and decimating pastureland with saltwater storm surge. During Harvey, most of the flooding was freshwater that came from rains and rivers, meaning many ranches won't have to deal with grasslands hurt by saltwater — though some closer to the Gulf Coast still might.

At Locke's J.D. Hudgins Ranch in Glen Flora, a village with just one post office and an antique shop about 60 miles (96 kilometers) southwest of Houston, the cattle have returned to grazing in lush pastures that are greener than ever. Although Locke's family lost three cows and a calf to Harvey and a few survivors seemed sluggish or walked with a limp as he herded them under a fence one recent day, Locke said it could have been much worse.

"We're just happy they're still here," he said.

HOGS:

(Des Moines Register) -- How much pork can Iowa reasonably produce?

That debate can't come soon enough.

A record number of hogs and pigs were on Iowa farms as of Sept. 1: 22.9 million, up 3 percent from a year ago, according to a U.S. Department of Agriculture report released Thursday. That's about 7.3 times more pigs than people in the state.

No other state is even close to Iowa, which has more hogs than second-place North Carolina and third-place Minnesota combined.

More hogs are coming. In September, Seaboard Triumph Foods opened a plant in Sioux City, where it can slaughter 10,500 hogs per day and, by adding a second shift next year, up to 21,000 a day. Prestage Foods plans to open its plant near Eagle Grove in November 2018 and process 10,000 hogs a day. Iowa farms could expand to fulfill the demand.

More hogs and processing plants bring more jobs and income. But they also bring noxious odors that can make people sick. They threaten water bodies and groundwater -- and more than half of the state's lakes, rivers and streams are already considered polluted.

Instead of debating the right approach to pork production, we have pitched battles at meetings of county supervisors, who are largely powerless to restrict confinement sitings. Instead of finding balance between growth and regulation, our federal and state officials fail us.

All of this leaves Iowa totally unprepared for an influx of more hogs.

Let's be clear: The economy of many Iowa cities and rural areas depends on livestock production. Confinements are here to stay, and many pork producers have improved their operations to lessen the chances for spills and emissions. And Iowa can help fulfill demand for meat among growing middle classes in developing nations.

But the scales have tipped too far in favor of the pork industry.

As quickly as Iowa is adding hogs, state, federal and industry officials are resisting protections. Consider recent events:

Little local control: The Iowa Environmental Protection Commission denied a petition in September that would have given counties more ability to stop confinements. Supporters sought to strengthen the state's master matrix, a scoring system that is far too easy for proposed facilities to pass. Members of the commission agreed that the 15-year-old master matrix needs to be revised, but they kicked that to the state Legislature. Lawmakers, however, have avoided the issue for years.

Pitiful regulation of air pollutants: Large animal confinements are largely exempt from federal air emission rules, due to a "lack of expertise and resources" at the U.S. Environmental Protection Agency. An inspector general's report released in September said the EPA has failed to develop a way to measure whether large animal-feeding operations are exceeding air pollution standards -- 11 years after the EPA started an effort to do so. If you are a neighbor of a confinement, you could be breathing ammonia and hydrogen sulfide. But you may be dead before you know for sure.

Less strict bacteria rules: The Iowa Department of Natural Resources has proposed changes to its water-quality monitoring rules that could endanger Iowans who swim in Iowa lakes and rivers. The change would affect standards for E. coli bacteria, which can come from livestock operations and other sources. The largest cause of impairments for Iowa streams and rivers in 2016? Bacteria.

Stealth confinements: The DNR has missed hundreds of livestock operations that require some level of oversight. More than 5,000 hog confinements and cattle lots across the state -- or about half -- were simply off the state's radar, the DNR admitted to the federal government in August. The DNR discovered the facilities only through satellite imagery and only after the EPA required a survey. Most of the operations are too small to require regulation, but the state says nearly 1,300 could require some oversight. Of course, most "inspections" are never done on site. And with budget cuts, who will do the on-site inspections that are required?

State worker cuts: Gene Tinker, the DNR's animal feeding operations coordinator, saw his job eliminated this summer. The DNR said it was due to budget cuts. Tinker told the Storm Lake Times it was because the pork industry complained that he was educating county supervisors on their rights to object to confinements. Whatever the reason, local residents have lost another resource.

Legal loopholes: A new animal confinement with 2,500 or more pigs must face state oversight and other rules. Facilities between 1,250 and 2,499 face some, but less stringent regulation. Those with 1,249 or fewer hogs can be as close as they like to neighbors and don't have to have a manure management plan. So some producers are building confinements just one hog under the minimums, and they're exploiting another loophole that lets corporations with different owners--— even if those owners are connected -- locate next to each other. The result is that producers can stack confinements next to each other, and neighbors and the DNR can do nothing about it. The stench from these bad actors taints the entire industry and harms small, honest pork producers.

Lawsuit limits: It's not as if Iowa lawmakers are doing nothing on this issue. They're tipping the scales farther in favor of the industry. In the last session, lawmakers limited lawsuit damages in cases filed by neighbors against livestock producers. The law allows more latitude for defendants when an animal feeding operation is alleged to be a public or private nuisance or otherwise interferes with a person's enjoyment of life or property.

So what can lawmakers do about this? A lot. The next session, instead of simply giving lip service to the idea of local control, legislators can follow through. They can strengthen the master matrix to give local communities more ability to reject confinement proposals.

They can give the DNR more latitude to close loopholes.

They can finally fund the Natural Resources and Outdoor Recreation Trust. Iowans voted to create the fund in 2010, and lawmakers have refused to approve the accompanying 3/8-cent sales tax increase. The fund can improve water quality, among other benefits.

They can strengthen Iowa's voluntary Nutrient Reduction Strategy, which calls for a 45 percent reduction in nitrogen and phosphorus discharges but contains no timeline or other enforcement.

They can look toward other states that have stronger manure-management laws.

Lawmakers, led by Gov. Kim Reynolds, can demand a full accounting of the costs of pork production. And they can find the courage to have a debate over how we divide up paying for those costs.

If they can't do these things, then perhaps lawmakers should do what county supervisor boards, rural residents, environmental groups and others have asked. If lawmakers can't provide more local control, then they should pass a moratorium on new confinements.

That may not be an ideal solution. But pressing pause may be the only way Iowa can catch up to this fast-growing industry.

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

(CZ)

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John Harrington

John Harrington
Connect with John: