DTN Early Word Opening Livestock

Cattle Futures Set for Softer Opening at Midweek

John Harrington
By  John Harrington , DTN Livestock Analyst
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(DTN file photo)

Cattle: Steady-$2 HR Futures: 50-100 LR Live Equiv $132.71 - 0.72*

Hogs: $1-2 HR Futures: mixed Lean Equiv $ 79.93 - 0.44**

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

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

GENERAL COMMENTS:

Cattle buying interest could slow improve through the day with opening bids reissued at $109 in the South and $173 in the North). Both sides will be closely monitoring the board, as well as checking for news from the FCE later this morning. Asking prices should be around $113 plus in the South and $178-180 in the North. Significant traded volume may not develop until Thursday and Friday. CME officials announced the posting of 34 loads delivered against spot October live on Tuesday (i.e., 14 new ones; 18 retendered at $2 with 9 reclaimed), at a West Point. Live and feeder futures should open moderately lower, checked by follow-through selling and lower beef cut-outs.

The cash hog trade should resume this morning with bids $1-2 higher. The impressive October rally continues, sponsored by more manageable market hog supplies and constructive pork demand. At the time, Saturday kill plans should come close to 195,000 head. Lean futures seem stage to open on a mixed basis thanks to a combo of residual selling and short covering.

BULL SIDE BEAR SIDE
1) Though cattle buying interest remained quite limited on Tuesday, a small sample of preliminary bids in Kansas and Nebraska were not that far below steady money with last week (i.e., $109 live; $173 dressed). 1) Beef cut-outs closed significantly lower on Tuesday, causing packers to further tighten. Additionally, out-front demand (i.e., delivery of 22 days or more) for boxed beef appears to be softened with total loads falling last week to the lowest level seen since early August (i.e., 885 loads).
2) For the week ending October 10, noncommercials continued to increase longs and liquidate shorts in live cattle futures with their net long position increasing by 5000 to 112,100 contracts. 2) Cattle futures tried to rally yesterday, but ran out of gas late and closed at least 150 points below session highs. This seems like more evidence that the board is tired.
3) The cash hog market exploded higher yesterday with the national dressed base quoted more than $2 on the close. Despite surging bids, negotiated receipts totaled no more than 14,689 head. Both price hike and limited volume suggest that packers are not finding as much live inventory as they would like. 3) Nearby lean hog contracts broke hard on Tuesday, essentially canceling promising rally launched on Monday.
4) For the week ending October 10, noncommercial traders increased their net long position in lean hog futures by 3,400 contracts to 42,000 contracts. 4) The pork carcass value closed moderately lower yesterday, mainly pressured by a $3.93 drop in the loin primal.

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OTHER MARKET SENSITIVE NEWS

CATTLE: (the cattlesite.com) -- The Canadian monthly Cattle on Feed report was published last Friday by Canfax, which is a division of the Canadian Cattlemen's Association, writes Steiner Consulting Group, DLR Division, Inc.

Canada is an important and closely intertwined component of the North American cattle/beef industry. As of 1 September 2017, together Alberta and Saskatchewan had just over 607,000 cattle-on-feed. For comparison purposes, in the US monthly reported data for August, Iowa, was the fifth-largest cattle feeding state and had 640,000 head on-feed in lots with more than 1000 head capacity.

As of 1 October, the Canadian on-feed count showed a year-over-year increase, continuing a trend that began as of 1 June 2017. Cattle on feed were up 9.6 per cent compared to a year ago (an increase of over 55,000 head), but remained below the prior 5-year average (2011-15).

The number of animals placed into feedlots has remained above 2016's each month this year since January. From January through September cumulative placement's were 1.1 million head, which was 178,000 above 2016's. Some areas of dry conditions along with strong calf and yearling prices have recently pulled more animals than last year into feedlots.

Mid-year survey results by Statistics Canada put the 2017 national calf crop only slightly above a year ago (up 0.2 per cent or 8,500 head). Larger placements have been achieved mostly by declining feeder cattle exports to the U.S. Preliminary weekly Canadian animal export data to the US by Canada are collected by USDA's Animal Health Inspection Service and reported by the Agricultural Marketing Service (Market News Division).

Year-to-date, U.S. imports of Canadian feeder cattle have dropped by nearly 57,000 head (down about 1,500 animals per week). Canadian cattle feeders have bid-up prices to levels that made exports to the U.S. less attractive than normal.

As in the US, fed cattle marketed have been aggressive, especially in May through August. During September, head sold was down slightly compared to 2016's (slipping 1,000 head which was well less than 1 percent).

Animals marketed so far in 2017 was 53,000 head more (up 4.3 percent) than during the same months in 2016. According to the weekly preliminary data from USDA, year-to-date U.S. imports of Canadian slaughter steers and heifers were above a year ago by about 14,500 head (6.4 per cent). So, most of the year-over-year increase this year has been harvested in Canadian plants.

Looking ahead to 2018, Canfax forecasts that domestic output (production plus live exports) will increase about 2 per cent. To achieve that, they expect a 2.6 per cent rise in Canadian production and a 2.0 per cent decrease in live fed animal exports to the US.

HOGS: (agweb.com) -- From September's Hogs and Pigs Report, producers learned one lesson: grow.

Last week, Rabobank's pork analysis showed the U.S. pork industry could grow by 11% from 2017 to 2025. But will expansion over pressure prices for 2017 and 2018?

A breeding herd expansion of about 1% is sustainable, says Chris Hurt, an ag economist at Purdue University. With increases in packing capacity and consistently strong export demand, the industry can grow at a rate of 2% to 3% per year and not generate excess supplies that would depress prices below costs of production.

The other side of that increase is improved production: more pigs saved per litter and heavier carcass weights.

Pork supplies this fall are expected to be about 3% higher than year-previous levels, Hurt reports. In the first three quarters of 2018, pork supplies are expected to be up about 2%.

Feed prices will stay moderate for the fourth year in a row in 2018, Hurt adds.

Chris Hurt's Quarterly Price Forecast:

Live hog prices are expected to average in the mid $40s in the final quarter of this year and then move upward to the higher $40s in the first quarter of 2018. Prices are expected to rerun to the mid-$50s in the second and third quarter next year and then be back around the mid $40s in the final quarter.

For calendar year 2017, prices are expected to average about $50 on a live weight measure. For 2018, current futures estimates are for hogs to be about $1 higher, near $51. Production is anticipated to rise by 2.4 percent in 2018 and that would generally mean slightly lower prices. However, strong pork demand and reduced packer margins may help bolster hog prices somewhat above those of 2017.

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

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John Harrington

John Harrington
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