DTN Early Word Opening Livestock

Livestock Futures Staged for Firm Midweek Opening

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

Cattle: Steady-$2 HR Futures: 50-150 HR Live Equiv $134.38 + 0.75*

Hogs: Steady-$1 HR Futures: 50-100 HR Lean Equiv $81.64 + 0.66**

* 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 buyers should begin to kick a few tires this morning, floating preliminary bids here and there just to get in line for ready cattle. Both sides will be monitoring internet sales and further action on the board. Significant trade volume is not expected to surface until Thursday and/or Friday. CME officials announced the posting of 16 loads against spot October live, all in West Point. Live and feeder futures should open on a firm basis thanks to a combo of residual buying interest and cash optimism.

The cash hog trade should open on a firm basis with opening bids steady to $1 higher. While packer margins have retreated from early-month highs, processing profits remain quite respectable. Preliminary estimates of the Saturday kill average around 200,000 head. Lean futures should start out moderately higher, boosted by follow-through buying and appreciating carcass value.

BULL SIDE BEAR SIDE
1) Live and feeder futures exploded higher on Tuesday with triple-digit gains scored through the complex. February through June set new contract highs despite the recent confirmation of growing on feed numbers. Clearly the trade feels great confidence regarding the strength pf beef demand going forward. 1) Deferred premiums in live cattle futures just keep growing with soon-to-be-spot December now more than $8 above the last established feedlot trade. With feedlot margins still in the red, the threat of slowing marketing efforts and a serious loss in current looks real.
2) Beef cut-outs closed significantly higher yesterday with box movement described as "moderate to fairly good." 2) As of October 1, 3.88 million heifers were on feed, 13 percent more than last year (as opposed to a 2 percent increase in steers at the bunk).
3) Additionally, out-front sales of boxed beef last week (i.e., with 22 days delivery or more) surged to 1,420 loads, the largest round of biz since early February. 3) With expansion plans falling into low gear, the pool of females available for feedlot placement will remain large. At 2.544 billion pounds, the September freezer inventory represents the largest cold storage report on record. While there was not a significant increase in anything, stores of all frozen meats increased.
4) Lean hog futures closed solidly higher on Tuesday with spot December once again displaying a willingness to lead the cash market higher. The pork carcass value closed moderately higher once again yesterday, supported by better demand for all major primals except the loin. 4) As much as we salute and admire the spawning salmon as they muscle their way upstream, most recognize that the seasonal current tends to be a killer. You might saw the same about the odds of higher packer bids on ready hogs as we move into the flood of record numbers ahead. The going is likely to be tough.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Ag Journal) -- Cattle feeding profitability has careened between all-time highs and all-time lows in recent years, but all things considered it isn't the worst time for one of the largest cattle feeding entities in the country to come up for sale, according to Jim Robb, director and senior ag economist at the Livestock Marketing Information Center based in Denver.

Cattle feeding profitability has careened between all-time highs and all-time lows in recent years, but all things considered it isn't the worst time for one of the largest cattle feeding entities in the country to come up for sale, according to Jim Robb, director and senior ag economist at the Livestock Marketing Information Center based in Denver.

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He made that observation during the recent Arkansas Valley Livestock Symposium, hosted by the Colorado Livestock Association and held on the campus of Otero Junior College.

In the wake of a massive corruption scandal in Brazil, international meatpacking conglomerate JBS announced this summer that it was putting its large cattle feeding division, Five Rivers, on the market.

With the industry increasingly consolidated, any major shift in ownership or possible closure of feedlots or packing plants sends ripples of concern throughout the countryside.

Enduring a shakeup at a large cattle-feeding entity is still fresh in the memory of livestock producers in the Arkansas Valley. Jason Crouch, who was in the audience on behalf of his employer, Ordway Cattle Feeders, recalled the widespread uncertainty two years ago that accompanied the restructuring of Four States Cattle Feeding. The company operated multiple feedlots in the region before running into financial problems, forcing it to pare its inventory from 85,000 to 40,000 head capacity.

"It affected every feeder, farmer and local business in this area," Couch said.

The company's flagship feedlot in Ordway is now under the exclusive ownership of one local family and has emerged leaner but financially much stronger, Couch said.

Still, when ownership changes happen, it puts stress on a long list of ancillary businesses. Timing of a forced sale is critical too.

"When we went through it two years ago that was at a time when nobody wanted to buy a feedyard. That's why we're quite a bit smaller now," Couch said.

Robb noted optimistically in his presentation that JBS has received letters of interest from several potential buyers. Five Rivers operates more than a dozen feedlots across the Western U.S. and Canada.

JBS also owns multiple meat processing enterprises worldwide, but Robb said its large cattle-feeding arm was the least insulated from the company's political and financial turmoil.

"They are buying 35,000 head a week to keep those lots full, so that's a big buyer," he said. "The risk of the fallout from this, and how it might effect yearling prices, that's the thing I'm watching. I think we can transition through it, but it's just another risk factor at a time when we are trying to move more cattle through the system."

Justin Miller, one of two CLA board members from the southeast region who attended the meeting, handles environmental oversight for Five Rivers' 60,000-head feedlot at Lamar. Miller had no comment on the sale other than to state that it was "business as usual" at the yard.

"We are still buying cattle and selling cattle and buying commodities," he said.

The potential impact of the Five Rivers sale is magnified by its size. The company feeds close to a million cattle and buys many semi-loads of corn every day. The JBS-owned packing plant in Greeley is the largest beef processor in Colorado...

HOGS: (National Hog Farmer) -- The USDA Agricultural Marketing Service invited public comment on the proposed revision to the U.S. Standards for Grades of Pork Carcasses. The proposed revision would assist pork producers and processors by better aligning the grades with consumer expectations.

USDA Grade Standards, like the standards for pork, allow producers, businesses and consumers to identify a commodity by uniform groups of similar quality, yield or value — helping facilitate the fair marketing of U.S. agricultural products. AMS works with stakeholders to establish and revise U.S. grade standards for nearly 240 agricultural products.

With the goal of driving stronger demand for pork as it benefits the entire pork supply chain — from pig farmers to packers, to retailers and foodservice operators, the National Pork Board issued the following statement on the Voluntary Standards for Pork Carcass Grades:

"To grow demand, our industry needs to better define what quality looks like and maintain our focus on developing a consistent eating experience.

"America's pig farmers produce a flavorful product and the Pork Checkoff's long-term research studies have demonstrated how to improve upon it. The pork loin is the primal that most often suffers from a quality challenge and consequently faces chronic low prices. Consumer research suggests a more consistent eating experience with the loin — supported by a balance of the proper cut name, the ideal end-point cooking temperature and the quality attributes of color and marbling — will create higher consumer value. Better understanding these attributes will only serve to increase pork consumption in the long term."

When there is a need, AMS considers changes to its official grade standards to ensure they continue to serve their intended purpose. Over the last several years, extensive research on pork quality, consumer preferences and other factors affecting the marketing of domestic pork provided the basis for the proposed revision.

The current pork standards were last revised in 1985 and are no longer considered by the industry to reflect the value differences in today's pork products. The proposed change would allow industry to once again utilize the grade standards as a meaningful tool for communicating pork quality between buyers and sellers.

The proposed revision appeared in the Oct. 23 Federal Register. Comments may be posted online at Regulations.gov, submitted by email to porkcarcassrevisions@ams.usda.gov, or sent to Pork Carcass Revisions, Standardization Branch, Quality Assessment Division; Livestock Poultry and Seed Program, AMS, USDA; 1400 Independence Ave., SW.; Room 3932-S, STOP 0258; Washington, D.C. 20250-0258.

Comments received will be posted without change, including any personal information provided. All comments should reference the docket number (AMS-LPS-17-0046), the date of submission and the page number of the issue of the Federal Register.

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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