DTN Early Word Opening Livestock

Look for Cattle Futures to Open at Least Moderately Higher

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

Cattle: $1-3 HR Futures: 50-100 HRLive Equiv $136.96 + $1.36*

Hogs: Steady-$1 LR Futures: mixed Lean Equiv $ 83.65 - 0.03**

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

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

GENERAL COMMENTS:

We should start to see a few preliminary bids in feedlot country at midweek, though it would be quite surprising if they prove attractive enough to spark selling. Indeed, feedlot manager will be reluctant to price showlists prematurely, waiting to get a better handle on the board's full bullish stretch. Our guys is that significant trade volume will once again be delayed until sometime Friday.

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Hog buyers are expected to resume procurement work with bids steady to $1 lower. Processing margins have narrowed in recent weeks, and packers would like to be a better handle on the cost of live inventory if possible. The Saturday kill is currently estimated at 170,000 head. Lean futures should open on a mixed basis thanks to follow-through buying on one hand and profit taking on the other.

BULL SIDE BEAR SIDE
1) Live and feeder futures fielded strong follow-through buying on Tuesday with most months once again setting new contract highs. The board definitely wants to keep leading cash markets higher. 1) Given attractive deferred live premiums and the persistence of cheap feed, October placement activity likely remained well above the fall of 2016.
2) Beef cut-outs closed sharply higher yesterday with the choice box surging more than $3 (i.e., closing at its highest point since July 27). 2) Technically speaking, live and feeder cattle futures look significantly overbought and due for a corrective sell-off.
3) Nearby lean hogs also soared to new highs on Tuesday, perhaps reflecting big bets on the strength of U.S. exports over the next several quarters. 3) The cash hog market faltered on Tuesday, and the combination of lower bids and larger country receipts suggests that psychology is on the verge of turning south.
4) Early bird estimates the weekly hog slaughter are pulling back below last week's level, averaging little more than 2.45 million head. 4) China's importation of pork continues to lag far head 2016 levels (see article below). With U.S. production shifting into high gear, a recovery in Chinese appetite is critical.

OTHER MARKET SENSITIVE NEWS

CATTLE: (beefmagazine.com) -- Prospects for increasing beef exports come at a fortuitous moment in U.S. beef history. Without them, odds favor further industry contraction over time.

Such an observation might seem bold, given the fact that all beef produced in the U.S. is always consumed at some price, and that the national cowherd is currently in the midst of the first cyclical expansion in about two decades.

Consider this, though; U.S. beef never recovered the 20% domestic demand lost from about 1977 to 1997. Total beef production last year was about 25.3 billion pounds, according to USDA's Economic Research Service. That's about what it was in 1995. During that timeframe, production was as high as 27.2 billion pounds in 2002, and as low as 23.7 billion pounds in 2015.

During the same period, total U.S. meat and poultry production grew most years; it was 97.3 billion pounds last year. Along the way, the U.S. population grew by about 21% to 323.4 million in 2016.

Notwithstanding drought-forced liquidation in recent years, that's one reason there were 31.2 million beef cows at the beginning of this year, as opposed to 36.1 million in 1995, let alone the peak number of 45.4 million in 1975.

In the last decade, as the nation's cow herd contracted in the wake of prolonged drought, beef packing capacity and cattle feeding capacity left the business. It's easy to imagine a quick restoration of the latter, but not the former.

In order to maintain the current industry infrastructure — packing and feeding capacity, allied service providers, etc. — the nation's beef cow herd likely needs to be at or above 31 million cows or so over the long haul, according to Sterling Liddell, senior analyst of data analytics for RaboBank's RaboResearch Food and Agribusiness. HOGS: (blackseagrain.net) -- China imported 920,508 tonnes of pork valued at USD 1.7 billion in the first nine months of 2017, down 28.0% and 34.1% respectively from a year earlier, said the China Customs. Meanwhile, China's domestic pork production rose 0.7% to 37.2 million tonnes, according to the National Bureau of Statistics.

The nation's frozen chicken imports also fell sharply in the nine months, down 23.4% at 329,657 tonnes. However, imports of beef and mutton products maintained growths, rising 14.7% and 2.9%, respectively, to 502,887 tonnes and 187,812 tonnes.

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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