DTN Early Word Opening Livestock

Livestock Paper is Expected to Open on a Mixed Basis

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

Cattle: Steady-$2 HR Futures: Mixed Live Equiv $138.70 +1.12*

Hogs: Steady-$1 LR Futures: Mixed Lean Equiv $ 85.45 + .17**

* 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-market Tuesdays are typically yawners, and this Tuesday should be no exception. Neither bids nor asking prices should be well defined. Significant trade volume should be easily delayed until Thursday and Friday. Tight processing margins mean that packers need to sell boxes significantly higher. They got the job done Monday, but it remains to be seen if beef sales can successfully climb through the week. Live and feeder futures should open on a mixed basis Tuesday with deferred generally gaining on nearby.

The cash hog market is expected to open with bids steady to $1 lower. Early birds are estimating Saturday's hog kill close to 160,000 head. Lean futures should open on both sides of unchanged with nearby checked by the recent defensive of cash and deferreds supported by residual buying.

BULL SIDE BEAR SIDE
1) Beef cutouts moved sharply higher on Monday with the choice box closing at its highest level since July 12. 1) Historically, the explosive pace in the cash cattle market seen over the last several weeks should prove to be unsustainable. At the very least, the country rally is due to slow down, if not adjust lower.
2) Out-front boxed beef sales (i.e., delivery of 22 days or more) continued to reflect decent volume last week (1,162 loads). Late-year holiday beef demand seems quite promising. 2) Last week's cattle totaled a significant rebound to an estimated 642,000 head last week, the largest since the end of September and well above last year's 611,000 head. It may be tough to sustain higher cutouts this week as retailers turn more and more toward covering Thanksgiving needs.
3) Once again, this week's hog slaughter is expected to fall below 2.5 million head, suggesting that the seasonal peak in pork production may have already come and gone. 3) Leaving October, demand for pork product usually tapers off (that's why November is not known as pork month). No wonder why cash hog bids seem to be on the fade.
4) Summer 2018 lean hog contracts once again set new contract highs on Monday, further signs of great trade confidence in longer-term pork demand. 4) Spot December closed lower Monday despite the large premium status of the cash index. Clearly some remain nervous about the late-year combination of record pork supplies and iffy product demand.

OTHER MARKET SENSITIVE NEWS

CATTLE: (KUNC) -- Between the time a cut of steak or pound of hamburger goes from cattle farm to grocery shelf, it more than likely passes through one of three companies: Tyson Foods, Cargill or JBS.

According to the U.S. Department of Agriculture, the top four beef processors hold 85 percent of the market share, controlling the beef market to the point that some farmers believe the companies' clout unfairly influences livestock prices.

Last month, the USDA withdrew a rule proposed in the final weeks of the Obama administration that would have made it easier for cattle producers to raise objections if they thought meatpackers weren't giving them a fair price.

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For example, beef producers would have been able to raise a red flag when they felt they were being frozen out of the market. Hog and chicken farmers could have sought protection from abusive contracts.

"If you're only one of two or three buyers as contrasted with thousands of sellers, all you have to do is just blow a gentle breath on that market and you can knock it down," says Dave Domina, a Nebraska lawyer who represented cattle producers in a lawsuit against Tyson.

The Trump administration has pledged to ease regulations on the agriculture industry — and has done so by killing this proposed rule.

"My fear was it would just have been a windfall for litigators and lawyers who wanted to take these court cases and would've been very disruptive to the markets and disruptive to the fair competition among producers there," Agriculture Secretary Sonny Perdue says of not letting the rule go forward.

The work would have fallen to the USDA's Grain Inspection, Packers and Stockyards Administration, or GIPSA, which oversees data sharing in grain and livestock markets and investigates alleged violations of fair marketing rules.

Even without the rule, Perdue says the agency will still be watching to see that the livestock industry is fair and competitive.

"I understand those who are disappointed, but I believe that commerce is the answer, not litigation, in the economy," Perdue says.

Without the rule, Domina says, the top meatpackers will be able to further control the supply and price of cattle and other livestock.

"This is as though, in the industries affected by the rule, the police force has just been fired," he says.

His reasoning: There is a small window each week where meatpackers bid on cattle. If a farmer doesn't take that offer, Domina says, there may not be another one.

"So you never really knew whether you were going to be able to sell your cattle," Domina says.

And it's an expensive problem if cattle are not sold at the right time, because if they get too big, the quality of the meat deteriorates and meatpackers dock the price.

But there's an argument from large producers that people who are asking regulators to be more involved in the beef market are out of touch. Not all beef at the store is equal, they say, and neither are all the animals being raised.

Many producers work with the major meatpackers to raise cattle that meet certain standards, including livestock that are Certified Angus Beef, raised without hormones or traceable back to birth. Delivering what meatpackers want can fetch producers a better price.

"We're not going to regulate how they buy our product. We're going to provide them with what they want," says Craig Uden, who runs a feedlot in central Nebraska and is president of the National Cattlemen's Beef Association...

HOGS: (The Washington Post) -- In days since the paper was published, media outlets from New York to London have trumpeted the news that Chinese scientists have genetically engineered a pig that can better regulate its body temperature by burning fat in cold months. The side benefit? The hog ends up with leaner meat.

The genetic breakthrough has been heralded as something of a win-win for farmers and consumers: The former could lower the costs of raising their pigs, and the latter could get their pork fix without as many calories from fat. All of this, of course, assumes that a genetically engineered pig from China could be approved for human consumption in the United States, no easy feat considering that it took the Food and Drug Administration nearly two decades to give the green light to GE Atlantic salmon.

Regardless of the regulatory hurdles ahead, small hog farmers are cynical about who would benefit most from these Chinese pigs, whose DNA has been altered to include a gene that helps regulate the animal's body temperature. The farmers said GE pigs would mostly serve such multinational companies as Smithfield Foods, the world's largest hog producer, which slaughters millions of pigs annually. The Chinese-owned Smithfield produces hogs bred to be leaner than pasture-raised pigs, and these lean hogs, specifically their piglets, require barns with heat lamps and heated floors to keep the newborns alive in their fragile first days.

The heating costs are not insignificant in large hog operations, where 5,000 animals may be confined under one barn roof. But just as important is the piglet mortality rate, which can range from 10 to 20 percent of newborns, some caused by cold barn conditions, said Todd See, head of the department of animal science at North Carolina State University. A pig with the ability to better regulate its body temperature might cut down on the mortality rates, See said.

Pigs are one of the few mammals without a gene to regulate body temperature, which is why pigs will burrow in hay during the winter months. To alter the animal's DNA, researchers from the Chinese Academy of Sciences in Beijing used a laboratory tool known as Crispr to edit a mouse gene into pig cells, which were then used to create more than 2,500 embryos. The embryos were inserted into 13 female pigs, surrogates that ultimately gave birth to 12 male piglets.

The researchers noted that all 12 pigs were able to better regulate their body temperatures, while also decreasing their fat levels "without altering physical activity or daily energy demands," said a report published in the Proceedings of the National Academy of Sciences. "This study highlights the potential for biotechnology use in pig breeding to improve cold resistance and lean pork production."

One of the study's researchers, Jianguo Zhao, told NPR that the animals, slaughtered at six months, showed no sign of abnormalities from DNA editing. He pronounced them healthy and normal. He even predicted the meat from these Bama pigs, a small to medium breed native to southern China, would taste the same as the flesh from non-modified pigs, even though the former have 24 percent less fat than the latter.

Small pig farmers sigh when they hear the argument that lean pork tastes just as good as the fattier stuff. To them, it's merely the latest hype from a hog industry that, for decades, has been obsessed with producing leaner meat - and then persuading Americans to buy more pork with marketing campaigns such as the Other White Meat ads. These smaller farmers have embraced old heritage breeds, such as Berkshires and Gloucestershire Old Spots, which are rich with fat and flavor. And they've made their own pitch to consumers: Lean pork is just inferior.

"Making them leaner is going to make them taste worse," said Gretchen Dimling, who co-owns Whistle Pig Hollow Farm in Reisterstown, Md., with her husband, John. Lean pork, she said, "already tastes like wet cardboard."

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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John Harrington

John Harrington
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