DTN Early Word Opening Livestock

 
Cattle: Steady-$2 LR Futures: 50-100 LR Live Equiv: $146.26 - 0.24*
Hogs: Steady-$1 LR Futures: mixed Lean Equiv: 75.62 + 0.65**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

For those hoping that springtime demand will come to the rescue of the crashing fed cattle market, snowfall on Easter across much of the central plains was not exactly a boon for psychology. The same goes for below average temperatures that are expected over a wide area in the next week or so. While better demand may have a late arrival in the second quarter, students of seasonal trends remain confident that grilling fever surely sits out there somewhere in the next 30 days or so.

Having said that, ca††le market activity this morning will be limited to the distribution of new showlists. Our guess is that ready numbers will be somewhat larger than last week. Feedlot managers will be slow to price cattle, obviously hoping that the board can find some way to stabilize and stop dragging packer bids lower. Live and feeder futures seem likely to open moderately lower, pressured by follow-through selling and technical bearishness.

Given the fact that the March 1 H&P report really contained no surprises in regard to the expectations of producers and analysis, lean hog futures seem likely to open generally mixed with traders refocusing on near-term supply and demand fundamentals. Most believe we are on the verge of smaller slaughter numbers and improving pork demand. Yet some believe such a bullish transition remains as much as two-to-four weeks away. At least cash hog buyers probably remain defensive enough this morning to opening with bids steady to $1 lower.

	BULL SIDE		BEAR SIDE
1)	The bullish track record for steadily improving retail and HRI beef demand between early April and mid-May is typically impressive and supportive of feedlot sales.	1)	Live and feeder futures seem to be sliding from one technical disaster to the next, imploding on Thursday to the lowest price levels seen since the late summer of 2017. Spot April live closed well below support at 115 last week. If bulls can't dig in above 113, technical vulnerability opens up to 110-111.
2)	Net beef export sales for the week ending March 22, surged to 23,600 MT, up sharply from the previous week and up 40 percent from the prior four-week average.	2)	The very strong basis and deep discounts in the late spring and summer contracts continue to point to expectations of sharply lower cattle prices in the months ahead, which should encourage feedlot managers to remain aggressive in their cattle marketings.
3)	At the same time, net pork export sales total 19,600, up 1% from the previous week. Actual pork exports totaled 24,200 MT, unchanged from the previous week, but up 2% from the prior four-week average.	3)	Further complicating North American trade talks, President Trump lashed out at Mexico on Easter, saying the country was "doing very little, if not NOTHING, at stopping people from flowing into Mexico through their Southern Border, and then into the U.S." He said Mexican leaders "must stop the big drug and people flows, or I will stop their cash cow, NAFTA.
4)	The pork cut-out moved moderately higher on Friday, supported by better demand for loins, picnics, and bellies.	4)	While the March 1 H&P report was well anticipated, the expansion rate of 3% on total hogs is clearly aggressive, representing a tremendous challenge to both domestic and foreign emand throughout 2018 and points beyond.

OTHER MARKET SENSITIVE NEWS

CATTLE: (beefmagazine.com) -- If recent history and long-term forecasts are any indication, then the cattle cycle will remain flatter, suggesting that controlling cost and exploiting premium price opportunities will be keys to maintaining or increasing revenue.

As for history, the variation of inventories within a given cattle cycle is declining over time. In other words, from cycle to cycle, the gap between the minimum and maximum cattle inventory continues to narrow.

That's the conclusion of a fact sheet authored last year by Glynn Tonsor, Kansas State University agricultural economist, and James Mitchell, a KSU graduate student in agricultural economics.

In fact, they say, the range declined over the past four cycles.

Specifically, the range in beef cow numbers was 11.0 million head for 1967-79. It was 6.8 million head for 1979-90, 2.9 million head for 1990-2004 and 3.6 million head for 2004-14. Using recent projected inventory peaks from USDA and the Food and Agricultural Policy Institute (FAPRI) at the University of Missouri, the range for the current cycle will be 2.9 million to 3.1 million head.

That has plenty to do with increasing fed cattle carcass weights.

"Slaughter weights have persistently increased over time, offsetting declining beef cow inventories, resulting in increasing beef production," Tonsor and Mitchell say. "This effectively reduces demand for beef cows relative to the past, where less beef was produced per animal moving through the industry's supply chain."

Beef production last year is estimated at about 26.2 billion pounds. USDA estimates beef production this year at 27.6 billion pounds, the least of the decade, and then meandering up to 29.1 billion pounds in 2027. FAPRI projections have beef production growing to 28.54 billion in 2020, and then declining gradually to 28.22 billion in 2027.

For my [Wes Ishmael] money, the FAPRI forecast feels more in step with reality. Notwithstanding the advent of widespread, long-term drought or some unexpected economic crisis, current demand levels-- and growing international demand-- make it hard to see a trough as deep as what the USDA forecast suggests.

As producer returns decline in the near term, FAPRI analysts believe beef production will slow. "Continuing increases in exports and population growth will lead to a decline in per-capita meat availability (domestic) by 2021," they say.

Closer to home, FAPRI estimates the feeder steer price (Oklahoma City 600 to 650 pounds) at $147.80 per cwt, declining to $138.34 in 2020 and then gradually increasing to $183.42 by 2027. Prices for 2019-22 are projected at $143.11, $138.34, $142.90 and $150.79, respectively.

USDA projects the Oklahoma City feeder steer price (750 to 800 pounds) at $144.05 per cwt this year and then declining for the rest of the decade to $104.94. Prices for 2019-22 are projected at $133.21, $126.12, $124.52 and $117.98, respectively.

Likewise, USDA sees the 5 Area fed steer price this year at $117.25 per cwt, and then declining for the rest of the decade to $97.13. Prices for 2019-22 are projected at $111.96, $107.16, $107.40 and $103.63.

FAPRI, on the other hand, projects this year's 5 Area fed price at $115.25 per cwt, then declining to $110.15 by 2020, and then gradually increasing to $132.41 by 2027. Prices for 2019-22 are projected at $112.71, $110.15, $111.37 and $115.20, respectively.

These projections were made in January, before the market run-up. Whichever projection is closest to the truth, both see prices declining for at least the next several years.

"The observation of beef cow inventory variability within cycles declining over time has direct implications for producers evaluating the current situation and contemplating entry-exit decisions in the context of where the industry is at in the current cattle cycle," Mitchell and Tonsor say. "Narrowly, producers should recognize the industry's efficiency gains as evidenced by increasing slaughter weights offsetting declining inventories, and subsequently note the national beef cow herd is unlikely to return to historic levels."

HOGS: (meatpoultry.com) -- The inventory of all hogs and pigs in the United States on March 1, 2018 totaled 72.9 million head, up 3% from the year-ago period, but down 1% from Dec.1, 2017, the National Agricultural Statistics Service (NASS) of the US Dept. of Agriculture said in its Quarterly Hogs and Pigs report.

Lower prices for feed during the quarter and the addition of four new pork processing plants likely encouraged producers to add more pigs to their herds. Rabo AgriFinance, in its North American Agribusiness Review in February, said prices for pork remain above breakeven, and that packer competition for hogs is driving stronger-than-expected lean hog prices.

NASS said 66.7 million of the hogs and pigs were market ready, a gain of 3% over 2017, but down 1% from the last quarter.

Another key finding in the report was the increase of pigs weaned between December 2017 and February 2018. NASS reported 32.3 million pigs were weaned on US farms, up 4% from the same time a year ago. Additionally, US hog and pig producers weaned an average of 10.58 pigs per litter which represents a record high for December-February period, NASS said.

Breeding inventory for period was 6.20 million head, an increase of 2% from the year-ago period, and slightly higher from the previous quarter.

NASS reported farrowing intentions between March 2018 and May 2018 at 3.08 million sows, and 3.16 million sows between June 2018 and August 2018.

Iowa recorded the largest inventory of hogs and pigs among the states at 22.6 million head. North Carolina and Minnesota followed with the second and third largest inventories with 8.90 million and 8.50 million head, respectively.

The total number of hogs under contract owned by operations with more than 5,000 head, but raised by contractees, accounted for 47% of the total US hog inventory, down from 48% reported a year ago.

John A. Harrington can be reached at john.harrington@dtn.com

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