DTN Early Word Opening Livestock

Cattle Futures Seem Set to Open Moderately Lower

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

Cattle: Steady-$2 LR Futures: 50-100 LR Live Equiv: $144.30 - .72*

Hogs: $1 HR Futures: 50-100 HR Lean Equiv: $ 87.60 + .71**

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

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

GENERAL COMMENTS:

Light cattle trading surfaced in parts of Nebraska at prices significantly below last week (i.e., $110 live, nearly $5 lower; $178 dressed, nearly $5 to $6 lower). Yet most feedlot managers continued to pass lower packers, so it's safe to say that the cash trade for the week has yet to be established. The trend will become more definitive sometime between late morning and early afternoon. Look for bids to start out around $110 cash and $176 to $178, far below asking prices of $115 to $116 plus live and $185 to $187 dressed. Live and feeder futures should open moderately lower, checked by residual selling and signs of weakening cash prospects.

Hog buyers should resume late-week procurement Friday with bids at least a buck higher. Pork processing has narrowed significantly this week with the cost of live inventory appreciating much faster than carcass value. This probably goes far in explaining much smaller Saturday kill plans of around 25,000 head. Lean futures are staged to open moderately higher, supported by short-covering and constructive fundamentals.

BULL SIDE BEAR SIDE
1) The typically aggressive beef featuring over the Father's Day weekend ahead could easily set the stage for bigger wholesale appetites early next Monday and Tuesday. 1)

Both beef cutouts and live cattle futures crashed hard on Thursday, potentially stripping feedlot managers of late-week cash leverage and bargaining power.

2)

Net beef export sales last week jumped to 22,200 metric tons (MT), up 43% from the previous week and 32% from the prior four-week average. At the same time, actual exports hit a new marketing year high of 18,500 MT, up 31% from the previous week and 14% from the prior four-week average.

2)

For the week ending June 2, fed cattle carcasses continued to get heavier: steers averaged 851 pounds, 3 pounds more than the prior week and 4 pounds above 2017; heifers averaged 786 pounds, 2 pounds more than the previous week and 8 pounds more than last year.

3) U.S. pork exports last week totaled 22,300 MT, up 16% from the previous week and 2% from the prior four-week average. The primary destinations were Mexico (9,100 MT), Japan (4,000 MT), South Korea (3,000 MT), Canada (1,700 MT), and Colombia (800 MT). 3)

Despite a firming cash market, most lean hog futures were pressured Thursday by ongoing trade issues and whether the large hog supplies projected in the coming months will be able to clear through both domestic and export channels.

4) The pork carcass value continued to firm on Thursday, especially boosted by a $4.56 hike in the belly primal. 4)

Hammered by the general commodity sell-off on Thursday, August lean hogs closed back below its 100-day moving average while the December contract landed south of its 40-day moving average.

OTHER MARKET SENSITIVE NEWS:

CATTLE: (Oklahoma Farm Report) -- When you look at current cattle prices, Dr. Glynn Tonsor of Kansas State University says feedlots appear to be losing money and will likely continue to lose money for the remainder of 2018. In a recent interview with Radio Oklahoma Ag Network Farm Director Ron Hays, he explained how this situation may play out for some feedlot operations -- if they do not have any risk management protections in place that will help to minimize any losses feeders may be facing because of current cattle prices. At any rate, Tonsor says the flow of red ink in the feeding sector is significant.

"For steers, between May and September of 2018, projections are in excess of $100 losses and in the back end, so the fourth quarter of 2018, we're actually projecting the first two months of 2019 are between at $15 to $100 per loss," Tonsor said. "Each of those presume a fed basis that's zero to plus $2 to $3 depending on what month we're looking at and we've had some recent months where basis has been $10 to $15."

However, in the event things turn out that it is $5 stronger than he is currently predicting, Tonsor says 1,400 lb. steers could actually add basically an additional $70 of value to the sale price. In that case, he clarifies that prices may actually be closer to breakeven. Tonsor says, too, those feedlot operators with a risk management plan in place will actually have the opportunity to lose less money, perhaps even make a little. The key to all of this, though, is minimizing any potential hiccups in trade -- which as we all know is something of a contentious issue at present with the current administration shaking things up in global commerce. Tonsor asserts that Friday's ag industry is on track to have the ability to continue feeding a growing world population and remain profitable while doing it -- but that all rests on the ability of nations with the advantage of being able to produce large amounts of food to export it to other countries where demand is strong. This is viewpoint is held universally, Tonsor says, who recently returned from the World Meat Congress held in Dallas last week.

"It is very clear that everybody, whether you come from Argentina, Canada, Mexico, the US, wherever you come from -- recognizes the critical role of trade both from a producer as well as a consumer perspective on meat," he said. "So, there's a lot of reasons to be optimistic because growing global protein demand is a reason to be optimistic if you are a protein producer."

HOGS: (KMA Land) -- Iowa State University will host a national center of excellence devoted to understanding the genomic, or molecular, mechanisms that govern important genetic traits in swine such as growth and disease resistance.

The U.S. Department of Agriculture's National Institutes of Food and Agriculture recently announced its decision to fund the center of excellence with a $2.5 million grant over four years as part of a larger effort that also will include similar genomics work with cattle and chickens at other universities. The swine genomics center will include personnel at Iowa State, Michigan State, The University of California at Davis, and the USDA Agriculture Research Service. The research effort aims to allow pork producers to use genetics more efficiently to predict the traits their herds possess.

Christopher Tuggle, a professor of animal science and USDA national swine genome co-coordinator who will lead the center, said the effort will focus on functional genomics of pigs, or building a better understanding of how the genome functions to influence performance in pigs.

"We've sequenced the pig's genome, but we don't necessarily have all the information we need to make the best use of that data," Tuggle said. "We're going to find out exactly what many of those genes are doing and what controls them."

The researchers will test a range of tissues from pigs at various stages of development with a major focus on chromatin, or the complex in cells where DNA is packaged. The scientists will analyze the functions of various genetic structures and mechanisms, Tuggle said. The group will focus on exploring the genetics of disease immunity, he said.

The project also will share the data it produces with the public and other scientists. Tuggle said the project's findings likely will have implications for a wide range of swine management practices, from how producers handle herd nutrition to treating disease.

Much of the data storage and analysis will occur at Iowa State as well. James Koltes, an assistant professor of animal science, and Jim Reecy, associate vice president for research, will lead the computational aspects of the project.

"The data generated in this project will provide unprecedented opportunities to learn how genes are regulated and controlled over different growth phases and during disease in the pig," Koltes said. "The ability to combine different types of genetic data will allow us to predict genetic regulation in ways that have not been performed previously."

"This will create a more precise way of predicting traits. If we gather enough information, we can predict in the future what a genotype will mean for a particular phenotype or trait," Tuggle said. "This could allow pork producers to breed for better disease resistance, for example, or for better muscle growth or a range of other desirable traits."

The grant is a portion of $6.5 million USDA awarded to create three functional genomics projects. In addition to the ISU-led center of excellence for swine genomics, USDA awarded grants to create programs for cattle genomics at the University of California at Davis and chicken genomics at Western University of Health Sciences in Pomona, California.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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John Harrington