DTN Early Word Opening Livestock

Cattle Paper Likely to Open Higher Given Towering Cash Premium

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

Cattle: Steady-$2 HR Futures: 50-200 HR Live Equiv: $138.18 - .15 *

Hogs: Steady-$1 LR Futures: Mixed Lean Equiv: $ 90.80 - .84**

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

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

GENERAL COMMENTS:

Action in feedlot country will be typically slow Monday as buyers and sellers focus on the distribution of new showlists. We expect the offering of ready steers and heifers to be about steady with last week. Buoyed by greater packer spending right before the weekend (i.e., $112 to $113.50 in the South; $175 to $180 in the North), there can be little doubt that feedlot managers will be pricing fed cattle for several dollars more. The weather map across the heart of feeding country suggests that we're in for another hot week, and the intense midsummer sun can always be a market wildcard. Given Friday's late reversal with the board collapsing in the face of impressive cash strength, the opening call is a bit tough. Yet such extraordinary basis strength suggests the cattle futures will at least start out significantly higher with nearby live futures leading the early charge.

Hog buyers will open the new work week with bids steady to $1 lower Monday. While the supply of ready barrows and gilts are not expected to increase any time soon, there are those who believe seasonal numbers are now about as high as they're going to get. The premium of the pork cutout over the most recent cash index is no more than $3.41, implying better processing margins than the last several weeks but still quite poor. Look for lean futures to open mixed with late-summer issues to outperform deferreds.

BULL SIDE BEAR SIDE
1)

The cash cattle market exploded sharply higher on Friday, confirming both the persistence of feedlot leverage and decent packer margins.

1)

For the week ending June 3, cattle carcass weights continued to increase: all cattle averaged 805 pounds, 4 pounds more than the prior week and 2 pounds more than 2017; steers averaged 885 pounds, 2 pounds more than the previous week and 3 pounds more than a year ago; heifers averaged 793 pounds, 2 pounds more than the week before and 8 pounds more than last year.

2)

Actual beef exports for the week ending June 28 totaled 18,500 metric tons (MT), up 1% from the previous week and 6% from the prior four-week average.

2)

Net beef export sales for the week ending June 28 totaled 12,900 MT, down 30% from the previous week and 29% from the prior four-week average.

3)

Employment growth was strong for a second consecutive month in June as the economy added 213,000 jobs despite worker shortages and mounting U.S. trade tensions.

3)

Net pork export sales for the week ending June 28 total 16,500 MT, down 32% from the previous week.

4)

Actual pork exports for the week ending June 28 totaled 20,300 MT, up 38% from the previous week and 7% from the prior four-week average.

4)

For the reporting week ending June 26, noncommercial traders increased their net-short position in lean hog futures by 2,900 contracts, which is now net-short 20,000.

OTHER MARKET SENSITIVE NEWS:

CATTLE: (Monday.agrilife.org) -- Beef producers should be making plans regarding their herds in case drought conditions continue, said a Texas A&M AgriLife Extension Service expert.

Beef producers might start considering culling options in case drought conditions continue to decrease forage and hay availability.

Dr. Jason Banta, AgriLife Extension beef cattle specialist, Overton, said a shortage of forage and hay could mean producers will be forced to reduce herd numbers. Having a plan to cull herds can save producers money in the short- and long-term.

Banta said there was very little hay carryover from last year due to the extended winter. Cooler than normal temperatures into spring also meant the first hay cutting, which is typically one of the best, was subpar.

The second cutting was also below normal in quantity and quality due to drought, he said. Drought conditions are also affecting hay availability in other nearby states, including Oklahoma, Kansas, Missouri and Arkansas.

"That means hay supplies will be tight," he said. "A lot of producers are getting worried, and their concerns are justified."

Herd sizes have also increased over the past several years, he said.

"That complicates things more," he said. "It means they will need to look at stocking rates and begin thinking about reducing their herd numbers to save some forage supplies and reduce the need for hay in the winter."

Producers should adjust stocking rates to avoid overgrazing pastures, Banta said. If moisture is received overgrazing makes it more difficult for grasses to recover.

To capitalize on rain, producers should consider keeping a nitrogen fertilizer source with low volatility on better-producing pastures, Banta said. Ammonium nitrate can sit on fields for several weeks with very little or no volatilization concerns.

"There should be nitrogen on pastures in the event that an unexpected rain comes," he said. "It's important because you never know when we might get moisture. It takes less rain to produce one ton of forage when there is good nitrogen available. So, it's best to capitalize on any moisture we get."

Banta said producers should also be mindful to maintain cow body condition. Keeping weight on cows is much easier than recovering lost pounds.

Producers may want to wean calves one to two months earlier than usual to help keep cows in better shape going into winter, he said.

"Letting a cow get below a body condition score of 4 will increase the cost to get them back to where they need to be," he said. "A bred cow will do what she has to do to bring her calf to term, but getting her bred the next time is what we're trying to preserve."

Banta said the U.S. cattle herd is the biggest it's been since 2009 so producers need to maximize the value of culls amid lower prices. Poor body conditions can mean even lower prices and lower weights. Taking culls to market in good condition can help maximize dollars per head.

If conditions continue to decline, Banta said producers should be prepared to cull their herds.

"There is no perfect strategy, but there are different options when it comes to culling," he said.

Cows with problems, such as bad udders, bad feet, a bad eye or temperament should always be the first to go.

If additional herd reduction is needed, the following list presents one option: virgin replacement heifers; late calvers; 2-year-old cows (they have the lowest reproductive rates); 3-year-old cows; mature cows (least affected by difficult conditions).

"Virgin replacement heifers are at the top of the list to sell first because those heifers generally have good value as feeder heifers or for breeding in other parts of the country," he said. "There are pros and cons to every strategy, the pros of this approach are lower feed costs and more calf income in the short run. However, it will mean higher replacement rates over a short period of time in the future."

Another strategy is to sell the traditional culls, followed by the late-calvers and any cows age 11 or older. After that a percentage from each remaining group, including virgin heifers, young cows and mature cows, would be sold. This approach keeps the herd age structure intact, but results in higher feed costs and less calves to sell in the short term.

"Cattle prices are lower than in previous droughts so producers can't spend as much on feed and expect a return when they go to sale," he said. "We're not at the point to cull that deep, but it is time to plan and possibly initiate the first parts of the plan. The key is to be ahead of things rather than having to react to a bad situation."

HOGS: (Rabobank) -- Global pork trade will continue to grow, become more complicated and experience more competition, as can be seen in Rabobank's World Pork Map 2018.

Rabobank's World Pork Map shows global pork production and consumption, and the extent of the largest pork trade flows around the world. "Global pork trade flows continue to change, both for exporting countries and destination countries," says Jan Peter van Ferneij, Rabobank Senior Animal Protein Analyst. "And the pork products being traded also continue to adapt to the changing demand."

The largest exporters -- the EU, US, Canada, and Brazil -- are increasingly competing in the same markets.

China has become the most important destination for pork and by-products. Other Asian destinations have also increased their demand for imports. These destinations are buying an ever broader range of products, from low-value products such as by-products to products with high added value.

Russia has almost disappeared as an importing country since 2014, and in future could start competing in world markets as an exporter.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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John Harrington