DTN Early Word Opening Livestock

Cattle Paper to Open Mixed as Traders Wait for the Determination of Packer Spending

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

Cattle: Steady-$1 HR Futures: Mixed Live Equiv: $139.37 + .12*

Hogs: Steady Futures: Mixed Lean Equiv: $ 76.94 + .42**

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

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


If it's Friday, it must be time to trade cattle. At least that's the schedule we've followed for a large part of the fourth quarter. The big question is just "how big" the gulf between bids (e.g., $112 to $114 in the South) and asking prices ($120 in the South) will be. Live and feeder futures are set to open on a mixed basis as buyers and sellers jockey around late-week cash prospects.

Look for the cash hog market Friday to begin with basically steady prices. Packers appear to have plenty of live inventory to choose from. Assuming Saturday's kill will total close to 185,000 head, this week's total slaughter is forecast to approach 2.6 million hogs. Look for harvest levels to hover around 2.6 million for the next three weeks, making for record output of animals and production for a three-week period. Lean contracts are projected to open mixed as well, thanks to residual selling and short-covering.


Most actively-traded February live cattle is nearly $4 premium to the latest cash market, compared to an "average" basis of being nearly $2 under cash in early December. The early-year board is clearly encouraging producers to expect cash strength around the next market bend.


For the week of Nov. 24, steer carcass weights increased by 2 pounds to 902 lbs. and were 2 lbs. lighter than last year. Heifer carcasses averaged 838 lbs., unchanged from the prior week. Such challenges question whether a seasonal scale top has been reached.


China's agriculture ministry said on Thursday it had confirmed a new African swine fever outbreak in Shanxi province. The new case killed 35 of 91 pigs present on a farm in Linfen city, the Ministry of Agriculture and Rural Affairs said in a statement on its website.


Despite the decent premium of February live cattle futures, tough overhead resistance remains in the area of $122.50 to $123, and then again toward the contract high.


For the week-ended Dec. 1, U.S. hatcheries set 231 million eggs in incubators, down 1% from a year ago. At the same time, broiler growers placed 178 million chicks for meat production, down slightly from 2017.


The uncertainty surrounding the U.S.-China trade truce continues to weigh on hog and pork prices.


The pork carcass value closed moderately higher thanks to decent ham and belly strength overshadowing fresh cuts, picnics and ribs.


Heading into the year-end holiday weeks, pork harvest levels are projected to average above year-ago and record large. The record amount of product is forecast to stave off strong upward price risk, especially as China and Mexico still have strong tariffs in place against U.S. pork product.


CATTLE:(Drovers) -- Hay markets can be difficult to project heading into any year, and 2019 might have some of the most complex dynamics to consider for hay pricing and demand. Weather will always play a role in regional markets, while competitive demand from dairy and beef cattle herds also play a role. Comparative pricing of other feedstuffs need to be considered and with lower commodity pricing there might be advantages to feeding more grain in livestock diets.

Taking a look back at 2018 hay prices rose around much of the country. According USDA's latest Agriculture Prices Report released in November, "All Hay" prices for during October 2018 averaged $162/ton, up $21/ton from the previous time last year. Alfalfa saw an even wider swing in prices with $178/ton being the average nationwide in 2018, while the October price last year was sharply lower at $153/ton. The "Other Hay" price sits at $132/ton for this year, a $10/ton increase from last year.

Alfalfa hay acreage has been on a decline for the past few decades. Carl Zulauf, economist with Ohio State University, has been analyzing hay production trends for several years and he shared this trend in a recent study of hay production for the last 100 years.

For instance, the report shows alfalfa acres have fallen by 37% since 1979, while non-alfalfa acres have increased 12%. That resulted in alfalfa's share of hay acres declining from 45% to 31%.

Despite that fall off for alfalfa, Zulauf notes that during the 1980s farming crisis there was a slight uptick in total hay acreage, largely because hay was more profitable to produce. "We increased total acres by 3.5 million between 1980 and 1986. That is a very stark contrast to what is going on this time," Zulauf says. During the latest downturn in agriculture looking at a near market top in 2013 for most commodities to the current lows, there has been a drop in hay acres of 2.8 million acres according to USDA data.

"This very different response than in the 1980s, when we also had a large decline in grain prices, is worth pointing out and considering from a hay market and crop production perspective," Zulauf says.

It isn't immediately clear what all has led to the downturn in hay acreage, but price ratios probably are part of the explanation. Zulauf says the price ratio of hay to corn went up 75% from 1980 to 1986, showing a clear incentive to expand. However, since 2013 the ratio has only increased 10%.

"I don't have a feeling for what is causing the different change in the price ratios, but it is not likely something being caused by temporary factors since changes over several years in both periods are being compared," Zulauf says. Those types of temporary factors would primarily be drought or high priced commodity markets.

HOGS: (Dow Jones) -- The US hog industry has been nervously watching African swine fever spread through herds in China and several European countries, and some officials worry that safeguards in the US--which has yet to record an outbreak--aren't being followed.

The Iowa-based Swine Health Information Center says that some travelers returning to the US aren't being fully screened by agricultural specialists after visiting farms in countries that have reported ASF outbreaks, and the group is working to "quantify this suspected lapse" before escalating its concerns with US Customs and Border Patrol officials. Hundreds of thousands of pigs have been destroyed overseas in an effort to contain the malady.

(Dow Jones) -- Smithfield Foods, Inc., said Thursday the company is investing nearly $45 million and adding 70 new jobs to its Sioux Falls, S.D., operations.

Smithfield said U.S. bacon demand is on the rise, and the company is responding by increasing its bacon capacity and upgrading equipment to include high-speed lines.

The renovations, on track to be completed by May 2019, will improve the volume, yield and quality of the bacon produced by the facility, Smithfield said.

Smithfield said the project includes renovating a high-speed bacon line, a ground seasoned pork operation and the distribution center, as well as the rebuilding of a facility that houses more than 8,000 hogs.

In addition to meeting bacon demand in the U.S, the renovations will help to meet international demand for ground seasoned pork, a growing category in export markets.

The 70 new employees will join nearly 3,600 others at the facility, which was built in 1909.

Smithfield Foods is owned by China's WH Group Ltd.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket


John Harrington