Even though cattle buyers probably came into the final week of the year with a smaller shopping list, they still had some basic slaughter needs to cover. Obviously, they're running out of time to complete these limited chores. Look for light to moderate trading to surface sometime Friday late morning. Recent board strength and the softening basis have made feedlot managers tough to deal with, pricing showlists with firmer and firmer hands. Look for asking prices to be restated this morning around $124 to $125 in the South and $195 to $198 in the North. Live and feeder futures should open at least moderately higher thanks to follow-through buying and cash optimism.
Hog buyers are expected to wrap up the year's businessFriday with cash bids steady to $1 higher than Thursday. Receipts have been relatively light this week, but it is difficult to say if smaller runs are tied to cold weather, a real tightening of seasonal numbers, or just late-year apathy. At any rate, some plants stilll need to fill space in the large Saturday kill schedule. Look for lean futures to open moderately higher as well, supported by residual buying and firming carcss value.
| BULL SIDE | | BEAR SIDE |
| 1) | For the week ended Dec. 16, fed cattle carcass weights declined: all steers averaged 902 pounds, 2 pounds lighter than the week before and 6pounds smaller than 2016; all heifers averaged 842 pounds, 2 pounds below the prior week and just 1pound heavier than the year before. | 1) | Between the evaporation of premiums and further evidence of long liquidation in open interest this week, February and April live cattle futures seem to be signaling both supply and demand caution for the first third of 2018. |
| 2) | Boxed beef firmed furtherThursday with cutouts quoted moderately higher. At least a few accounts seem to be anticipating better demand after the first of the year. | 2) | More specifically, February through June live futures remain corralled by tough oversold chart resistance. Indeed, it would take a strong rally Friday to even challenge 40-day moving averages basis February and April (i.e., 123.50 and 124.10, respectively). |
| 3) | The pork cutout jumped more than a dollar higher on Thursday, powered by better demand for bellies and loins. | 3) | For the week ended Dec. 23, U.S. hatcheries set 228 million broiler eggs in incubators, up 4% from a year ago. At the same time, chicks placed totaled 186 million, also up 4% from 2016. |
| 4) | Ambitious Saturday kill plans are now privately estimated to total 385,000 hogs or better, surely reflecting positive and encouraging pork processing margins. | 4) | For what it's worth, the seasonal tendency for lean hog futures is for lower prices the nextfour to sixweeks. |
CATTLE: (Ag Web) -- Demand has proven the key to holding livestock markets in the black during 2017.
Despite increasing beef production, cattle feeders experienced a booming market last spring that padded closeouts at times in excess of $400 per head. Demand, industry analysts say, was the driving force that kept pulling cattle forward and in the process a steep decline in carcass weights.
That windfall for feedyards fueled the desire for replacement cattle, supporting prices for feeder cattle and calves at unanticipated levels.
"Strong demand for beef kept pulling cattle forward, and feedyards had the incentive to bid up replacements," says Sterling Marketing president John Nalvika. "That put a lot of dollars in ranchers pockets for feeder cattle that we didn't think would be there at the beginning of the year."
Now the question on rancher's minds is, "Can demand continue to support the growing supplies?"
The short answer is, "Yes, but probably not without a modest decline in prices."
Price risk is always possible, but analysts say risk and volatility is reduced at this point in the cattle cycle. That's because prices are well below the peaks of a couple years ago, and market fundamentals have replaced much of the market's emotion.
Generally, analysts expect 2018 cattle prices will be somewhat lower on an average basis than in 2017. That's due to further increases in supply of beef and all proteins.
"In four short years, we've seen total red meat and poultry supplies increase 10%, recovering from the drought-fueled low set in 2014," Nalivka says. He projects per capita red meat and poultry supplies will near 222 pounds in 2018, or 20 pounds more than the low of 202 pounds in 2014.
Specifically to beef, feeder cattle numbers will be up for the third consecutive year, on-feed numbers will increase and total beef production is projected to jump another 4% in 2018 to record highs.
"We are still in the stage of the cattle cycle where supplies are going to get larger for another two or three years," CattleFax CEO Randy Blach told cattlemen at the National Angus Convention. But, he noted, the cattle industry has navigated those hurdles well.
"We've got everything going our way - exports are better than anticipated, domestic demand has been good, consumer spending and consumer attitudes have all been very positive - but it doesn't take much and we could start to move back the other way."
Blach told attendees at the Kansas Livestock Association convention that increasing domestic household income and growing consumer confidence has led to the highest-quality beef supply in decades.
"The Prime-Choice spread has stayed at very large levels despite the increase in supply," he said. "That's demand. That's the market telling us they want more of the good stuff."
Although the demand picture is positive, Blach said feeder cattle prices will stay flat, ranging from $135 to $160/cwt in 2018. He anticipates modest, yet solid profit margins in the calf market.
Maintaining a strong export market for beef will be critical for domestic prices in 2018.
"Demand surpassed expectations in 2017," Nalivka says. "Retail beef prices in 2017 were 10 cents cheaper while per capita consumption was increasing 1.5 pounds. That's excellent demand."
And a 12% gain in U.S. beef exports in 2017 shows robust demand, especially following a 13% gain in 2016.
"Exports amounted to 11% of production in 2017," Nalivka says. "I project we'll see another 4% gain in exports in 2018, which will be record high. It would mean we're exporting 3 billion pounds of mostly high-value beef."
HOGS: (Hoosier Ag Today) -- Efforts by the U.S. and South Korea are moving ahead to modernize the 2011 Korea-U.S. Free Trade Agreement, KORUS, a key trade agreement for the U.S. pork and beef industries. The South Korean government sent its parliament a plan to renegotiate KORUS and announced it's ready to start talks. The White House must tell Congress it plans to launch the talks, hold two public hearings, and disclose its negotiating goals 30-days before talks begin.
The U.S. pork and beef industries are watching KORUS developments closely, concerned as with NAFTA, that producers could lose existing tariff gains if U.S. negotiators bargain ag for manufacturing wins, or even abandon KORUS.
"We have seen our exports to South Korea go up," says National Pork Producer's spokesman Dave Warner. "Las year we sold $365 million worth of pork to South Korea, making it the number 5 foreign destination for U.S. pork."
That provides a big market for high-value internal organ cuts not eaten much in the U.S. American beef sales in number-two buyer Korea were up more than 80-percent to around one billion dollars, as tariffs move to zero over 10-years. Warner says the US needs more, not fewer trade agreements…tape
"The US pork industry is kind of the poster child for that. We sell more pork to the twenty countries with which the United States has free trade agreements, than we do to the rest of the world combined. So, obviously free trade agreements work."
Agriculture is a U.S. economic sector that, unlike most others, has a foreign trade surplus. The challenge, of course, is convincing the White House to protect tariff gains, at a time when actual or possible losses in NAFTA or the U.S. TPP pull-out are foremost on producers' minds.
Final 2017 session likely to open with firm livestock prices
Summary: Late week cattle futures should open at least moderately higher this morning, supported by residual buying interest and ideas of greater packer spending in the country. Lean hog contracts are also likely to open with a firm undertone thanks stronger carcass value and end-of-year short covering.
Cattle: Steady-$2 HR Futures: 50-100 HR Live Equiv $135.28 + .43 *
Hogs: Steady-$1 HR Futures: 50-100 HR Lean Equiv $83.31 + $1.01**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
General Comments: Even though cattle buyers probably came into the final week of the year with a smaller shopping list, they still had some basic slaughter needs to cover. Obviously, they're running out of time to complete these limited chores. Look for light to moderate trading to surface sometime today between late morning. Recent board strength and the softening basis have made feedlot managers tough to deal with, pricing showlists with firmer and firmer hands. Look for asking prices to restated this morning around $124-125 in the South and $195-198 in the North. Live and feeder futures should open at least moderately higher thanks to follow-through buying and cash optimism.
Hog buyers are expected to wrap-up the year's business this morning with cash bids steady to $1 higher than Thursday. Receipts have been relatively light this week, but it difficult to say if smaller runs are tied to cold weather, a real tightening of seasonal numbers, or just late year apathy. At any rate, some plants stilll need to fill space in the large Saturday kill schedule. Look for lean futures to open moderately higher as well, supported by residual buying and firming carcss value.
Bullish
For the week ending December 16, fed cattle carcass weights declined: all steers averaged 902 pounds, 2 pounds lighter than the week before and 6 pounds smaller than 2016; all heifers averaged 842 pounds, 2 pounds below the prior week and just 1 pounds heavier than the year before.
Boxed beef firmed further yesterday with cut-outs quoted moderately higher. At least a few accounts seem to be anticipating better demand after the first of the year.
The pork cut-out jumped more than a dollar higher on Thursday, powered by better demand for bellies and loins.
Ambitious Saturday kill plans are now privately estimated to total 385,000 hogs or better, surely reflecting positive and encouraging pork processing margins.
Bearish
Between the evaporation of premiums and further evident of long liquidation in open interest this week, Feb and April live cattle futures seem to be signaling both supply and demand caution for the first third of 2018.
More specifically, Feb through June live futures remain corralled by tough over chart resistance. Indeed, it would take a strong rally today to even challenge 40-day moving averages basis Feb and April (i.e., 123.50 and 124.10, respectively).
For the week ending December 23, U.S. hatcheries set 228 million broiler eggs in incubators, up 4 percent from a year ago. At the same time, chicks placed totaled 186 million, also up 4 percent from 2016.
For what it's worth, the seasonal tendency for lean hog futures is for lower prices the next 4-6 weeks.
OTHER MARKET SENSITIVE NEWS
CATTLE: (Ag Web) -- Demand has proven the key to holding livestock markets in the black during 2017.
Despite increasing beef production, cattle feeders experienced a booming market last spring that padded closeouts at times in excess of $400 per head. Demand, industry analysts say, was the driving force that kept pulling cattle forward and in the process a steep decline in carcass weights.
That windfall for feedyards fueled the desire for replacement cattle, supporting prices for feeder cattle and calves at unanticipated levels.
"Strong demand for beef kept pulling cattle forward, and feedyards had the incentive to bid up replacements," says Sterling Marketing president John Nalvika. "That put a lot of dollars in ranchers pockets for feeder cattle that we didn't think would be there at the beginning of the year."
Now the question on rancher's minds is, "Can demand continue to support the growing supplies?"
The short answer is, "Yes, but probably not without a modest decline in prices."
Price risk is always possible, but analysts say risk and volatility is reduced at this point in the cattle cycle. That's because prices are well below the peaks of a couple years ago, and market fundamentals have replaced much of the market's emotion.
Generally, analysts expect 2018 cattle prices will be somewhat lower on an average basis than in 2017. That's due to further increases in supply of beef and all proteins.
"In four short years, we've seen total red meat and poultry supplies increase 10%, recovering from the drought-fueled low set in 2014," Nalivka says. He projects per capita red meat and poultry supplies will near 222 pounds in 2018, or 20 pounds more than the low of 202 pounds in 2014.
Specifically to beef, feeder cattle numbers will be up for the third consecutive year, on-feed numbers will increase and total beef production is projected to jump another 4% in 2018 to record highs.
"We are still in the stage of the cattle cycle where supplies are going to get larger for another two or three years," CattleFax CEO Randy Blach told cattlemen at the National Angus Convention. But, he noted, the cattle industry has navigated those hurdles well.
"We've got everything going our way - exports are better than anticipated, domestic demand has been good, consumer spending and consumer attitudes have all been very positive - but it doesn't take much and we could start to move back the other way."
Blach told attendees at the Kansas Livestock Association convention that increasing domestic household income and growing consumer confidence has led to the highest-quality beef supply in decades.
"The Prime-Choice spread has stayed at very large levels despite the increase in supply," he said. "That's demand. That's the market telling us they want more of the good stuff."
Although the demand picture is positive, Blach said feeder cattle prices will stay flat, ranging from $135 to $160/cwt in 2018. He anticipates modest, yet solid profit margins in the calf market.
Maintaining a strong export market for beef will be critical for domestic prices in 2018.
"Demand surpassed expectations in 2017," Nalivka says. "Retail beef prices in 2017 were 10 cents cheaper while per capita consumption was increasing 1.5 pounds. That's excellent demand."
And a 12% gain in U.S. beef exports in 2017 shows robust demand, especially following a 13% gain in 2016.
"Exports amounted to 11% of production in 2017," Nalivka says. "I project we'll see another 4% gain in exports in 2018, which will be record high. It would mean we're exporting 3 billion pounds of mostly high-value beef."
HOGS: (Hoosier Ag Today) -- Efforts by the U.S. and South Korea are moving ahead to modernize the 2011 Korea-U.S. Free Trade Agreement, KORUS, a key trade agreement for the U.S. pork and beef industries. The South Korean government sent its parliament a plan to renegotiate KORUS and announced it's ready to start talks. The White House must tell Congress it plans to launch the talks, hold two public hearings, and disclose its negotiating goals 30-days before talks begin.
The U.S. pork and beef industries are watching KORUS developments closely, concerned as with NAFTA, that producers could lose existing tariff gains if U.S. negotiators bargain ag for manufacturing wins, or even abandon KORUS.
"We have seen our exports to South Korea go up," says National Pork Producer's spokesman Dave Warner. "Las year we sold $365 million worth of pork to South Korea, making it the number 5 foreign destination for U.S. pork."
That provides a big market for high-value internal organ cuts not eaten much in the U.S. American beef sales in number-two buyer Korea were up more than 80-percent to around one billion dollars, as tariffs move to zero over 10-years. Warner says the US needs more, not fewer trade agreements…tape
"The US pork industry is kind of the poster child for that. We sell more pork to the twenty countries with which the United States has free trade agreements, than we do to the rest of the world combined. So, obviously free trade agreements work."
Agriculture is a U.S. economic sector that, unlike most others, has a foreign trade surplus. The challenge, of course, is convincing the White House to protect tariff gains, at a time when actual or possible losses in NAFTA or the U.S. TPP pull-out are foremost on producers' minds.
