Friday Morning Livestock Market Summary - Meat Futures Set to Open With Firm Undertone

GENERAL COMMENTS:

If the first half of the cattle week seemed sluggish and lackluster, we may have turned a big corner on Thursday -- at least in terms of futures. Thursday's sudden burst of triple-digit gains promises to reenergize bullish psychology. Needless to say, it will be critical for the board to hold the high ground through Friday's settlements. It may too late in the week to see how this shift plays in the cash market. We could see a few clean-up trades here and there, but it's a good bet that whatever unsold cattle are still out there was to be priced on a firmer basis (e.g., $128 to $130 in the South). Live and feeder futures should open at least moderately higher, supported by residual buying interest and technical considerations.

Look for cash hog buyers to open Friday with bids ranging from steady to $1 higher. It's interesting to note that in the middle of the first uninterrupted slaughter week of 2018, packers had to work harder to scare up enough numbers. Curious, to say the least. The Saturday kill is estimated to total close to 117,000 head. Lean futures should open higher, supported by follow-through buying and bull-spreading. 

	BULL SIDE		BEAR SIDE
1)	Cattle futures exploded higher on Thursday with many contracts landed the strongest settlements since last November. The smaller-than-expected Jan. 1 feeder cattle supply proved to be a bullish factor behind the board's sharp rally.	1)	This isn't the first time nearby live cattle futures have been loudly knocking on the 127 door this year. Buying interest has found wanting time and again to push above this level. Yet another failure may be the way to bet.
2)	For the week ending Jan. 20, cattle carcass weights fell hard, clearly pressured by tough winter conditions: all cattle averaged 829 pounds, off 2 lbs. from the prior week and up 7 lbs. from last year; steers averaged 891 lbs., off 5 lbs. from the week before and 2 lbs. heavier than 2017; heifers averaged 832 lbs., off 7 lbs. from the previous week and up 10 lbs. from the prior year.	2)	The cow herd has significantly expanded in areas that seem threatened by serious drought conditions (e.g., Texas, Oklahoma, South Dakota). The potential of cow liquidation in these areas and other areas will be a bearish worry for months to come.
3)	Net pork export sales for the week ending Jan. 25 totaled as much as 27,300 metric tons. At the same time, actual exports equaled a respectable 22,200 MT were reported for 2018.	3)	The pork carcass value lost nearly a buck on Thursday, pressured by softer demand for ribs, butts, hams and picnics.
4)	The cash hog market has steadily strengthened through the week, virtually eliminating all fear of backed-up marketings and testifying to both current finishing floors and decent packer demand.	4)	Summer lean hog futures remain trapped below tough overhead chart resistance near 100-day moving averages.

 
OTHER MARKET SENSITIVE NEWS

CATTLE: (Nebraska Rural Radio Association) -- Beef quality, consumer incomes, attention to beef in health articles in medical journals and the general media, and shifts in race composition of the U.S. population are key determinants affecting beef demand in the long term.

So concludes a newly released study commissioned by the Beef Checkoff Program called "Assessing Beef Demand Determinants." The study summarizes the current knowledge of consumer demand for beef and identifies the best opportunities for the industry to influence demand positively.

Authors of the report include Dr. Glynn Tonsor, professor of livestock marketing at Kansas State University, Dr. Jayson Lusk, distinguished professor and head of the Department of Agricultural Economics at Purdue University, and Dr. Ted Schroeder, professor of livestock marketing at Kansas State University.

"The information gathered and analyzed for this comprehensive report is invaluable to the beef industry, in general, and to the Beef Checkoff Program, in particular," said cow-calf producer Jackie Means, a member of the Cattlemen's Beef Promotion & Research Board and chair of the Joint Evaluation Committee that commissioned the research for the checkoff. "Members of the Cattlemen's Beef Board and directors of the Federation of State Beef Councils will be asked to use the information in this report in making decisions about how to invest checkoff dollars in Fiscal Year 2018 and beyond."

While recognizing that understanding beef demand and how to affect it is a daunting task, the report's authors note that it also is critical to the industry's long-term viability.

Given the state of the cattle industry's supply, the understanding of beef demand vs. consumption is particularly critical.

One very important point in developing strategies to grow beef demand will be clarification of the role of per capita consumption in beef demand. Per capita consumption is, in effect, per capita availability of beef, the economists note. Demand, on the other hand, effectively refers to the quantity of beef that consumers will purchase at a given price, with all other factors held constant.

"Beef purchasing decisions have become less sensitive to retail beef prices. While prices will always matter, this reinforces the importance of industry focus on beef quality aspects of taste, appearance, convenience and freshness," said Dr. Tonsor.

"In short, both beef supplies and cattle prices increased in 2017 relative to 2016 -- an outcome only possible with demand growth," the report notes. "A perpetual industry priority is to better understand and monitor beef demand, and to inform stakeholders because demand directly influences overall industry success."

It has been a critical need for the industry to understand what beef demand is: Is it as strong Friday compared to the past? What has made it strong? Those kinds of basic questions have been of importance to the beef checkoff for a very long time. If beef demand is strong, then higher prices are being paid for beef than would otherwise be the case. That's because higher prices being paid for beef in turn leads to higher prices for wholesale beef, higher fed cattle and higher feeder cattle prices, and most producers recognize that benefit in the form of higher cattle prices.

One of the things the research did was to update elasticity estimates, or how sensitive purchasing behavior is to prices. If the price goes up by one percent, how many fewer pounds are purchased? This study showed U.S. consumers are less sensitive to beef prices than they used to be. That does not mean price doesn't matter, but the numbers showed that a one percent increase in price has a smaller impact on beef consumption than it used to.

"What I believe that signals is that beef quality issues such as taste, appearance and freshness have elevated over time," said Dr. Tonsor.

"The tone and impact of 'hot topics' covered in the media and medical community can change notably over time," continued Dr. Tonsor. "In past years, discussions around fat were a detriment to beef demand but more recently these discussions have enhanced beef demand. Similarly, this study shows how Atkins Diet discussions remain supportive of beef demand, but less so than a decade earlier."

Based on research, data, and information examined, the researchers prepared five key recommendations for checkoff leaders to consider in making decisions about how to invest checkoff dollars:

1.Beef quality aspects such as taste, appearance, convenience, and freshness are innate product quality attributes identified as top priorities in past beef demand studies, and they remain key for sustaining and growing beef demand.

2.External coverage of "hot topics" is likely to continue to be dynamic for the beef industry. Researchers made the recommendation for systematic re-assessment of which topics have the largest net impact on beef demand and focus on those.

3.Increase collaborative approaches with the U.S. pork and chicken industries. Given limited cross-price sensitivity and a host of common challenges and opportunities, a more collaborative approach may better utilize the industry's limited resources given recent increases in competition from plant-based protein sources.

4.Recommend additional targeting of beef product development, messaging and marketing to consumers with particular attention to race, income, age, political ideology and product type considerations.

5.Conduct a systematic evaluation of information sources available to gain beef demand insight. Multiple data sources and methods were used to gain a more complete understanding of beef demand determinants, and the researchers encouraged more focus on leveraging existing industry investments to regularly assess beef demand.

HOGS: (Brownfield) -- The director of international affairs with the National Pork Producers Council says although the sixth round of NAFTA negotiations has wrapped up, a US withdrawal is still possible.

Maria Zieba says this would cost the pork industry $1.5 billion. President Trump has threatened to withdraw from NAFTA, but a seventh round of talks starts February 26 in Mexico.

"Mexico and Canada are more than a quarter of our total export market and ultimately there are 16,000 plus jobs that are tied to our exports to Canada and Mexico," she says.

She tells Brownfield the US needs to maintain current agreements and pursue new ones.

"As we negotiate free trade agreements, we've been able to do a really good job of breaking down those barriers, but our competitors are doing the same," she says.