Wednesday, April 12, 2017

Wednesday Morning Livestock Market Update

GENERAL COMMENTS:
Preliminary cattle bids could start to surface Wednesday, but are likely to pale in the face of higher asking prices. Girded by Tuesday's higher board and signs of improving beef demand, we suspect initial asking prices will be around $128 to $130 in the South and $207 to $210 in the North. We believe packers are generally short bought, but their ultimate level of spending may turn on the ability of cutouts to keep recovering. Assuming that buyers and sellers will want to take more time positioning ahead of further fundamental effort, significant trade volume could easily be postponed until Thursday or Friday. Live and feeder futures seem staged to open solidly higher, supported by follow-through buying, rising carcass value and feedlot cash premiums.
Hog buyers should remain on the defensive at midweek. Ready numbers remain generous and chain speed is set to slow as we move toward the Easter holiday. Friday's kill should total around 390,000 head with the Saturday slaughter no greater than 75,000 head. Lean futures are expected to open on a mixed basis with summer issues probably gaining on both the nearby and far deferred.



BULL SIDE
BEAR SIDE
1)Live and feeder futures rocketed to new highs on Tuesday, powered by growing cash optimism and renewed technical bullishness.1)According to the new Supply & Demand table, 2017 beef production is projected higher based on the current pace of slaughter and heavier cattle weights in the first half of the year.
2)The wholesale beef trade scored a significant round of rebounding prices Tuesday with box demand described as "moderate to good." 2)
On the other hand, the government is now projecting significantly higher fourth quarter pork production.
3)In its latest reassessment, the World Board lowered 2017 pork production with tonnage in the second and third quarters reduced.3)Additionally, turkey production is now forecast higher on recent hatchery data.
4)Besides a seasonal tendency for better pork demand after Easter, smaller kill plans for Friday and Saturday should make the wholesale offering next week more manageable.4)The pork carcass value really hit the skids on Tuesday, closing sharply lower with all blame tied to a $11.94 drop in the belly primal.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Bloomberg) -- President Donald Trump achieved a "big prize" during his meeting last week with Chinese President Xi Jinping by expanding U.S. beef exports to China, White House spokesman Sean Spicer said, without offering details on any tangible steps taken toward ensuring greater access.

China in September removed a ban on shipments of some U.S. beef products, opening up the trade for the first time since 2003 as the Asian nation sees a surge in imports of the meat. Still, conditions attached to the re-opening, including Chinese requirements for an acceptably traceable U.S. meat supply, have held up sales.

No concrete changes to the earlier agreement resulted from last week's meeting, but "the plan was to put together a plan" on beef and other issues, Spicer told reporters in a White House press briefing.
China halted imports of U.S. beef in 2003 after a case of mad cow disease was found in Washington state. The country is the world's second-biggest beef buyer after rapid economic growth over the past decade created an expanding middle class that can afford more protein in their diets. China is already the No. 1 pork consumer.

The re-opening of China to U.S. beef may provide new opportunities for packers including Tyson Foods Inc., the largest U.S. meat processor, and Cargill Inc., the top American ground-beef maker. Tyson declined to comment on the trade with China.

"The reports are encouraging, but there are numerous steps remaining before U.S. beef could be exported to China, and there is currently no established timetable for this to happen," said Mike Martin, a Wichita, Kansas-based communications director for Cargill Protein.

Surging Chinese demand had been a boon to Australian producers after a drought increased cattle slaughter and supply available for export. The island country has recently been losing market share to Brazil, which was allowed to resume shipments to China last year.

HOGS: (farmdocdaily.illinois.edu) -- Hog prices are expected to increase in 2017 even with three percent more pork production. Prices will be supported by stronger demand because of a growing U.S. economy and by a robust eight percent growth in exports as projected by USDA. New packer capacity is also expected to contribute to stronger bids for hogs. Feed costs will be the lowest in a decade and total production costs are expected to be at decade lows.

The recently updated USDA inventory report found that the nation's breeding herd was one percent larger than the herd of a year-ago. This continues a rebuilding of the herd that began in 2014 as feed prices began to move sharply lower and the industry began to recover from pig losses due to PED. The national breeding herd has increased by four percent since 2014. Notable expansions of the breeding herd in the past three years have occurred in Missouri 25 percent; Ohio 9 percent; Illinois 8 percent; and Indiana, Nebraska, and Oklahoma each up 4 percent. Farrowing intentions are up one percent for this spring and slightly below year previous levels for this coming summer.

Producers indicated to USDA that they had four percent more animals in the market herd, reflecting four percent higher farrowings last fall, a three percent increase in winter farrowings and a one percent increase in the number of pigs per litter. Given these numbers, pork supplies are expected to rise by five percent in April and May and then drop to a four percent increase for June through August. Three percent more pork can be expected for September through November of 2017 with supplies up one percent this coming winter compared to year-previous levels.

Live hog prices averaged about $46 last year with losses estimated at $11 per head. Prices are expected to be $3 to $4 higher this year. Live hog prices averaged about $50 per hundredweight in the first quarter of 2017. Prices for the second and third quarters are expected to average in the very low $50s. Prices will likely be seasonally lower in the fourth quarter and average in the mid-$40s. If so, prices would average near $49 for the year and be slightly under projected total costs of production with $1 of loss per head. This is basically a forecast for a breakeven year with all costs being covered, including labor costs and equity investors receiving a normal rate of return.
Current expectations are for feed prices to remain low in 2017, but with corn prices increasing into 2018. On a calendar year basis, U.S. corn prices received by farmers averaged $6.67 per bushel in 2012 (unweighted by marketings). Those prices fell to $3.48 per bushel in calendar 2016 and are expected to be only a few cents higher in calendar 2017. Current prospects are for corn to be $.20 to $.30 per bushel higher in calendar year 2018 due to sharp reductions in 2017 U.S. acreage.

Soybean meal averaged $478 per ton in 2014 (high-protein, Decatur, Illinois), but is expected to average only $315 per ton in 2017, the lowest calendar year price since 2010. Total feed costs per hundredweight are expected to be the lowest in a decade dating back to 2007.Total costs of production may reach 10-year lows. Estimated total costs of production reached $67 per live hundredweight in 2012 driven by high feed prices. For calendar year 2017 that may drop to $49.50, which is the lowest estimated total costs of production since 2007 and would represent 10-year lows.
What are the potential shadows for the industry this year? The first is that meat and poultry competition will be high. In addition to three percent more pork, beef production is expected to be up four percent and poultry production up two percent. There is simply a lot of competition for the consumers' food dollars.

Secondly, the optimism for the U.S. economy that has been present in early 2017 could falter. This optimism is related to a stronger job market, low unemployment, and record seeking stock market indexes. The anticipated stimulus package of the new administration has likely been a contributor. Time will tell if Congress can agree on this legislation and move it from anticipation to reality. In addition, the FED is likely to continue a series of interest rate increases to slow growing inflation pressures.

Decade low feed cost is important reason pork producers are expected to almost cover all of their costs this year. Weather in the U.S. and in the Northern Hemisphere will be important in the final determination of yields and feed prices.

The industry needs to keep expansion of the breeding herd to near one percent each year. This one percent increase along with about one percent higher weaning rates means the industry can increase pork production about two percent a year. That is sufficient to cover a one percent growth in domestic population and about one percent annual growth needed to expand exports. Growth of the breeding herd at more than one percent could shift the industry back into losses.

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