Cattle bids and asking prices are likely to
remain poorly defined this week, linked in part to the uncertain
potential of futures and wholesale prices. FCE internet results will be
posted on the DTN cash cattle page later Wednesday, but that auction has
been very small in recent weeks. We assume that bullish-minded feedlot
managers will be pricing showlists at least $2 to $3 higher. (e.g., $125
to $126). Live and feeder futures are staged to open moderately higher,
boosted by follow-through buying and firm cash expectations.
The cash hog trade should open Wednesday with
bids steady to $1 higher. While the cash index continues to edge higher,
the nearby board remains significantly moreabove spot cash trade. Lean
futures are likely to open on a mixed basis thanks to a combination of
long liquidation and short-covering.
| BULL SIDE | BEAR SIDE | ||
| 1) | Though mixed from state to state (i.e., smaller in Kansas, somewhat larger in Nebraska and Texas), the new offering of ready cattle this week is looking generally steady. That's good news given a larger packer appetite and typically stronger early-year retail buying. | 1) | Given high placement levels through the fall, fed cattle supplies are staged to build over the next several months. |
| 2) | Beef cutouts closed sharply higher on Tuesday with early-week box movement described as "moderate." | 2) | Early bird guesses suggest that December placement activity remained well above 2016, possibly by 3% to 5%. |
| 3) | Early-week receipts in hog country on Tuesday were very light (e.g., 6,653 head based on the national report), suggesting that packers would soon help to reach deeper in their pockets to fund desirable chain speed. | 3) | Given Tuesday's sag in lean hog futures, the production increases disclosed in the December Hogs and Pigs report for the second half of 2018 may be causing the board to struggle in maintaining the forward curve in seasonal price distribution. |
| 4) | Even though February lean futures remain roughly $8.50 over the cash index, the structure of the market is positive as the spot month is trading at a fairly "typical" premium to the cash market. Furthermore, February prices remain at the low end of the five-year trading range. | 4) | It's certainly possible that the premium of lean hog futures are already fully reflecting the price potential of the early-year cash market. |
OTHER MARKET SENSITIVE NEWS
CATTLE:(Farm Journal) -- The annual U.S. cattle
inventory numbers in the January report are eagerly anticipated, not
only to confirm what happened to the nation's beef cow herd in 2017 but
for indications of what lies ahead in 2018. Derrell Peel, Oklahoma State
University Cooperative Extension livestock marketing specialist, said
America's beef cow herd began its recent expansion in 2014, growing 0.75
percent followed by more significant growth in 2015 of 2.95 percent and
in 2016 at 3.46 percent.
"From the January 2014 low of 29.1 million head,
the herd has expanded by 2.1 million head to the January 2017 level of
31.2 million head," he said. "There are numerous indicators beef cow
herd expansion continued in 2017 but we won't know for sure until the
cattle inventory report issued by USDA's National Agricultural
Statistics Service in late January."
The potential for herd growth starts with
available replacement heifers. On Jan. 1, 2017, some 6.4 million
replacement heifers were reported, representing 20.6 percent of the beef
cow inventory.
"This was the third-largest replacement heifer
percentage, down slightly from the two prior years," Peel said. "Of the
total replacement heifers, 4 million were expected to calve in 2017.
This was a record number of reported heifers calving since this data
became available in 2001."
Peel explains these numbers confirm considerable
potential for herd expansion and indicated producer intentions to
continue adding to cow inventories. The great unknown is whether
producers adjusted their intentions during the year.
"Open replacement heifers can be easily diverted into feeder markets if producers' expectations change," he said.
Changes in the beef cow herd are a function of
the pace of heifer retention relative to the pace of cull cow slaughter.
Heifer slaughter provides a delayed indication of heifer retention.
Year-to-date heifer slaughter through late November was up 12.3 percent
year over year. This follows the jump in quarterly heifers on feed, up
10.6 percent in July and 13 percent year over year in October.
"Even with the increase in heifer slaughter, the
ratio of steer-to-heifer slaughter remains well above historic levels,"
Peel said. "Heifer slaughter was squeezed dramatically in 2015 and
2016. Although it is increasing, it has yet to return to normal levels
relative to steer slaughter."
Beef cow slaughter increased 10.1 percent in
2017 through late November. This follows a 13.7 percent year-over-year
increase in cow slaughter in 2016. "Part of the increase in cow
slaughter was caused by herd growth since 2014," Peel said. "As with
heifer slaughter, beef cow slaughter was sharply reduced from 2014
through 2016 as a part of jumpstarting herd expansion." Net beef cow
culling was a record low 7.6 percent in 2015. Sustained below-average
culling rates in 2014 through 2016 were possible following above average
culling rates from 2008 through 2013. This included drought-forced
liquidation that removed many older cows and allowed a period of reduced
culling as herd expansion began.
"If the current beef cow slaughter pace
continues through the end of the year, the 2017 beef cow culling rate
will be 9 percent, still below but close to the long term average of 9.6
percent," Peel said. "In other words, the industry is returning to
normal beef cow culling rates. Both heifer and beef cow slaughter are
consistent with continued but slowing herd expansion."
Peel believes there is little doubt herd
expansion continued in 2017, albeit at a slower pace than 2016. The jump
in heifer and beef cow slaughter both reflect a return to more typical
relative slaughter rates.
"I'm currently estimating the 2018 beef cow herd
will be up 1.5 to 2 percent over January 2017," he said. "Expansion
rates above or below this level are possible, though expansion above 2.5
percent is difficult to reconcile with current numbers."
Expansion slower than 1.5 percent is possible
but it would suggest an unusually large percentage of pregnant heifers
available on January 1 did not in fact enter the herd.
"If true, this begs the question of what happened to them," Peel said.
HOGS: (Bloomberg News)-- For all the buzz about
pea protein and lab-grown burgers, Americans are set to eat more meat in
2018 than ever before.
To be precise, the average consumer will eat
222.2 pounds (100.8 kilos) of red meat and poultry this year, according
to the U.S. Department of Agriculture, surpassing a record set in 2004.
Meanwhile, domestic production will surpass 100 billion pounds for the
first time, as livestock owners expand their herds on the back of cheap
feed grain.
Per-capita availability to rise to all-time high in 2018
Though the USDA's per-capita measure isn't a
true gauge of consumption, it serves as a common proxy. It shows egg
demand reaching an all-time high as well in 2018. Dairy items like
cheese and butter have also been growing in popularity.
"If you look at the items that consumers say
they want more of in their diet, protein tops the list," said David
Portalatin, a Houston-based food industry adviser for NPD Group.
Many Americans are actively shunning
carbohydrates in favor of protein, though any health benefits may be
outweighed by the sheer volume of meat, eggs and dairy being consumed.
While the government recommends that adults eat 5 to 6.5 ounces of
protein daily, the USDA forecasts the average person will down almost 10
ounces of meat and poultry each day in 2018.
It's a sharp turnaround from 2007 through 2014, a
time when per-capita meat and poultry demand slumped 9 percent as
rising corn-based ethanol demand and a drought sent commodity prices
sharply higher. Though cattle and hogs are now far cheaper than their
2014 peak, prices could still rebound. U.S. meat exports have soared as
the global economy improves, outpacing the gains in domestic demand.
Meat substitutes have gained attention in recent
years amid concerns about the impact of a carnivorous diet on health,
animal welfare and the environment. For example, Chicago-based Epic
Burger Inc. last year started selling the Beyond Burger plant-based
patty that mimics meat. Protein from plants, insects or cultured meat
are a top food trend to watch, though the category isn't expected to
significantly dent animal product sales just yet, according to a
November report from CoBank.
Ten years from now, there will be higher plant
consumption, but beef will always be king," Epic Burger founder David
Friedman said. "People are always looking to put more protein into their
diets. But they want high quality and transparency in the food they're
eating." Category's sales are expected to climb in the coming years.
