DTN Early Word Opening Livestock
Livestock Futures Staged for Mixed Late-Week Opening
GENERAL COMMENTS:Cattle: Steady Futures: Mixed Live Equiv $146.47 - $0.29 *
Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 79.72 - $1.53 **
*based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Moderate trade volume was generated in most cattle feeding areas Thursday as Southern feedlots accepted bids $3 lower than last week on a live basis ($133) and Northern operators accepted dressed bids generally $4 lower ($206). We could see scattered clean-up business surface here and there through the day, but it looks like the lion's share of cash trading is done for the week. With the board still plowing major discounts to feedlot cash, we still haven't seen any delivery interest. Live and feeder futures are expected to open on a mixed basis thanks to a combination of spillover selling and late-week short-covering.
The cash hog trade has been quite impressive again this week, rolling significantly higher on a consistent basis. It's a good bet that further spending will surface again Friday. This week's total is expected to come in between 2.25 million and 2.26 million head, 1% to 1.5% larger than the year prior. Lean futures are set to begin with uneven price action linked to a combination of follow-through buying and pre-weekend profit-taking.
| BULL SIDE | BEAR SIDE |
| Cold winter conditions are taking a toll on cattle weights. For the week ending Jan. 30, all cattle averaged 832 pounds, 3 pounds lighter than the week before and 15 pounds greater than 2015; steers averaged 898 pounds, 1 pound smaller than the prior week and 17 pounds larger than last year; heifers averaged 832 pounds, 5 pounds below the previous week and 16 pounds heavier than the prior year. | Defensive futures, strong basis levels, and poor feedlot condition all worked against cash stability on Thursday. Live sales in the South fell $3 below last week's sales ($133). Despite historically small showlists, packers seem to be winning the battle of late-winter leverage for now. |
| Beef processing margins are improving significantly thanks to a combination of lower cattle costs and relatively stable carcass value. This should set the stage for better country action late this month and early March as seasonal fundamentals turn more positive. | Spot February fell to a three-week low on Thursday; both the short-term and longer-term trends are now pointing downward. The discount of April, and the fact that June and August are carrying wider-than-average discounts to the winter and spring contracts, suggests that many are pessimistic about beef demand potential going forward. |
| Despite the fact that soon-to-be-spot April lean hogs closed on Wednesday more than 300 points above the cash index, it surged another 110 points Thursday. Clearly, the board is brimming with confidence regarding strong cash potential through the spring. | The pork carcass value broke hard on Thursday, pressured by substantial losses in the loin, butt, rib, and ham primals. |
| Net pork export sales were once again impressive last week, totaling 25,900 metric tons, up 40% from the previous week and 35% from the prior four-week average. Increases were reported for China (15,000 MT), Japan (4,200 MT), South Korea (2,100 MT), Mexico (1,500 MT), and Hong Kong (900 MT). | The April lean hog futures contract has posted persistent gains in the last several trading weeks, but the index will tend to work lower over the next couple of weeks. |
CATTLE: (Dow Jones) -- Average beef prices rose in grocery-store advertisements this week, while average pork prices fell, according to the latest Wall Street Journal retail-meat survey.
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Grocers heavily promoted Valentine's Day specials pairing steak with seafood, along with chocolate and champagne.
The 15-cut average for beef climbed to $5.44 a pound from $5.37 last week. It was down from $5.80 a year earlier, the Journal survey found.
Grocers listed higher prices for some steak cuts, including sirloin, T-bone and strip.
The five-cut average for pork prices declined to $2.77 a pound from $3.02 last week, and was down from $3.08 a year earlier.
Chicken prices also slid noticeably in the latest week. The two-cut average declined to $1.56 a pound from $1.82 last week and was weaker than $1.91 a year ago.
HOGS: (clintonherald.com) -- Despite links to health problems, including a World Health Organization report confirming that processed meats cause colorectal cancer, bacon has been popular enough in the last few years for pork industry workers to start referring to a "bacon tsunami." The trend is good economic news for Iowa, the top pork-producing state in the US.
Bacon "has a warm spot in most people's hearts," said Brian Smith, a registered dietician nutritionist with the UnityPoint hospital network in Des Moines. "There's no denying that it does have a special place within our food culture."
Smith, who has an interest in food history, said smoking and curing are preservation methods developed out of necessity long ago, but that studies over the years have connected eating preserved meats to an increased cancer risk. He recommends bacon as a "sometimes" food.
An October 26 report from the World Health Organization which reviewed scientific literature on the topic confirmed that processed meat causes colorectal cancer and that red meat is probably carcinogenic as well, being associated with colorectal, pancreatic and rectal cancers. Bacon falls under both categories and is also high in sodium and saturated fat, associated with high blood pressure and cholesterol, respectively.
Nonetheless, bacon has become something of a celebrity meat in recent years, featured in everything from calendars to lip balm.
Bob Brisbee, an Iowa City retiree in his early 60s after a career in several different kinds of jobs, said he isn't aware of novelties like bacon ice cream or bacon cocktails. He thinks of bacon in terms of frying pans with eggs and considers the greatest sandwich ever to be a BLT with Miracle Whip on white bread. "It's salty and greasy and it has protein," Brisbee said, who grew up in western Iowa. "It's a joy to eat."
Throughout most of the 20th century, Brisbee's view was the dominant one. Bacon was for breakfast, first and foremost -- although it did extend into lunch. Pork belly sales traditionally peaked during the summer for BLT and club sandwich season.
But during the 1980's health concerns about bacon started to dominate and prices sank as consumers started to worry about fat, nitrites and links to cancer. "There was a smear campaign against bacon," Brisbee said.
The National Pork Board, headquartered in Clive, started "The Other White Meat" campaign in the 1980's to promote a healthier side of pork, generally excluding bacon. But things began to change for bacon in the 1990's when it began making appearances on burgers, a trend supported by both improvements in precooked bacon technology and pork organizations.
"Be inspired" is the new slogan of the National Pork Board. In a 2011 marketing shift away from health, it replaced "the other white meat," which had been in place for about 25 years. The idea was to focus on encouraging consumers who already enjoyed pork to enjoy it more.
According to the National Pork Checkoff Budget, administered by the Pork Board, more than $12 million was spent on pork advertising in 2015.
Joyce Hoppes, head of promotions at the Iowa Pork Producers Association, said bacon's popularity started in the restaurant industry. "To differentiate themselves they started offering bacon almost as a condiment," Hoppes said. "People started liking that flavor."
The volume of bacon used in foodservice increased by approximately 15 percent between 2009 and 2015, according to data provided by Patrick Fleming, director of market intelligence and innovation at the National Pork Board.
"Bacon is a meat condiment," Fleming wrote in an email. "It drives flavor, which then drives sales."
Bacon prices have risen over the last two decades, although an outbreak of porcine epidemic diarrhea virus, or PEDv, contributed to extra steep prices in 2014.
Dermot Hayes, an economist at Iowa State University, said price generally is a reliable indicator of bacon's demand because the supply of bacon is relatively fixed. Hayes also said the United States does not export bacon "because Americans like it so much." This is in contrast to pig shoulders, ears and tails, which are sent to places like East Asia and Mexico.
John Harrington can be contacted at john.harrington@dtn.com
For more from John Harrington, see www.feelofthemarket.com
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