DTN Early Word Opening Livestock

Cattle: Steady-$2 HR Futures: 10-30 HR Live Equiv $149.73 + .36* 
Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 80.64 - .71**
*based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue 

GENERAL COMMENTS:

If cattle buyers find it necessary to spend more on live inventory sometime Friday afternoon, it will mark the third consecutive 11th hour of bullishness seen in 2016. Packers are likely to start work Friday with bids of $136 to $138 in the South and $210 in the North. Asking prices will probably be posted around $142 in the South and $215 plus in the North. Given their success in recent weeks, feedlot managers may be encouraged to wait for higher bids through late afternoon. Live and feeder futures are set to open moderately higher, supported by follow-through buying and prospects for greater cash premiums.

Look for the cash hog market to open with bids ranging from steady to $1 higher. Needless to say, the major storm of early February has made it momentarily difficult to track and measure the flow of country numbers. Yet, we suspect that the offering of ready hogs would have contracted this week, even if the weather had remained mild (perhaps at a slower pace). Lean contracts are set to trade mixed in the early going thanks to residual buying and profit-taking.

BULL SIDE	BEAR SIDE
Several southern cattle buyers were noted bidding fully steady money on Thursday (i.e., $138), a promising indication of their hunger and ultimate willingness to stretch toward higher asking prices.	For the week ending Jan. 23, cattle carcass weights increased: all cattle averaged 835 pounds, 4 pounds greater than the week before and 20 pounds heftier than the prior year; steers averaged 899 pounds, 1 pound more than the prior week and 19 pounds bigger than 2015; heifers averaged 837 pounds, 4 pounds heavier than the previous week and 26 pounds above last year.
Beef cutouts moved moderately higher on Thursday with box demand described as "moderate." Although processing margins have narrowed from late January, packers still have adequate profit incentive to fund chain speed.	While the wholesale beef trade is struggling to stabilize, much skepticism remains as to whether the stronger undertone will be sustained. Late-winter beef demand tends of be quite lackluster.
With an increasing number of market analysts and global investors seriously doubting the intent of the Federal Reserve to raise interest rates through 2016, the U.S. dollar could continue to soften, potentially positive news for U.S. meat exports.	The pork carcass value struggled Thursday despite this week's reduced pace of production. The closing report noted softer demand for fresh cuts, ribs, and hams.
Pork export sales were sold again last week, totaling 18,600 metric tons tied to Mexico (6,400 MT), China (4,900 MT), South Korea (2,500 MT), Japan (2,300 MT), and Canada (600 MT). Actual shipments for the week were also impressive at 18,400 MT (a marketing-year high) up 2% from the previous and 15% from the prior four-week average.	Earlier ideas of a Saturday kill close to 195,000 head now look too ambitious. Saturday's kill may not surpass 200,000 head, pushing more unsold hogs into next week.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Dow Jones) -- Average prices for beef and pork climbed in grocery-store advertisements this week, according to the latest Wall Street Journal retail-meat survey.

The 15-cut average for beef rose to $5.37 a pound from $5.25 last week and $5.23 a year earlier, the Journal survey found.

Grocers listed higher prices for steak cuts, including sirloin, T-bone, rib-eye and chuck.

The five-cut average for pork prices increased to $3.02 a pound from $2.87 last week and $2.91 a year earlier.

Chicken prices also gained. The two-cut average rose to $1.82 per pound from $1.75 last week. It was down slightly from $1.83 a year ago.

HOGS: (Star Tribune) -- Glen Taylor, owner of the Minnesota Timberwolves and many other businesses, has signed a deal to purchase the former PM Beef plant in Windom, Minn., for an undisclosed sum.

Taylor and a partner plan to invest $20 million to $25 million to convert the plant, which has been closed since Dec. 11, to a state-of-the-art pork processing facility. More than 260 workers lost their jobs when the beef plant in southwestern Minnesota shut down production.

Its former president cited deteriorating industry conditions and rising cattle prices as the reason for the closure. The plant had run for decades-- owned by PM Beef Holdings since the early 1990s and before that by Caldwell Packing.

Taylor grew up on a farm in Comfrey, just northeast of Windom, and said in an interview that returning jobs to the area is a big part of his interest in the project.

"We are absolutely hopeful that we can go back and hire a number of the former [PM Beef] employees, because even though they did a different product, they know what it's like to work in that kind of facility," said Taylor, whose diverse business interests include egg farms, printing companies and the Star Tribune.

Taylor said he has also talked with a construction contractor and hopes that local employees can be hired even before the plant reopens, during its overhaul and conversion to pork processing.

Taylor will partner with Greg Strobel, a large hog producer in Pemberton, who said in an interview that refurbishing the plant will likely take about nine months and that the name of the company will be Prime Pork.

Taylor has been raising hogs for several years with a partner in Mapleton, Strobel said.

"Our goal is to focus on taste and quality, so that we bring a premium product to market and not just an ordinary hog," Strobel said. "We don't have volume for the Wal-Marts of the world, and quite frankly we don't want to compete against [large pork processors] JBS and Tyson."

The Prime Pork plant would harvest more than 4,000 hogs daily-- or about 1.5 million hogs annually-- at full production, Strobel said. Some of the largest packing plants, such as the JBS facility in Worthington, can process up to 20,000 hogs each day.

Strobel said Prime Pork expects to hire 300 to 350 workers initially. The pigs will come from the two main partners, he said, although the company may do business with other hog producers in southern Minnesota as it grows.

All of that is likely to be welcome news in Windom, which lost its second-largest employer when PM Beef Holdings shut down production. Its top employer is Toro Co., which has just over 800 workers at a plant that makes lawn mowers and snowblowers.

City Administrator Steven Nasby said Windom, about 160 miles southwest of Minneapolis, will be delighted to see the plant reopen, both for the jobs it will provide and as a customer of city water and electricity. The former beef plant produced about one-third of the city's wastewater flow and consumed 20 percent of its electric load, he said, and the city has been trying to adjust to that loss and replace $200,000 in lost revenue in its budget."We were hopeful that another facility would move in and take a good portion of that load," Nasby said.

Dave Preisler, executive director of the Minnesota Pork Producers Association, said that although the pork market for farmers has not been profitable lately, margins for packers have been very good.

"It's exciting to see expansion of processing," he said. The U.S. set records for pork production in December, Preisler said. "And that means we need to have a continuing expansion of packing plant capacity in order to handle that so we've got a supply chain that's complete."

Taylor expects Prime Pork could succeed in the marketplace because it will do things differently in terms of genetics, animal health care, feed and other components of the business. The public is paying closer attention to food, he said, and his new company wants to respond to those changing preferences when it sells the pork.

"We want to say that we've watched the meat from birth to your store and we can guarantee that what you're getting meets certain criteria because it's all been under the handling of just a few families," Taylor said.

Strobel said he expects the market will mainly be restaurants and upscale groceries, potentially at stores like Lunds & Byerlys and Kowalski's that already have established their own reputations for quality. He does not expect the pork to be sold under its own label, at least initially.

Although known for his investments in professional basketball and the printing industry, Taylor grew up on a farm and also owns a number of ag business, including Iowa-based Rembrandt Foods, the nation's third-largest egg producer with two farms in Iowa and one in Renville, Minn.

John Harrington can be contacted at john.harrington@dtn.com

For more from John Harrington, see www.feelofthemarket.com

(BAS)

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