DTN Early Word Opening Livestock

Livestock Futures Staged for Mixed Opening

(DTN file photo)

Cattle: Steady-$2 HR Futures: mixed Live Equiv $136.33 + 0.57*

Hogs: Steady-$1 HR Futures: mixed Lean Equiv $ 78.11 + $1.32**





* 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 at all possible, cash cattle traders like to complete necessary business before Thanksgiving, at least enough to preclude the need of returning on Friday. We assume that's in the script for today, but you never know given markets as weird as this one. A few pens did sell in Nebraska yesterday afternoon (i.e., $195 dressed, generally steady). But for the most part, showlists remain untouched, priced around $132-plus in the South and $200-plus in the North. Look for light to moderate trade volume to surface sometime between late morning and mid afternoon. Live and feeder will probably open on a mixed basis, a slow combination of follow-through selling and short covering.

In general, the cash hog market this morning should be short and sweet. That probably means a brief flurry of steady/firm bids with buyers retreating to the holiday sidelines ASAP. If there's any disruption in country movement it could be tied to icy conditions forecasted for parts of the Southern Plains. At this time, packers are planning to make up for Thursday's down time by scheduling a large Saturday kill, probably somewhere in the neighborhood of 360,000 head. Lean futures are also geared to open narrowly mixed in light trade volume.

BULL SIDE BEAR SIDE
1) Beef cut-outs scored decent progress on Tuesday with box demand described as "moderate to fairly good." This could be a reliable "tell" of much better buying interest in early December. 1) The fact that live and feeder futures have quickly reversed from Monday's promising advance is yet another discouraging sign how difficult it has become to piece together bullish momentum in the late-year period. For some reason, market psychology has become chronically soft.
2) Gas currently costs an average of $2.20 per gallon, the lowest it's been during the busy holiday travel week since 2008, when it cost an average of $1.95 a gallon. Furthermore, many forecaster believe this year's El Niño weather effect is expected to give most of the U.S. a warmer than average winter. The extension of such energy savings should be good news for the average family budget and meat-spending potential. 2) The inability of Northern feedlots to minimize the area's rather large discount to the South may suggest that pockets of heavy cattle in Nebraska and Iowa have not yet been cleaned up.
3) The pork carcass value surged higher on Tuesday with stronger demand quite evident for all major primals except the belly. 3) Iowa State estimates that hog producers are now seeing the lowest breakevens since March 2007. ISU further estimates that farrow-to-finish operations realized profits of $13.97 per head in October, the seventh-consecutive profitable month for Iowa producers. Such data would seem to stoke the general fire of herd expansion.
4) The seasonal for the December lean hog contract has a very strong up pattern as December moves toward contract expiration. With last week's reversal, the seasonal may have kicked into high gear. 4) Though some are willing to bet that last week's hog slaughter of 2.4 million head marked the season's top, it is not unusual for the first full kill week of December to surpass the November peak.

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]
Other Market News

CATTLE: (wsj.com) -- Tyson Foods Inc. forecast another year of record profit thanks to strength in its chicken and pork operations, sending its shares soaring to an all-time high.

Tyson, the largest U.S. meatpacker by sales, projected healthy earnings in its chicken and pork operations on Monday despite rising supplies of the meats and continued fallout from a severe U.S. bird-flu outbreak earlier this year. The company also raised its anticipated cost savings from last year's acquisition of Hillshire Brands, which gave Tyson a much bigger footprint in packaged foods.

The sanguine outlook came despite hurdles for Tyson in some business lines, including continued weakness in its beef operations and sluggish export markets.

"Our chicken business is strong, pork continues to do well, and we think the worst is behind us in beef," said Donnie Smith, Tyson's chief executive, on a conference call Monday.

Tyson shares jumped 10.2% to $48.11 in early afternoon trading. The stock traded at an all-time high even though the Springdale, Ark., company reported quarterly earnings that fell short of analysts' estimates.

Tyson and other U.S. meatpackers are trying to rebound from a year in which growing supplies of chicken have pressured prices. The avian influenza outbreak, which led to the deaths of more than 48 million birds, prompted some countries to curtail imports of U.S. poultry, leading to greater domestic supplies. The strong U.S. dollar also has hurt meat exports by making the products more expensive for overseas buyers.

Tyson executives said Monday their projections for its fiscal year that began in October assumed that prices for commodity chicken would stay low, that trade barriers related to bird flu would remain in place, and that the U.S. dollar would remain strong. Still, Tyson said it expects sales of $41 billion in the new year, above consensus estimates of $40.4 billion in a survey of analysts by Thomson Reuters.

Meanwhile, Tyson has looked to streamline its operations, including announcing plans last week to shutter two prepared food plants.

Mr. Smith said Monday that Tyson upped its cost-saving estimates arising from the Hillshire deal, anticipating $500 million for fiscal 2016 and $700 million in 2017, as the company has found ways to save money on packaging and purchasing. Previously, Tyson estimated saving $400 million in 2016 and $600 million in 2017.

Mr. Smith said Tyson aims to revamp its struggling international division, which now focuses on Chinese and Indian operations after the sale last year of its Latin American units.

In China, Tyson's big investment in vertically integrated poultry operations has run up against slowing economic growth and record-low wholesale prices for chicken. Mr. Smith said Tyson may harness its packaged foods expertise to develop more consumer-focused products in China, though he said the company will continue to supply restaurants there.

"We need a broader portfolio" of products in China, Mr. Smith said on the call. Tyson remains committed to the region, he said.

HOGS: (USMEF) -- It has been nearly two years since Russia closed to pork from the European Union due to an impasse over African swine fever. Since that time, large volumes of low-priced EU pork have been entering other international markets -- especially in Asia -- and altering the landscape of global pork trade. U.S. Meat Export Federation Economist Erin Borror recently updated pork producers and exporters on this situation.

Borror noted that European producers seem to be weathering this period of persistently low prices much better than expected, with EU pork production increasing 4 percent year-over-year in the first half of 2015 and likely to finish the year nearly 3 percent higher. A more modest increase of about 0.4 percent is projected in 2016, but exports are still likely to expand due to sluggish pork demand within Europe and continued weakness of the euro.

Borror indicated that part of the reason EU prices are so low is not just the fact that it lost Russia but that production has been up huge in the first half. That's more than 4 percent in the first half, and that's finally slowing down, so now for the year it's up 2.7 percent, and then next year up another modest increase, about .4 percent, so even though you've read about the dairy and pork producer protests in Europe and the commission still looking at what can they do to bail out the producers, the USEF still expects a modest uptick in production next year, so essentially not a big exit of producers, even with losses over the past year and a half or so now. The euro softened again here recently and that helps give them that extra edge. But their prices, even in euro terms, are down about 13 percent from the 5-year average.

With persistently low prices, many have expected Europe to lose large numbers of producers. But Borror said she doesn't expect to see that anytime soon.

"We had these same thoughts when they were implementing their sow stall ban and when they had high feed prices and years of losses, and they seem to just get more consolidated and more efficient. When they built new barns when they had to comply, of course you're not going to build the same size, you're going to expand, so I just don't see a slowdown from the EU. France would be one area to watch. You could see some producers exit in France -- they are the ones that have been hit the hardest. They're less efficient on the packing side for sure, and they do have the disadvantages in labor. That would be one area to watch if you want to look for a pullback. But otherwise the EU competition is here to stay, and they've already become quite entrenched in our market."

John Harrington can be reached at feelofthemarket@yahoo.com
Follow John Harrington on Twitter @feelofthemarket

(CZ)

P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]
P[R1] D[300x250] M[300x250] OOP[F] ADUNIT[] T[]
P[R2] D[300x250] M[320x50] OOP[F] ADUNIT[] T[]
DIM[1x3] LBL[] SEL[] IDX[] TMPL[standalone] T[]
P[R3] D[300x250] M[0x0] OOP[F] ADUNIT[] T[]