DTN Early Word Opening Livestock

Lean Hog Issues Staged to Open Moderately Higher at Midweek

(DTN file photo)

Cattle: Steady Futures: Mixed Live Equiv $146.65 - $1.07*

Hogs: Steady-$1 HR Futures: 10-30 HR Lean Equiv $ 81.37 + $0.21**

*based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Depending upon the exact short-bought status of cattle buyers, packer inquiry could start to take on greater definition Wednesday. Look for opening bids to be around $132 in the South and $208 in the North. On the other hand, asking prices should be around $138 in the South and $215 in the North. Significant trade volume could be delayed until Thursday or Friday. No delivery interest was reported Tuesday afternoon. Live and feeder futures are geared to open on a mixed basis, linked to both long liquidation and short-covering.

The cash hog market continues to roll higher, pushed along the way by tightening live supplies, decent product demand, and outstanding processing margins. Accordingly, look for buyers to resume work Wednesday with bids firm to $1 higher. Although chain speed got off to a slow start, we expect to see fairly aggressive slaughter through the balance of the week. If the Saturday kill totals are close to 200,000 head, the weekly slaughter could still total close to 2.25 million head. Lean futures are likely to open moderately higher thanks to evidence of cash and product strength.

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BULL SIDE BEAR SIDE
Though Tuesday’s cash cattle trade was typically quiet, a decent showing of starter bids in the South (i.e., $132) at least seemed to support ideas that packers were short-bought following last week’s limited round of business. Beef cutouts fell sharply lower on Tuesday with the choice and select boxes closing at their lowest price levels since Dec. 31 and Jan. 4, respectively.

Beef packers are remaining firm on their pricing of ribs and tenderloins. There may be some further modest weakness on strip loins and short loins before moving seasonally higher from March into May/June.

Spot February live cattle continued to fall away from the recent feedlot sales, apparently willing to lead the cash market lower. Furthermore, Tuesday’s sagging board could not especially blame the outside market (as it clearly could on Monday) since equities worked to stabilize.
Mandatory reporting on Tuesday confirmed a healthy combination of higher negotiated hog sales and respectable trade volume. Given the decent cash appreciation seen so far this month, it would seem that the late-winter stash of contracts is definitely smaller than normal.

By raising production potential and lowering export probability (presumably tied to recent problems with avian flu), the World Board adjusted its supply and demand table for broilers Tuesday, increasing its estimate of per capita broiler supplies in 2016 to 90.6 pounds, .4 pounds greater than January’s guess and 1.7 pounds above 2015.

The pork carcass continued to demonstrate impressive stability Tuesday in the face of defensive wholesale beef sales, further supporting attractive packer margins and cash spending for live hogs in general.

The USDA’s increase of ending corn stocks in its February supply and demand report represents more weight on the back of the feed market. Such news can only encourage further livestock and meat expansion.

OTHER MARKET SENSITIVE NEWS

CATTLE: (USDA) -- The 2016 forecast of total red meat and poultry production is raised from last month as higher forecast pork and broiler production more than offsets reduced forecasts for beef and turkey.

USDA’s Cattle report, released January 29, estimated that the cattle inventory continued to increase and pointed to a higher level of cattle outside feedlots on January 1, 2016. However, with lower year-over placements in fourth-quarter of 2015 and only modest increases expected in first-half 2016 placements, marketings and fed cattle slaughter forecasts for 2016 are reduced. Partly offsetting the lower fed cattle slaughter is higher expected cow slaughter and an increase in cattle carcass weights as the pace of marketings is slowed. Pork production is raised as slaughter during January was above expectations. Broiler production is higher as recent hatchery data shows faster-than-expected growth in chicks placed and bird weights continue to increase. Turkey production is reduced on hatchery data. Egg production is raised on increased hatching egg production. Estimates of 2015 meat and egg production are adjusted to reflect December data.

Beef and pork import and export forecasts for 2016 are unchanged from last month. The broiler export forecast is lowered as South Korea reinstated its ban on imports of uncooked U.S. poultry following the discovery of HPAI in Indiana in mid-January. Turkey exports are unchanged. The egg export forecast is unchanged, but the import forecast is raised. Meat and egg trade estimates for 2015 are updated based on data for December.

Cattle prices for 2016 are raised from last month on higher expected prices in the first quarter. First quarter hog prices are lowered from last month as supplies are expected to support higher slaughter levels; however, the forecast of the annual price is unchanged. Broiler prices are lowered from last month on weaker prices to date. The turkey price is unchanged. Egg prices are raised in the first quarter, but lowered in the second with the annual average price lowered from last month.

HOGS: (Farmscape.com) -- A Saskatchewan based veterinary epidemiologist warns the complete elimination of antibiotics from livestock production would create a serious animal welfare issue.

The level of public interest and concern over antibiotic resistance has increased dramatically over the past couple of years fuelled by reports on the issue from the World Health Organization, the Center for Disease Control, the White House and Canada's Auditor General as well as an increase in the promotion by food retailers of products raised without antibiotics.

Dr. Leigh Rosengren, an epidemiologist with Rosengren Epidemiology Consulting, says livestock producers have dramatically reduced their use of antibiotics but suggestions that they be prohibited from using antibiotics is a major animal welfare concern.

“It is our responsibility as producers to take care of our animals or our birds when they get sick so the idea of completely eliminating antibiotics is irrational because we need to be able to treat animals when they get ill.

“Even in an antibiotic-free production stream the producer has the opportunity to treat the animals when they get sick and then market those animals under a conventional stream. So producers and veterinarians, it is absolutely imperative for us to do our job and to really look after our stock, to be able to treat them. That's a message consumers really need to understand, is that sick animals need medicine every bit as much as sick people do.”

Dr. Rosengren says consumers need to understand that all meat in Canada, including eggs and dairy, is antibiotic free in the sense that none of it contains antibiotics, whether it's raised conventionally or raised under an antibiotic production scheme.

She says producers are very good at observing withdrawal times between the time that an animal is treated and the time it goes to slaughter and so there's no antibiotics in the meat.

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

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

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