DTN Early Word Opening Livestock

Cattle Futures Set to Open Moderately Higher

(DTN file photo)
   

Cattle: Steady to $2 HR Futures: 25-50 HR Live Equiv $138.19 -0.11*
Hogs: Steady Futures: mixed Lean Equiv $ 92.90 -0.30**

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

GENERAL COMMENTS:

Having finally successfully pulled out of the bearish nosedive last week, cattle feeders are hoping they can significantly extend the cash recovery through the balance of October. Activity today should be limited to the distribution of new showlists. We expect ready numbers to be generally smaller. Preliminary asking prices are likely to start out around $132-plus in the South and the $203-plus in the North. CME officials announced 26 new delivery intentions Friday afternoon (1 heifer, 24 steers, all at Norfolk). There were no retenders. Live and feeder futures are staged to open moderately higher, boosted by follow-through buying and signs of renewed cash strength.

Hog buyers should return to work this morning with basically steady bids. Processing margins remain quite positive, a reality that should generally serve cash stability. This is the time of year when pork tonnage typically overwhelms demand. But it hasn't happened yet. Lean futures seem ready to open on a mixed basis tied to a combination of spillover buying and profit-taking.

BULL SIDE BEAR SIDE
1) Sharply higher feedlot sales on Friday strongly suggest that cattle country has taken a major step in recovering cash confidence and leverage. 1) Anyone who thinks consumer beef demand will soon be sparked by sharply lower meat counter prices (i.e., commiserate with the wholesale sell-off seen since Labor Day) is not familiar with the long lag time that typically characterizes situations such as this.
2) Though layers of overhead resistance remain, live cattle futures appeared to have established a "V" bottom, a technical accomplishment that should spark more short-covering and buying interest on dips. 2) Between sharply higher cattle costs and persistently weak cut-outs, processing margins narrowed more than $100 last week. Packers may find it necessary to cut chain speed in response.
3) The seasonal price trend for December lean hogs could chop in a sideways pattern near term, but the longer-term trend is generally higher through the end of the year. 3) The World Board has raised its estimate of 2016 pork production to 24.94 billion pounds, 220 million more than the September estimate.
4) For the week ending October 6, noncommercial traders were net buyers in the lean hog futures, extending their net-long position to 20,100 contracts, up 3,500 from the previous week. 4) Hog slaughter is expected to steadily increase over the next 30-60 days as packers cut through the mature spring pig crop.

OTHER MARKET SENSITIVE NEWS

CATTLE: (USDA) -- The U.S. Department of Agriculture (USDA) issued its latest World Agricultural Supply and Demand Estimates (WASDE) and crop production reports Friday.

The WASDE report notes that total meat production in the United States from cattle, pigs and poultry will be 94.7 billion pounds in 2015, up from 92.17 billion pounds in 2014. The USDA's estimate for 2016 is currently 97.59 billion pounds.

Beef production for 2015 is raised on larger forecast slaughter of fed cattle in the second half of 2015 and heavier carcass weights. The forecast for 2016 is raised as cattle slaughter and carcass weights in the first half are projected higher than last month.

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The pork production forecasts for both 2015 and 2016 are raised. The pace of hog slaughter in the remainder of 2015 is expected to be higher. USDA's Quarterly Hogs and Pigs estimated less of a decline in sows farrowing during June-August than indicated in prior intentions and farrowing intentions into early 2016 support an increase in forecast pork production for 2016.

Broiler production is raised for 2015 as a larger third quarter level more than offsets a reduction for the fourth quarter, but the forecast for 2016 is reduced as broiler producers have slowed the pace of egg sets.

Turkey production for 2015 is lowered based on third-quarter production data; subsequent quarters through 2016 are unchanged.

Egg production for 2015 is raised on higher third quarter hatching egg production. Production forecasts for 2016 are unchanged.

Beef imports are unchanged for 2015 and 2016.

Beef exports for 2015 and 2016 are lowered as demand is projected to remain relatively weak.

Pork export forecasts are unchanged, but a small increase is made to third-quarter 2015 imports based on recent trade data.

Broiler exports are reduced from last month as slow global demand is expected to continue for in the remainder of the year and into 2016.

HOGS: (agebb.missouri.edu) -- U.S. pork imports were up 11.4% in August and pork exports were up 6.5% compared to 12 months earlier. The increase in exports was largely due to increased shipments to Mexico. Canada supplied most of the increase in pork imports. Imports equaled 4.7% of August pork production while exports equaled 19.2% of production. During the first eight months of 2015, pork exports were down 3.1% and imports were up 12.2% compared to January-August 2014.

Through August, live hog imports were up 15.5% with 11.5% more weaner/feeder pigs being imported and 35.9% more other hogs than during the first eight months of 2014.

Domestic demand for pork was up in August, but export demand was down for the 13th consecutive month. U.S. per capita expenditures for pork have been up for 31 of the last 32 months.

The October WASDE reduced USDA's estimate of 2015 corn production by 30 million bushels and cut the soybean production estimate by 47 million bushels. USDA raised the 2015-16 marketing year corn price forecast by 5 cents to $3.50-$4.10 per bushel, but left the soybean price forecast unchanged at $8.40-$9.90 per bushel.

USDA raised their prediction of 2015 pork production by 55 million pounds and put their forecast of the 2015 average price for barrows and gilts to $50.82/cwt. They are predicting 1.4% more pork in 2016 and an average price for market hogs that is $1 to $4/cwt lower than this year.

The national negotiated barrow and gilt price on Friday's report was $69.82/cwt, down a penny from the previous week.

Last week's closing pork cutout value was $88.34/cwt FOB the plants, up $1.83 from the week before with loins, hams and bellies all higher. Friday morning's national negotiated hog price was only 79.0% of the cutout value.

Last week's hog slaughter totaled 2.29 million head, up 0.9% from last week and up 6.8% from the same week last year.

The average live slaughter weight of barrows and gilts in Iowa-Minnesota last week was 280.3 pounds, up 0.6 pound from a week earlier, but down 4.5 pounds from a year ago. This was the 28th consecutive week with weights lighter than last year.

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

(CZ)

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