DTN Early Word Opening Livestock

Meat Futures Set for Firm, Post-Holiday Opening

(DTN file photo)

Cattle: Steady-$2 HR Futures: 10-30 HR Live Equiv $137.43 + 0.56*

Hogs: Steady Futures: 10-30 HR Lean Equiv $ 76.87 + 0.66**





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

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

GENERAL COMMENTS:

The cash cattle market never really got off the ground last week. We waited through sunset on Friday, but the amount of identifiable business was just not enough to wad a shotgun. Several thousand head were marked in Nebraska at $195, and about the same number was tagged in Kansas at $127 (both dressed and live about steady with the previous week). Generally refusing to accept packer bids so far under the December board, many feedlot managers simply decided to carryover marketable inventory into this week. Today will be limited to the distribution of new showlists. We assume the offering will be larger for that reason. On the other hand, cattle buyers should be extremely short bought. Don't be surprised if today's kill falls under 100,000 head. Early asking prices should be around $132-plus in the South and $200-plus in the North. Live and feeder futures are likely to open moderately higher, supported by residual buying and ideas of improving beef demand.

Look for the cash hog market to open this morning with basically steady bids, Would-be bulls are eager to turn the seasonal corner, betting that Thanksgiving (more or less) marked a watershed for changing fundamentals (e.g., tightening market hog numbers, improving pork demand), one that will soon sport a cash/product rally capable of persisting through the Dec-Feb quarter. Lean contracts should begin on a firm basis, fueled by bull-spreading and follow-through buying.

BULL SIDE BEAR SIDE
1) Most packers needing cattle came up essentially empty as feedlot managers pointed to the tall December live premium and demanded a stronger basis. Buyers should start the week even more desperate for live inventory with country resolve still strong. 1) If the cash cattle market refuses to budge in the near future, the nearby live board could be extremely vulnerable to aggressive selling as feedlots seriously consider the marketing option of December delivery.
2) Beef cut-outs closed substantially higher on Friday with box demand described as "moderate to fairly good." Retailers and food managers should be set to get serious about late-year beef now that Thanksgiving is in the rearview mirror. 2) For the week ending November 14, steer carcasses averaged 925 pounds, 4 pounds greater than the previous week and 19 pounds heavier than 2014. At the same time, heifers averaged 852 pounds (a new all-time record), 7 pounds bigger than the week before and 23 pounds greater than last year.
3) An increasing amount of seasonal and technical evidence suggests that both cash hogs and lean futures have defined a meaningful bottom. 3) The pork carcass value on Friday staged a moderate recovery, supported by better demand for fresh cuts and hams.
4) With pork packers currently killing with huge ($30-plus/head) margins, the potential exists for some of this margin to transition over into better pricing for live hogs, especially as ready barrow and giltnumbers tighten through the winter quarter ahead. 4) With spot December lean hogs already trading more than $3 over the cash index, the board may already be fully anticipating the ability of the late-year market to turn the seasonal corner.

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Other Market News

CATTLE: (beefmagazine.com) -- This year is the worst ever in terms of cattle feeder profitability, according to the Livestock Marketing Information Center.

"October 2015 cattle feeding margins were negative by over $500 per head and could easily continue in the red until at least January 2016 (basis High Plains Cattle Feeding Simulator)," say analysts with USDA's Economic Research Service. "These negative margins will likely exert even more downward pressure on feeder cattle prices, as well as on cow prices, and could temper enthusiasm for what has appeared to be a rapid buildup in U.S. cow inventories."

"Cattle marketed in November 2014 were the last to exhibit positive cattle feeding margins," say analysts with USDA's Economic Research Service (ERS), in the November Livestock, Dairy and Poultry Outlook. "October 2015 margins were negative by over $500 per head and could easily continue in the red until at least January 2016 (basis High Plains Cattle Feeding Simulator). These negative margins will likely exert even more downward pressure on feeder cattle prices, as well as on cow prices, and could temper enthusiasm for what has appeared to be a rapid buildup in U.S. cow inventories."

In fact, analysts with the Livestock Marketing Information Center say in the latest Livestock Monitor that this year will go down as the worst ever in terms of cattle feeder profitability.

Keep in mind, estimated losses are on a cash-to-cash basis and exclude risk management.

"In terms of breakeven sales prices, the first four months of 2015 required sales prices in the $180' per cwt (fed cattle) to cover all estimated costs of production," LMIC analysts explain. "From May through December, the breakeven was in the $160s to the low $170s. That picture will change for cattle sold as early as January 2016. At recent prices for a 700-800 pound steer, the breakeven sale price is projected to be about $140.00 per cwt. That will be the lowest level since the closeouts (when fed cattle were sold) in June 2014."

Lower breakevens are coming mostly from lower calf and feeder cattle prices.

"Over the last few months, market prices have been adjusting—fed cattle prices have declined dramatically month-on-month and year-over-year—but feeder steer prices (basis 700-800 pounds) have adjusted even more…" LMIC analysts explain. "In the Southern Plains, 700-800 pound steer prices have dropped by over $32 per cwt or by 16%. Over that same timeframe, Kansas slaughter steer prices have declined a much more modest $10 per cwt or about 9%. The price difference between those two cattle weights has gone from being dramatically above a year ago, to down $21.44 per cwt year-over-year last week. Year-over-year declines in premiums for feeder cattle relative to feds are forecast to persist until well into 2016."

HOGS: (National Pork Board) -- Moving pork product is a high priority for our food-chain partners and America's pork producers. Observant of the current slow market with ample pork product available in the United States, the Fresh Foods department of Costco Wholesale is working hard to move pork tonnage and at an aggressive price for their members.

For the Black Friday weekend, Costco Wholesale is featuring a $10 off per package of whole boneless pork loins for its membership. This Black Friday weekend feature is due to the popularity and success of "Porktober" this past October and hopefully will continue to draw more members to the Fresh Food department and to purchase pork.

Costco began working on this Black Friday weekend feature months ago with their vendors, JBS and Smithfield, said Scott Alleger, Costco pork and sausage buyer.

"Both of these companies have been great to work with on this promotion," Alleger said. "They have worked closely with our depots to keep the trucks arriving in a timely manner and ultimately making sure we have pork available for our members during the promotional weekend."

Normally, this time of year is slow for the pork category at Costco, but features such as this one will help move millions of pounds of pork. With a pork loin feature such as this, members who may be reluctant or intimidated to purchase a whole pork loin may be more likely to purchase one because of this featured discount.

"This is one of my favorite items (whole boneless pork loin) due to its versatility as a roast, chop, on the grill, in the oven or a crock pot," Alleger said. "The possibilities are endless for our members."

As a way to help their members be more informed and comfortable with their pork purchase, Costco suppliers also place cutting and cooking instructions on the labels of their boneless pork loin packages. Some packages may also include recipes, which are rotated throughout the year to best represent a seasonal meal.

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

(CZ)

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