DTN Early Word Opening Livestock

Cattle Contracts to Open Under Pressure

(DTN file photo)

Cattle: Steady Futures: 50-100 LR Live Equiv $147.72 - .70*

Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 81.16 - .61**

*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 will remain in neutral Tuesday with little effort on display to define either bids or asking prices. Both buyers and sellers were stunned Monday by the complete collapse in futures and the ugly return of troubling outside markets. Needless to say, processors and producers are anxious to see how quickly cattle futures can be freed of non-fundamental considerations. CME officials announced on Monday afternoon that zero loads were posted on first notice day for February live futures. Live and feeder contracts seem staged to open moderately lower, pressured by follow-through selling and uncertain fundamentals.

The cash hog trade opened with a firm undertone on Monday, and we expect to see another round of stronger spending Tuesday. This week's kill should be somewhat larger than last week as producers push a bit more to catch up from weather-delayed marketings. Specifically, we look for a weekly slaughter close to 2.23 million head, roughly 1% to 2% larger than 2015. Lean futures are likely to open on a mixed basis thanks to a combination of short-covering and spillover selling.

BULL SIDE BEAR SIDE
Given official trade volume totals generated last week, cattle buyers have stepped into the new week extremely close to the knife. Some believe packers will be forced to get serious about procurement chores as early as Wednesday. The wholesale beef trade remains on the defensive with the choice box quoted sharply lower on Monday. One would think the beef trade could at least stabilize in the wake of last week's reduced chain speed.

When the smoke cleared late last week, beef processing margins actually improved as the cost of live cattle fell at a faster rate than beef cutouts and overall carcass value.

According to the U.S. Meat Export Federation (see article below), December U.S. beef exports totaled 94,586 MT, down 6% from a year ago and slightly lower than in November, while export value fell 21% to $507.3 million.
U.S. pork exports posted a strong finish in 2015 as December volume (i.e., 188.4 metric tons, up 3% from late 2014) was the largest since April and the third-largest of the year.

If the stock market continues to spin lower with global problems spooking flights to security, livestock futures could experience tough headwinds for weeks and week to come.

The pork carcass value closed moderately lower, checked by softer demand for loins, picnics, ribs, and bellies.

Given a rally of more than $20 in just three weeks, the belly market is probably too hot not to cool off. We should see at least a modest break in the market here in February.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Bloomberg Business) -- In the restaurants of Beijing and Shanghai, patrons are asking where's the beef.

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The question is proving a boon for Aussie ranchers like Sam Burton-Taylor, who is shipping ever-larger quantities of meat to satisfy the voracious appetite of China's growing middle class.

Australian beef sales to China surged six-fold in three years to a record A$917 million ($651 million) in 2015, data from Meat & Livestock Australia show. The volume of beef shipped to China rose more than four times over the same period while the price received for the exports has jumped 37 percent in the past 12 months.

While earnings from meat, which totaled A$15 billion last year, aren't about to eclipse those from iron ore, the export boom signals Australia is successfully transitioning away from mining. Just as a sharp increase in demand from China for iron ore pushed up prices for the metal to a peak in 2011, so now is the Asian behemoth's shift toward consumption pushing up prices for beef.

"As countries get richer, their diets change and they prefer higher quality food products, and I think that's a big part of the beef story," said Paul Bloxham, chief Australia economist at HSBC Holdings Plc. "We think it's still got further scope to pick up. There's still a lot more people to enter the middle-class in China and preferences are shifting quite quickly."

HOGS: (USMEF) -- U.S. pork exports posted a strong finish in 2015 as December volume was the largest since April and the third-largest of the year, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF). Beef exports were below year-ago levels in December and posted the first full-year value decline since 2009.

December exports of U.S. pork were up 3 percent from a year ago to 188,410 metric tons (mt). Export value was $468.9 million, down 13 percent from a year ago but the highest since May. For the full calendar year, pork exports were down 2 percent from a year ago in volume (2.13 million mt) and 16 percent lower in value ($5.58 billion). Pork muscle cut exports increased 3 percent in volume (1.7 million mt) while falling 15 percent in value ($4.77 billion), but pork variety meat exports declined significantly in both volume (434,661 mt, down 17 percent) and value ($808.4 million, down 22 percent). However, as USMEF has previously noted, year-over-year comparisons, especially for pork variety meat, may not be entirely accurate due to issues with 2014 data for Japan.

Pork exports accounted for 24 percent of total 2015 production and 21 percent for muscle cuts only -- down from 26.5 percent and 22 percent, respectively, in 2014. Export value per head slaughtered averaged $48.31, down 23 percent from 2014.

December U.S. beef exports totaled 94,586 mt, down 6 percent from a year ago and slightly lower than in November, while export value fell 21 percent to $507.3 million. In 2015, beef exports were down 11 percent from a year ago in volume to 1.07 million mt. Export value was $6.3 billion, 12 percent below the 2014 record of $7.14 billion.

Beef exports accounted for 13 percent of total 2015 production and 10 percent for muscle cuts only -- each down one percentage point from a year ago. Export value per head of fed slaughter averaged $277.87, down 7 percent from the previous year's record but still up 13 percent from 2013.

"There is no question that 2015 was a challenging year for red meat exports, with several economic headwinds taking a toll," said Philip Seng, USMEF president and CEO. "But with production increasing in the year ahead in both the beef and pork industries, we cannot afford to dwell on these circumstances or back away from our commitment to the international markets. We must continue to find innovative ways to differentiate U.S. products, win back market share and regain momentum for exports in 2016. That means aggressive pursuit of new customers and new opportunities, in both emerging and established markets."

Pork exports to Mexico set fourth consecutive record; rebound to China continues Pork exports to Mexico set a new monthly record in December at 67,980 mt, pushing 2015 volume to 718,819 mt -- up 6 percent from 2014 and setting a new record for the fourth consecutive year. Export value was down 19 percent to $1.27 billion, reflecting lower U.S. prices, but demand for U.S. pork held up extremely well in Mexico considering the peso was down an average of 16 percent versus the U.S. dollar in 2015.

With several U.S. pork plants recently regaining eligibility for China, December exports to the China/Hong Kong region posted the largest volume in nearly two years at 33,691 mt (up 27 percent year-over-year). In 2015, exports to China/Hong Kong edged 1 percent higher in volume (339,056 mt) and were down 10 percent in value ($700.4 million). China/Hong Kong's imports from all suppliers set a new record of 1.937 million mt in 2015, up 8 percent. While the U.S. industry capitalized on this trend late in the year, the European Union was the primary beneficiary, capturing about 70 percent market share.

Exports to leading value market Japan struggled in 2015, declining 13 percent year-over-year in volume (406,186 mt) and 18 percent in value ($1.59 billion, the lowest since 2009). A recent decline in Japan's frozen inventories indicates opportunities for import growth in 2016. But the U.S. continues to face increasing competition in Japan, especially from European suppliers.

Other 2015 highlights for U.S. pork (with comparisons to 2014) included:

*Exports to South Korea increased 24 percent in volume (167,524 mt) and 6 percent in value ($470.2 million). Korea's imports from all suppliers expanded in 2015 as domestic pork production recovered slowly from porcine epidemic diarrhea virus and suffered new outbreaks of foot-and-mouth disease.

*After slumping in the first half of the year, exports to Australia rebounded to 57,763 mt (up 15 percent), while value slipped by 5 percent to $171.9 million.

*Exports to the Caribbean increased 13 percent in volume (41,143 mt) and fell 3 percent in value ($100.8 million). This performance was led by record-large exports to the Dominican Republic, which surged 38 percent in volume (23,265 mt) and 13 percent in value ($53.1 million).

*Taiwan showed renewed demand for U.S. pork in 2015, with exports increasing 29 percent in volume (20,278 mt) and 4 percent in value ($39.9 million).

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

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

(BAS)

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