DTN Early Word Opening Livestock

Look for Cattle Paper to Open Moderately Higher

(DTN file photo)

Cattle: Steady Futures:25-50 HR Live Equiv $146.76 + .11*

Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 81.25 - .12**

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

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

GENERAL COMMENTS:

Cattle-buying interest should continue to improve Thursday with light to moderate trade volume possible, especially in the South. Asking prices remain firm around $138 in the South and $215 in the North. This week's total could be modestly larger than last week's total of 534,000 head, perhaps somewhere in the area of 540,000 head, near even with last year. Live and feeder futures should open moderately higher, boosted by follow-through buying and the premium status of recent feedlot sales.

Look for another round of firm cash business in hog country. While the wholesale pork trade has cooled a bit this week, the relative stability of carcass value continues to imply attractive processing margins. During the week ended Jan. 23, dressed weights for all hogs averaged 213 pounds, down 1 pound from the previous week and 2 pounds lighter compared to the same week in 2015. Lean futures are geared to open on a mixed basis thanks to a combination of spillover selling and short-covering.

BULL SIDE BEAR SIDE
Cattle futures finally scored a decent bounce at midweek, thanks to short-covering and the premium status of recent feedlot sales. The stubborn discount of spot February live cattle futures and the strong basis it implies could make it tough for feedlot prices to hold out for even higher asking prices.

Though remaining well below asking prices, cash cattle bids improved further on Wednesday (especially in the South). Short-bought packers should continue to stretch higher through Thursday and Friday.

Wednesday's report also showed that chicks placed in the United States during the week ending Feb. 6, 2016 totaled 176 million chicks; up 1% from a year ago.
For the week ending Feb. 6, Iowa barrows and gilts averaged 283.5 pounds, .6 pounds lighter than the prior week and 2.1 pounds smaller than 2015.

Easter ham demand has probably peaked. Prices tend to decline from roughly five weeks out until the holiday weekend.

This week's hog slaughter total is expected to come in between 2.24 and 2.25 million head. Weekly kill totals should start running below the 2.20 million mark by early March.

The April lean hog futures contract seems a bit toppy as it prepares to become the spot month, especially given the fact that the cash index tends to work lower over the next couple of weeks.

OTHER MARKET SENSITIVE NEWS

CATTLE: (The Japan Times) -- U.S. beef exports to Japan in 2015 fell from the previous year, the first time in 11 years, losing market share to Australian beef.

Beef exports from the United States dropped 19 percent to nearly $1.3 billion, according to the U.S. Meat Export Federation.

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The last such decline in beef exports to Japan occurred in 2004, when they plunged due to an outbreak of bovine spongiform encephalopathy, or BSE.

Australia's beef exports to Japan rose in 2015 on the back of the "tariff advantage" under the economic partnership agreement between the two countries, which went into effect in January last year, according to the federation.

The results may further boost hopes in the U.S. beef industry for the early effectuation of the Trans-Pacific Partnership multilateral free trade agreement, which Japan, the United States and 10 other nations signed this month.

In 2015, U.S. pork exports to Japan were also sluggish, dropping 18 percent to around $1.6 billion, the lowest level since 2009.

The federation attributed the slump to "increasing competition in Japan, especially from European suppliers."

Global exports of U.S. meat were sluggish as well, reflecting the appreciation of the dollar. Beef exports fell 12 percent to $6.3 billion, while pork shipments declined 16 percent to nearly $5.6 billion.

Japan remained the top export destination both for U.S. beef and pork on a value basis, and came second following Mexico in volume.

HOGS: (lincolnstar.com) -- Nebraska will shed its unique ban on meatpacking corporations owning hogs following a contentious vote Friday in the Legislature.

Supporters of a measure to eliminate the ban (LB176), sponsored by state Sen. Ken Schilz of Ogallala, said opening Nebraska's hog market to companies like Smithfield and Tyson Foods should make the state more competitive with its neighbors and allow new pig farmers to enter the business without assuming the financial risks of ownership. Opponents warned the change could have a devastating effect on the state's existing pork producers and harm the environment by leading to more big hog confinement facilities.

They also accused lawmakers of buckling under influence from lobbyists backed by corporate agriculture.

"Money wins over the will of the people," John Hansen of the Nebraska Farmers Union said after the vote. "Money won this."

Lawmakers overwhelmingly supported the bill following two hours of debate Friday, first ending a filibuster of the measure, then passing it, both on 34-14 votes. The bill had already advanced through two rounds of debate.

When it takes effect, the change will undo the pig portion of a 1998 law that makes it illegal for packers to own swine or cattle in Nebraska for more than five days before slaughter. Other Midwestern states had adopted similar bans but have since eliminated them.

Nebraska will now join those states in allowing meat processors like Chinese-owned Smithfield to contract with farmers to raise pigs in large, concentrated operations. That helps the packers control product consistency, minimize costs and squeeze out more profit.

Schilz, a third-generation rancher, said his family lost a $1.5 million cattle-feeding contract "basically within the blink of an eye" when the 1998 law passed. A Colorado feedlot built specifically because of the law took 4,000 head from his operation, along with cows from 10 other Nebraska yards, he said.

"There is not one other person in this body that has experienced this law like I have," he said.

"I'm glad it passed," he said of the repeal. "It's the right thing to have happen."

Groups opposed to the bill had waged a publicity war in the weeks leading up to Friday's vote. Hansen said an overwhelming majority of those who wrote letters, sent emails and called lawmakers about the bill asked them to oppose it.

The Center for Rural Affairs accused lawmakers of choosing meatpackers over family farmers and ranchers. Bold Nebraska, which gathered 1,100 petition signatures against the bill, began a tweet with "SHAME" after the vote.

But senators bristled at the suggestion that campaign contributions, especially from Smithfield, had affected their votes.

"Don't demonize someone who is on a different side," said Omaha Sen. Bob Krist, who supported the bill.

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

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

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