DTN Early Word Opening Livestock

Livestock Futures Seem Staged for Mixed Opening

(DTN file photo)

Cattle: Steady-$2 HR Futures: Mixed Live Equiv $139.06 + .60*

Hogs: Steady/Weak Futures: Mixed Lean Equiv $ 85.86 - .28**

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

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

GENERAL COMMENTS:

What a difference a week makes in terms of market timing. Last week's cash business was essentially completed by Tuesday. This week we've reached Friday with virtually nothing booked. Whatever explains the contrast, some action will have to surface between now and sunset. Higher futures clearly anticipated that packers will blink before feedlot managers. Look for opening bids around $118 in the South and $190 in the North. Asking prices should remain firm at $122 to $123 in the South and $195 to $197 in the North. Live and feeder futures should open mixed, tied to follow-through buying and profit-taking.

Hog buyers should resume procurement chores with steady/weak bids. Although negotiated receipts have been on the light side, most plants seem to have immediate kill needs covered. Saturday's kill is estimated to total 145,000 head. Lean contracts are set to open in a narrow range with prices on both sides of unchanged.

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BULL SIDE BEAR SIDE
1) Cattle bulls extended the midmonth rally Thursday by scoring another round of solid gains (with all live contracts closing well above 100-day moving averages). Spot February live will start out Friday nearly $2 over last week's cash, and such a weak basis should fortify feedlot resolve in terms of asking prices. 1) The combination of large fed supplies over the next 30 to 60 days and slower late winter demand points to lower cash sales as we move through February.
2) For the week ending Jan. 6, cattle carcass weights continued to work lower: all cattle averaged 836 pounds, 2 lbs. lighter than the previous week and a pound below last year; steers averaged 900 lbs., 2 lbs. smaller than the week before and 5 lbs. short of 2017; heifer averaged 838 lbs., 3 lbs. lighter than the prior week. 2) A government shutdown looks increasingly probable, an awkward development that could cause market disruptions, especially if it can't be resolved fairly quickly.
3)

Now that the cash index has gone, premium to the board, specs and commercials should become more supportive of nearby lean futures.

3) The huge challenge of large pork supplies over the next six months can hardly be overstated, especially given NAFTA uncertainty.
4) While some have expressed worry that finishing floors have become less current than late last year thanks to short holiday kills and bitter cold temperatures, recent evidence of declining weights would seem to reflect in part, timely marketing. 4) Now that the U.S. has nixed the TPP, Japan is set to give EU pork producers significantly superior trading terms.

OTHER MARKET SENSITIVE NEWS

CATTLE: (MercoPress) -- Brazil is studying the removal of a 20% tariff on ethanol imports from the United States, Agriculture Minister Blairo Maggi said on Wednesday, in a decision that could depend on Washington lifting a ban on fresh beef exports from Brazil. Last year, Brazil imposed a 20% tax on ethanol imported from the U.S. that exceeds a 600 million liter annual quota to protect local producers as imports spiked.

Also in 2017, the U.S. banned shipments of fresh beef from Brazil following on a food safety scandal involving bribes paid to inspectors that led to heightened inspections by the U.S. and in turn uncovered potential health risks.

Speaking to reporters, Maggi implied that a decision on removing the ethanol import tariff could depend on resolving the dispute on beef exports. "There is on the part of the United States a big demand to withdraw this (ethanol tariff) and we also have this problem with beef," Maggi said. "Obviously one thing influences and contaminates the other."

The ban on fresh beef exports could be lifted by April, Maggi said, when he is expected to step down in order to meet a deadline to run for elected office in October.

Brazil has already submitted all of the material requested by the United States to address concerns over beef exports and is awaiting for the United States to decide whether the issue is resolved, he said.

HOGS: (brownfieldnews.com) -- A professor of economics at Iowa State University who is optimistic about pork prices says those forecasts are completely dependent on NAFTA.

Dr. Dermot Hayes tells Brownfield pork exports should be up 8 percent in 2018 and another 8 percent in 2019, unless NAFTA negotiations fall apart.

"I think if we try and bluff the Mexicans into paying for a wall or whatever, they're going to call our bluff. That would allow them to put a 20 percent duty. And in a commodity business, you're not competitive if you're paying 20 percent and your competitors are not."

Speaking to Brownfield at Minnesota Pork Congress earlier this week, Hayes says the pork industry is already suffering because President Trump withdrew the U.S. from the Trans Pacific Partnership. He suggests producers can't afford another trade blow.

"We cannot afford to pull out of Korea and we certainly cannot afford to pull out of NAFTA. The Mexicans are upset with us and if we bluff them they're going to call our bluff, at the expense of the pork industry in the U.S."

Hayes conducted a study last summer that determined if Mexico were to pull out of NAFTA and impose a 20 percent duty on U.S. pork, it would cause a nearly $2-billion-dollar aggregate loss for producers.

The last scheduled round of NAFTA negotiations will be in Montreal beginning next week.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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