DTN Early Word Opening Livestock
Late-Week Meat Futures Likely to Open With Mixed Prices
GENERAL COMMENTS:
Cattle: Steady w/Wed Futures: Mixed Live Equiv $148.56 + .55*
Hogs: Steady Futures: Mixed Lean Equiv $ 82.43 - .06**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
We don't expect to be very busy monitoring the cash cattle trade Friday. Besides a few clean-up deals here and there, most of the week's business has already come and gone. It will be interesting to see if April live moves somewhat closer to the cash market before calling it a week. Should April come into next week with a $3 discount or greater, feedlot managers could find it difficult to ask for and score more money. Live and feeder futures are likely to open on a mixed basis thanks to a slow combination of residual selling and late-week short-covering.
Look for the cash hog market to open Friday with generally steady bids. Thursday's country run seemed to moderate just as the wholesale pork finally found a degree of stability. Assuming the Saturday kill totals are close to 130,000 head, the weekly kill is expected to total right at 2.4 million head. Lean futures should also open with uneven price action tied to follow-through selling and short-covering.
| BULL SIDE | BEAR SIDE | ||
| 1) | Net beef export sales last week totaled 21,895 metric tons (mt), up nearly two and a half times from the previous week and up 38% from the prior four-week average. | 1) | Although selling interest in cattle futures cooled a bit on Thursday, the inability of spot April live to even mount a dead cat bounce speaks poorly of late-winter psychology. |
| 2) | For the week ending Feb. 17, carcass weights accelerated their seasonal descent: all cattle averaged 823 pounds (lbs) , 4 lbs. smaller than the previous week and; steers averaged 881 lbs., 8 lbs. below the prior week and even with last year; heifers averaged 828 lbs., 5 lbs. lighter than the week before and 4 lbs. heavier than 2017. | 2) | Cattle buyers may be less taxed early next week as they pull first of the month contracts to help cover early March slaughter needs. |
| 3) | Easter comes early this year (i.e., April l), positive news for red meat demand since consumer spending typically improves after the religious holiday. | 3) | Net pork export sales last week fell to 21,900 mt, down 46% from the previous week and 14% from the prior four-week average. At the same time, actual pork shipments totaled 22,900 mt, down 13% from the previous week and 7% from the prior four-week average. |
| 4) | After spending weeks in the woodshed, lean hog futures are beginning to look oversold, both technically and fundamentally. | 4) | The Trump Administration's plans to place tariffs on steel and aluminum could cause economic growth to slow, inflation to rise, and trigger a larger trade war with China (perhaps particularly undermining U.S. ag exports). |
CATTLE:(thecattlesite.com) -- The majority of federal inspected steer and heifer slaughter comes from commercial feedlots with capacities of 1,000 head or greater, which is reported by USDA-National Agricultural Statistical Service (NASS) on a monthly basis, according to Steiner Consulting Group, DLR Division, Inc.
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Last Friday, NASS reported that marketings of steers and heifers from these larger commercial feedlots were up 6 per cent in January from a year earlier. A day earlier, NASS estimated that January steer and heifer slaughter (federal inspected) was also up 6 per cent.
Marketings of cattle from these feedlots accounted for 87 per cent of all steer and heifer slaughter. This is just a small fraction of a per cent greater than share of steer and heifer slaughter coming from feedlots in 2017. The percentage share of steer and heifer slaughter coming from 1,000 head capacity feedlots has stayed within the 86-87 per cent range since 2012.
The 13 per cent of the steer and heifer slaughter not accounted for by marketings of cattle from larger feedlots comes from farms primarily focused on grain production using cattle as an alternative to selling corn in the cash grain market, cattle producers marketing "grass fed" animals, and imports of slaughter cattle from Canada. The latter category accounted for 1.4 per cent of slaughter last year, the highest percentage in the last three years, but less than half of what it was ten years ago.
January steer and heifer slaughter exclusive of 1,000 head capacity feedlots was 272,000 head. Monthly cattle import data for January is not available until next week, but just considering total slaughter less feedlot marketings, the 272,000 head tally is a 6 per cent increase from the prior January, similar to the large feedlot marketing increase. One more week-day in January 2018 versus a year ago probably accounts for at least half the gain in both output measures.
Slaughter cattle imports in 2017 were down 10 per cent from the prior year, approaching the lowest level in at least ten years that was seen in 2015. At these levels, slaughter cattle imports are down almost 50 per cent from ten years earlier. Exclusive of slaughter cattle imports and 1,000 head capacity feedlot marketings, steer and heifer slaughter last year increased by about 160,000 head, or 10,000-20,000 head per month, year over year.
Penciling in a preliminary estimate of slaughter cattle imports for January close to the December 2017 volume leads to steer and heifer slaughter outside of large feedlot marketings that is about 20,000 head more than in January 2017.
In some ways, it is surprising that this volume would be maintained given the big placements of cattle into large feedlots in the last half of 2017 (relative to the number of feeder cattle available from recent calf crops). It also may be an impressive statement about the stability of new marketing programs for cattle outside of the conventional feedlot marketing process.
HOGS: (Dow Jones) -- President Trump is spoiling for a fight with China on steel and aluminum. But in China, it's looking like a good year to pick a fight with U.S. farmers. The trick? Picking winners from losers in an agricultural trade war.
Trade tensions between Washington and Beijing are rising. The Trump administration slapped tariffs on solar panel and washing machine imports in January, and is poised to further restrict imports of steel and aluminum--markets in which China is a dominant player. U.S. metals executives were summoned to the White House on Thursday and told new curbs could be announced as early as that day, according to people familiar with the matter.
How might China respond? One possibility is soybeans. The country imported $12.4 billion of American soybeans last year to feed its pigs. China relies on these imports to keep feed prices low, which in turn keeps low the politically-sensitive price of pork. The meat is China's staple protein, and a sizable component in household budgets.
But China is arguably now in a better position to handle disruption from American soy. Food price inflation has been running negative for over a year thanks to agricultural reforms, rebounding pork supply and a worldwide grain glut. The strengthening Chinese yuan is also weighing on the price of imported foodstuffs.
What little inflation there is in China -- consumer prices rose 1.5% in January -- has been more down to services. Housing, medical care, education and entertainment accounted for nearly 80% of the rise in China's headline price index that month.
U.S. farmers' leverage with China, meanwhile, is exceptionally weak. Farm is debt high and incomes are falling. Global soybean prices remain mired at barely half their 2012 peak. And Brazil, America's main competitor for the Chinese soy market, is growing another bumper crop.
Brazil's 2017-18 soybean harvest is expected to clock in at 112 million metric tons, the second highest ever, according to Reuters' February survey -- surpassed only by last year's record of 114 million.
Investors in American agricultural giants like Bunge and Archer Daniels Midland could take a hit if drooping Chinese demand harms American soy prices: China sucks up more than half of U.S. soybean exports.
One company that could benefit if soy tariffs lead to higher Chinese pork prices: Hong Kong-listed WH Group, which owns U.S. pork processor Smithfield Foods Inc. and is both a major importer of pork to China and a domestic pork producer.
China won't be able to wean itself entirely off U.S. soy: It still needs to import a reasonable volume to tide it over during the Brazilian winter growing season.
But low food prices at home, a strong currency, and a world awash in South American soybeans gives it plenty of room to toy with soy.
John Harrington can be reached at harringtonsfotm@gmail.com
Follow John Harrington on Twitter @feelofthemarket
(BAS)
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