DTN Early Word Opening Livestock

Cattle: Steady-$2 HR Futures: Mixed Live Equiv: $145.65 - .41* 
Hogs: $1-2 HR Futures: Mixed Lean Equiv: $ 85.64 + .97**
* 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 odds are low that anything of significance will develop in the feedlot trade Tuesday. Rather, we're more likely to see a sleepy affair with bid and asking prices poorly defined. Live and feeder futures are set to open on a mixed basis with traders torn between residual selling interest on one hand and respect for cash premiums on the other.

The cash hog market is on a roll, and it's a good bet that the momentum will remain relatively large for at least the next several weeks. Pork processing markets have been narrowing as the cost of live inventories rises faster than carcass value. Still, packer margins are positive. At this time, Saturday kill plans are expected to total close to 25,000 head. Look for buyers to resume work Tuesday morning with bids $1 to $2 higher. Lean futures should also open with uneven price action tied to follow-through selling and supported by positive fundamentals.

	BULL SIDE		BEAR SIDE
1)	While beef cutouts last week drifted some lower, the volume of out-front sales (i.e., with delivery specs of 22 days or more) increased to an impressive level of 1,105 loads. This kind of longer-term business commits packers to cash-supportive chain speed three weeks or more down the road.	1)	New showlists distributed on Monday look larger than last week, especially in Kansas. The only major feeding state showing fewer ready cattle is Texas.
2)	Although the June 1 on feed report won't be released until a week from Friday (i.e., June 22), most private analysts believe that May placement activity will be confirmed as smaller than 2017 by 5% to 10%.	2)	Both beef cutouts and cattle futures faltered Monday, exacerbating fears that the combination of large fed supplies and swooning midsummer demand is right around the corner with a big sledge hammer.
3)	The cash hog trade is really in the bullish groove with the national lean base by advancing more than a buck a day without sparking a significant increase in the country run. While such an aggressive pace can't be maintained over the long pull, we don't see much to suggest it is close to running out of gas.	3)	July through October lean hogs, ignoring news of impressive nearby fundamentals, settled with triple-digit losses on Monday. Concerns regarding Mexico's announcement last week of punitive tariffs as well as the ongoing China and NAFTA negotiations, clearly weighed on the market.
4)	The pork carcass value jumped nearly a dollar higher on Monday, supported by stronger demand for butts, ribs and bellies.	4)	Despite a fairly hot spring in production country over the last six weeks of reported data, federally inspected hog carcass weights have averaged 213.7 pounds, 2.2 pounds more than the same six-week period in 2017.

OTHER MARKET SENSITIVE NEWS:

CATTLE: (Dow Jones) -- Staring at the pink, prepackaged burger patties in the meat case of a Kansas grocery store this spring, Larry Kendig felt disgust.

Mr. Kendig, 68 years, was so bothered he took the department manager aside to explain his beef with U.S. food labeling rules: Do shoppers really know what goes into those burgers?

Nothing from a cow. The "Beyond Meat" patties that offended Mr. Kendig were made with pea protein, canola oil, coconut oil, potato starch and "natural flavor." They're part of a posse of look-alikes invading meat country -- from plant-based burgers that ooze "blood" at first bite to chicken strips grown in a tank from poultry cells.

For thousands of years, meat came from slaughtered animals, and milk was squeezed from cows. Tech-style disruptions are now upending supermarket meat cases and turning the stomach of cattle ranchers like Mr. Kendig.

He and other old-school protein purveyors consider the meat section their turf, a private reserve of steaks and chops with one thing in common -- a butchered animal carcass.

American cattle ranchers are dismayed to find the meat replacements sold next to the real thing. "Right in our beef case," grumbled Mr. Kendig, who raises about 300 cattle near Osborne, Kan.

High-tech startups are building burgers from plant proteins and compounds that grill and taste more like the real thing than old-fashioned veggie burgers.

Other firms are using cell-culture technology to grow animal muscle tissue -- otherwise known as meat -- in stainless steel bioreactor tanks, similar to the fermentors used to brew beer.

Even dairy cows are feeling the squeeze, with consumer milk sales threatened by an ocean of substitute "milk" made from nuts, peas and oats. The National Milk Producers Federation has protested beverages made from potato, pistachio, duckweed, canary grass seed and other greenery bearing the "milk" moniker.

Cattlemen and dairy farmers are saddling up, and lawyering up, in response. The U.S. Cattlemen's Association has petitioned the Agriculture Department to bar plant-based products from bearing labels that say "beef" or "meat," with similar restrictions on meat grown from animal cells.

Missouri this month passed a similar law, and the Good Food Institute, which promotes meat alternatives, plans a legal challenge.

Dairy farmers, meantime, are lobbying the Food and Drug Administration, which supervises milk labels. The milk producers federation is pushing a bill, the "Dairy Pride Act," to enforce rules that the word "milk" on labels only refer to the output of lactating animals.

Stakes are high for the roughly $200 billion U.S. meat market. Sales of alternative meat products account for less than 1% of fresh meat sales in the U.S. but are growing at an annual rate of 24.5%, according to Nielsen Total Food View. Sales of plant-based "milk" climbed 7% over the past year, while conventional milk sales declined by 4%.

High-tech upstarts say the proposed labeling rules are a poor defense, pointing out that on a molecular level, plant-based meat products can contain the same amino acids, fats and minerals as animal flesh.

"People don't get angry when you call your cellphone a phone," said Ethan Brown, chief executive of Beyond Meat.

Jaime Athos, chief executive of the Tofurky Co., which sells imitation tofu-based roasts and patties, objects to any ban on the word "meat" in labels. Consumers hear tofu, he said, and "expect it to be bland or not meat-like."

To get better exposure, Beyond Meat requires that retailers carry its products in the grocery meat section, rather than the frozen foods case -- what Mr. Brown called the "penalty box."

Alison Pham, 22, of Bokeelia, Fla., is a vegan who sees the realistic looking Beyond Meat patties as a way to get her father to try a plant-based diet. She reaches for the package in the same meat-filled cases she long avoided.

"I don't look at anything else," she said.

In Washington, D.C., where the food label battle is being waged, industry groups are spending tens of thousands of dollars on lobbying, according to financial filings.

The food fight surfaced in Capitol Hill cafeterias in 2012, when staffers formed the Congressional Vegetarian Staff Association to protest a lack of plant-based offerings on the menu. A "Meatless Mondays" sign, intended to support their goal, drew a letter of protest from meat industry representatives.

Adam Sarvana, a House Democratic staffer who co-founded the vegetarian group, said its ranks have swelled in the years since.

A meat-replacement luncheon hosted by the group last year ran out of Tofurky before the arrival of the guest speaker, U.S. Rep. Ted Deutch, a Florida Democrat.

Mr. Sarvana said the group still battles prejudice, but "the idea we are dirty hippies is played out. The premise is becoming more mainstream and trendy."

Mr. Sarvana and other meatless Capitol Hill staffers must still contend with the influence of such entrenched protein powers as the North American Meat Institute.

The meat trade group's annual hot dog lunch, an outdoor event now in its fourth decade, draws more than 1,000 lawmakers, staffers and meat-industry lobbyists. The lunch is so popular, officials said, the group maintains an invitation-only policy and requires a badge for admission.

Missing from the menu are vegetarian hot dogs, said Meat Institute public affairs head Janet Riley. "If it's made of tofu, it's a long tubular hot-dog-like food product," she said, "not a hot dog."

The midsummer cookout is open to non-meat eaters, Ms. Riley said. "We do serve side salads and cookies."

HOGS: (The Des Moines Register) -- Iowa and U.S. pork producers are seeing "blood on the floor," thanks to punishing new tariffs.

But industry leaders have stopped short of saying they would force the growing industry to downsize.

The outcome is especially important in Iowa, the nation's largest pork producer and home to two new pork processing plants.

Prestage Farms is building a $300 million pork processing plant near Eagle Grove, and Seaboard Triumph opened its $300 million pork plant in Sioux City in September.

With another $280 million pork processing plant in Michigan, the industry estimates it will have 10 percent more processing capacity next year than in 2015.

"There's blood on the floor, make no mistake about that," said Nick Giordano, a National Pork Producers Council vice president, at the World Pork Expo last week at the Iowa State Fairgrounds.

"We're being patient. We're being patriots. But ultimately, we got to be able to trade. We're an extremely competitive industry," said Giordano, who leads the council's global government affairs.

China has levied a 25 percent tariff on pork, and Mexico says it will levy up to 20 percent on pork in retaliation to U.S. tariffs on steel, aluminum and other products.

Pork producers might see some relief, though. News reports Friday indicated Mexico might be able to continue importing U.S. pork duty-free through an import quota.

That's good news for an industry that's called itself the "tip of the spear" in the U.S.'s escalating trade wars.

The industry has estimated that U.S. pork producers could lose $2.2 billion this year through China and Mexico tariffs.

Dermot Hayes, an Iowa State University economist, said the industry likely would need to downsize if tariffs remained in place for months.

"What happens if we lose demand from our top three markets? We'd need to downsize," Hayes said.

Along with China and Mexico, Japan is likely to cut imports from the U.S. as a new trade deal with the European Union goes into place next year.

Older U.S. plants would likely be most vulnerable, Hayes said.

However, "none of the people I've spoken with believe these tariffs will remain in place," Hayes said.

"They're hearing all kinds of leaks" from the Trump administration that trade disputes will be resolved this summer, he said.

Pork producers expanded because exports markets were bright.

Jim Heimerl, president of the National Pork Producers Council, said he expanded his Ohio farm, believing the Trans-Pacific Partnership with 11 Asian countries would boost demand.

"Three years ago, when I built my last expansion farm, I thought trade looked great. I was excited," Heimerl said at the Pork Expo. "I think some of the packing plants looked for that, too. There was profit."

In addition to trade battles over steel, President Donald Trump pulled out of TPP last year, saying it was a bad deal. Then he suggested in April the U.S. would rejoin if the pact was improved.

The U.S. also is renegotiating the North America Free Trade Agreement with Canada and Mexico.

Ron Prestage, president of North Carolina-based Prestage Farms, is among those hoping new trade deals are hammered out this summer, reducing trade barriers for producers and meat packers.

Even with tariffs, Prestage said his family would make the same decision today to build the Iowa plant.

"Short-term, it's causing problems," Prestage said. "But long-term it will be good for my family. It will be good for pork producers in the Upper Midwest. And it's going to be good for our industry."

"We'd drive ourselves crazy if we changed our minds with every new political issue," said Prestage, whose family's company is a top-five U.S. hog and turkey producer.

The company has bigger worries than tariffs, he said.

"I worry more about our ability to attract and keep high-quality workers more than the impact of tariffs," said the veterinarian, adding that about 58,000 workers live within 30 miles of the plant.

Wright County's unemployment rate was 2.8 percent in April, equal the statewide rate.

The plant will process about 10,000 pigs daily, with 60 percent of the animals coming from Prestage farms.

The company will hire a couple hundred workers as the plant starts testing operations at year's end, but most of the employees will be hired early next year, Prestage said.

A second shift, with another 900 workers, likely wouldn't be considered for a couple of years, Prestage said. "You're silly if you think you're going to hire that many people who are unemployed," Prestage said. "You're likely going to hire a significant number of people who are looking for a better job that pays more money than they get currently."

Line workers likely will get $15-$17 an hour, plus benefits.

"It's probably higher than some plants are paying," Prestage said. "But I'm not sure how much it would take … to have workers change jobs or locations."

David Herring, the pork council's president-elect, said he believes the capital investment the industry is making will be worthwhile.

"We're going through some tough times now," the North Carolina producer said. "But people want what we're producing … Things will get worked out."

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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