DTN Early Word Opening Livestock
Livestock Paper to Open Narrowly Mixed in Abbreviated Trading Session
GENERAL COMMENTS:
Cattle: Steady Futures: Mixed Live Equiv: $142.07 + 1.08*
Hogs: Steady-$1 LR Futures: Mixed Lean Equiv: $ 76.02 + .74**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
It was the short trading day before Christmas and all through the CME house, barely a trader was stirring not even a day-trading mouse. Forgive this lame verse, but anticipating business on Christmas Eve doesn't seem to deserve much more. Whatever futures action we see Monday morning is scheduled to be cut short around noon (CST), an hour before normal trading time.
Cattle buyers who aren't preoccupied with last minute shopping and perfecting eggnog recipes may check out the size of late-December showlists (we suspect the post-Christmas offering will be about even with last week). But such an effort might be understandably minimal. Along the same lines, the procurement energy of hog buyers is likely to be running on low Monday morning with a few scattered bids steady to $1 lower.
P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]
Needless to say, look for meat futures to open narrowly mixed in light trade volume. A larger trading herd will no doubt regroup on Wednesday, but many specs and commercials will no doubt stay on break through the end of the year.
| BULL SIDE | BEAR SIDE | ||
| 1) | Beef cutouts closed sharply higher on Friday, hopefully a small hint of packer anticipation regarding renewed product strength once retailers begin to look beyond holiday doldrums. | 1) | U.S. feedlots are not alone in reporting large early-winter population (i.e., Dec. 1 cattle-on-feed inventory was reported at 11.7 million head, 102% of a year ago and the largest Dec. 1 feedlot inventory since 2011). |
| 2) | Sharp declines on ribs and tenderloins were mostly offset by strength on the other portions of the beef carcass, with the weekly average for the choice cutout declining by just a half dollar last week (i.e., fairly impressive stability given the awkward pre-holiday calendar). The grading report for the week of Dec. 7 showed a new record level of prime grading at 11.03% of steer and heifers slaughter. Even though historical grading specs have recently changed vis-a-vis the determination of carcass aging, prime always sells higher than choice. | 2) | CanFax released the Cattle on Feed report for Alberta and Saskatchewan last week, documenting a Dec. 1 feedlot inventory of one million head was 107% of last year. Total pounds of beef in freezers as of Nov. 30 were down slightly from the previous month but up 6% from last year. |
| 3) | In the process of publishing the Dec. 1 Hogs & Pigs report released last week, the USDA went through more than a few erasures. Revisions were widespread over the prior twelve months, all of them lower. Still producing a record number of hogs for those relative quarters in history, producers are still in an expansion mode but now appear to have started to slow down the strong expansion growth in recent years. | 3) | At the same time, frozen pork supplies were down 11% from the previous month but up 1% from last year. Stocks of pork bellies were up 38% from last month and up 5% from last year. |
| 4) | China's agriculture ministry on Friday reported a new outbreak of African swine fever in the southwestern province of Guizhou, which has killed 42 pigs on a farm of 156 pigs. China has already reported more than 90 cases of the incurable disease since it was first detected in the country in early August. | 4) | Total frozen poultry supplies on Nov. 30, were down 13% from the previous month but up 2% from a year ago. |
CATTLE:(Beef Magazine)-- International trade has arguably been the most important hot-button issue facing agriculture in 2018. On any number of fronts, there's been concern about how tariffs and trade negotiations will influence various commodities going forward. And clearly, those concerns will continue to be pressing for agriculture.
In the meantime, though, the beef industry has seemingly slipped through the net of worry. And not only slipped through, but actually prospered in the face of all that noise. USDA's most recent tallies are up to date through October -- and beef's performance is nothing short of stellar.
The beef complex has been able to generate $6.8 billion in exports through the first 10 months of the year. For some context, that's nearly $1 billion ahead of 2017 on a year-over-year basis. And it's clear that 2018 will establish a new annual record with two months to go.
From a more tangible standpoint, it's equivalent to an additional $363 per head for every fed steer and heifer marketed through October. Accordingly, this week's illustration highlights what those values mean to the fed market.
The $363 per head export value is equivalent to roughly $27 per cwt, and at this pace will also be a new record. That's an important premium that ultimately gets passed back up through the value chain to stocker operators and cow-calf producers.
HOGS: (FarmJournal's Pork)-- It's hard to say how the current trade truce between the U.S. and China will impact pork trade for the next few months. Chenjun Pan, senior analyst with RaboResearch, predicts some U.S. pork imports into China, but says there is uncertainty around how much will be imported, due to weak demand.
China agreed to import a substantial amount of U.S. products from Dec. 1, 2018 to March 1, 2019. Prior to 2018's tariff troubles, pork was the second-largest U.S. agricultural export product to China. Now, with the African swine fever (ASF) situation in China and the approaching Spring Festival, many expect pork to be one of the major agricultural products shipped from the U.S. to China during the truce. However, the size of these shipments is in question because of a weakening Chinese demand for pork.
Prices are staying high in the southern part of the country due to a strong consumer preference for fresh meat rather than frozen meat. Frozen meat can be supplied from the North at present, so imported pork, which is frozen, cannot meet the market needs, Pan says.
Currently northern China is experiencing an oversupply of live hogs which cannot be transported, so these have to be slaughtered in the region. The high storage levels are expected to take a few more months to lower, meaning limited additional imports will be needed before the end of the 90-day truce.
"Additional imports from the U.S. are possible during the trade truce, but they will reflect political rather than market needs," Pan says.
To date, nearly 100 cases of ASF have been reported in China with no sign of the disease spread slowing down, despite government measures. Because the Chinese hog industry relies on the transportation of live hogs from north to south, the transport ban hit the industry harder than the disease itself, she says.
"The price difference between northern and southern China has been widening as a result of the uneven distribution of hogs and slaughtering capacity, as there is surplus in the north and a deficit in the south," she adds.
John Harrington can be reached at harringtonsfotm@gmail.com
Follow John Harrington on Twitter @feelofthemarket
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