DTN Early Word Opening Livestock

 
Cattle: Steady-$2 HR Futures: mixed Live Equiv $135.00 + 0.92*
Hogs: Steady-$1 LR Futures: mixed Lean Equiv $87.34 + $1.09 **
* 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 price potential at midweek should remain poorly defined with both sides closely monitoring the board for significant direction. Significant trade volume could easily be delayed until Thursday or Friday. Live and feeder futures are expected to open on a mixed basis this morning thanks to both follow-through selling and recent feedlot premiums.

Look for hog buyers to resume work at midweek with bids ranging from steady to $1 lower. While processing margins remain outstanding, packers seem to have plenty of live inventory in front of them for the time being. Early estimates points to a Saturday kill around 350,000 head. Lean futures should open with uneven price action linked to spillover buying interest and unanswered questions tied to the December 1 H&P report.

	BULL SIDE		BEAR SIDE
1)	Beef carcass value appreciated further on Tuesday with a sharply higher select box leading the charge.	1)	Spot December live cattle is holding about par to 100 point discount to last week's sharply higher cash trade. Such basis strength could weaken feedlot resolve.The narrower premium on Feb, down from over $4 early last week, is less supportive.
2)	While new showlists distributed in cattle feeding country look mixed (i.e., smaller in the South and larger in the North), the overall offering look some small and altogether manageable.	2)	November's increased placement is likely the start of an extended trend of feeders moving into feedlots and building on feed numbers.
3)	The pork cut-out jumped more than a buck higher to start the holiday-shortened week, supported by better demand for butts, ribs, and processing items.	3)	Whether or not the market believes the new quarterly numbers or not, pork supplies now seem set record large each and every quarter of the year which in itself will act as a constraint to the upward price potential for cash hogs.
4)	Impressively ignoring the bearish implications of the December 1 H&P report, lean hog futures closed solidly higher on Tuesday. Either traders don't believe the report or sense that ongoing demand strength will trump all.	4)	With the expectation for huge hog supplies in 2017, producers will likely be looking for price levels to initiate some more hedges and that selling will also tend to be a constraint on upward price action.

OTHER MARKET SENSITIVE NEWS

CATTLE: (foodmarket.com) -- The Obama Administration announced last week that the Office of the United States Trade Representative (USTR) is taking action against the European Union's (EU) unfair trade practices that discriminate against U.S. beef imports. Acting on the request of the U.S. beef industry, USTR has scheduled a public hearing and is seeking public comments in connection with the EU's ban on most U.S. beef products. The EU's ban on U.S. beef is not based on sound science and discriminates against American beef farmers, ranchers, and producers. If the trade action resumes, the United States would reinstate industry-supported tariffs on a list of EU products imported into the United States. USTR is particularly interested in comments addressed to the possible effects of reinstatement on U.S. consumers and small- or medium-sized businesses.

"The WTO determined that the European Union's ban on U.S. beef imports violates its international trade obligations," said Ambassador Froman. "The EU has failed to live up to assurances to address this issue, and it's now time to take action. Today's action holds the EU accountable and is an important step in encouraging the Commission to come back to the table to ensure that American ranchers have access to Europe's market and that European consumers have better access to high-quality U.S. beef."

In 1998, the EU lost a case at the WTO for banning American beef. In 2009, the U.S. negotiated an agreement to allow a modest degree of market access for specially-produced beef that meets the EU's standards, but that agreement has not worked as intended. The European Commission had argued that this issue should be resolved through T-TIP. However, given that European officials decided after their trade minister's meeting in September not to complete T-TIP this year, now is the time to take action.

The U.S. beef industry exports an average $6 billion per year.These exports produce an estimated $7.6 billion in economic activity and support 50,000 jobs nationwide. The American beef industry is essential to the overall strength of the nation's economy, and to rural communities seeking ways to access new customers in foreign markets.

"American ranchers raise some of the best beef on the planet, but restrictive European Union policies continue to deny EU consumers access to U.S. beef at affordable prices. For several years we have been asking the EU to fix an agreement that is clearly broken, despite its original promise to provide a favorable market for U.S. beef," said Agriculture Secretary Tom Vilsack. "The U.S. beef sector is vital to our economy. U.S. beef and beef product exports average $6 billion per year, producing an estimated $7.6 billion in annual economic activity and supporting nearly 50,000 jobs nationwide. The industry is essential to the overall strength of the nation's economy, and to rural communities seeking ways to access new customers in foreign markets."

An interagency committee of trade experts and economists will participate in the hearing and review public comments on the particular products and EU member States that may be subject to the imposition of additional duties, with the goal of resolving this dispute. Complete information on the submission of comments is set forth in a Federal Register Notice that is published today on the USTR website (www.ustr.gov) and will be available shortly on the Federal Rulemaking Portal (www.regulations.gov).

"There is no doubt that American beef products are safe. The 20 year EU ban has been in effect far too long. It is not based on fact and should be lifted," said House Agriculture Committee Ranking Member Collin Peterson. "The beef industry is an important contributor to our nation's economy, especially rural economy. This announcement is welcome news for America's beef producers."

"The EU, our largest trading partner, unfortunately maintains numerous unscientific policies focused on protecting European agriculture producers from competition with American producers rather than promoting food safety," said Representative Adrian Smith, member of the House Ways and Means Committee and Chair of the Modern Agriculture Caucus. "It also closes off many more markets to U.S. producers in countries around the world which defer to the EU on these regulatory issues. I commend USTR for moving forward on this enforcement action, and I will continue to push the EU to adopt scientific regulations which will enhance trade and food security across the globe."

(The Bureau of National Affairs) -- The European Union pushed back Dec. 23 against the initial move by the Obama administration to reinstate tariffs tied to the EU ban on hormone-treated beef.

The EU has met the commitments in a 2009 agreement with the U.S. on imports of hormone-free beef, an EU official said in a Dec. 23 statement obtained by Bloomberg BNA. The previous day U.S. officials said U.S. beef had been denied EU market access despite the U.S.-EU Memorandum of Understanding on High-Quality Beef, which is beef raised without growth-stimulating hormones.

"The EU has fully complied, both in the letter and in spirit, with the Memorandum of Understanding signed with the United States in 2009, establishing a hormone-free beef quota," the EU official said in response to Dec. 22 statements by the Office of the U.S. Trade Representative.

USTR said in a media statement that it was poised to reinstate punitive tariffs authorized by the World Trade Organization in 1999 that stem from a dispute settlement ruling the previous year against the EU's policy of banning hormone-treated beef. U.S. tariffs on an array of agricultural items were phased out from 2009 to 2011 as a result of the Memorandum of Understanding.

"The termination of this agreement and the possible application of duties on EU exports to the U.S. would certainly constitute a most unfortunate step backward in the strong EU-U.S. trade relations," the EU official said, adding that the EU will continue to implement the memorandum of understanding and stands ready to listen to any concerns of the U.S. administration.

USTR said in an advance release of a Federal Register notice that non-U.S. exporters of high quality beef products have been able to fill a "a substantial part" of the EU's 45,000 metric ton duty-free quota.

While the quota is not reserved for the U.S., the cuts of meat specified in the Memorandum of Understanding correspond with grain-fed beef, according to a U.S. trade analyst who added that the EU is allowing Argentine and Australian producers of grass-fed beef to fill the quota with their high-quality beef products.

In practice, USTR said in the notice, the quota has not provided enough "benefits to the U.S. beef industry sufficient to compensate for the economic harm resulting from the EU ban on all but specially-produced U.S. beef."

The EU is committed to keeping its high food safety and health standards, the EU official said, adding that only products complying with these standards will be allowed into the EU market. "Changing the EU's ban on hormone-treated beef was never part of the negotiations with the United States for a trade agreement," the EU official said, referring to the U.S.-EU talks for the Transatlantic Trade and Investment Partnership (TTIP) that both sides have said will not culminate in the near future.

USTR said in its Dec. 22 statement that the European Commission "had argued that this issue should be resolved through TTIP."

HOGS: (nationalhogfarmer.com) -- Across the board, the USDA reported huge numbers in its December Quarterly Hogs and Pigs report compare to the pre-report estimates -- a spread between 1-3% differences. The USDA released the report earlier on Friday due to the holiday weekend while the markets were still open and Steve Meyer, vice president at Express Markets Inc. Analytics was shocked it did not rock the trade harder. At the close of markets Friday, lean hog futures for nearby was only down $1.5. Meyer says, "The question is, after three days of thinking about it, will there be more pressure on the market on Tuesday." Meyer explains the future market has had an impressive rally in the last six weeks, but he anticipates the market to be down on Tuesday and Wednesday especially for the summer futures as a result of large numbers in the report. He continues, "I expect there will be more pressure next week as people digest that size of the numbers."

Once again, the U.S. inventory of hogs overall reached a record level of 71.5 million hogs and pigs on U.S. farms on Dec. 1, 2016. The total hog inventory is up 4% from December 2015 but only marginally increased from Sept. 1, 2016, according to the Quarterly Hogs and Pigs report published by the USDA's National Agricultural Statistics Service. Breaking down the numbers further, the total number of market hogs penciled in at 65.4 million head, climbing 4% from last year. Currently, there are 20.9 million head weighing less than 50 pounds, 18.0 million head weighing 50-119 pounds, 13.9 million head weighing 120-179 pounds and 12.6 million head 180 pounds and more.

On the breeding side, America's pig farmers kept 6.09 million head for breeding, increasing the breeding inventory by 1% from last year and the previous quarter. Improving productivity is the name of the game for U.S. hog farmers. From September through November 2016, hog producers weaned a fresh new average of 10.63 pigs per litter.

Moreover, U.S. hog farmers intend to have 2.97 million sows farrow during the December-to-February 2017 quarter, up 1% from the actual farrowings during the same period in 2016, and up 3% from 2015. Intended farrowings for March-to-May 2017, at 3.00 million sows, are up 1% from 2016. David Miller, Iowa Farm Bureau director of research and commodity services, says the looking at the last 10 years, America's pig farmers are not just increasing pig numbers but making great strides in productivity.

"We are seeing a total productivity gain of breeding herd of 2.9% since 2007," Miller states. Analyzing the breeding herd inventory, Meyers says the USDA seems to be in line with the reports from the industry. "I have been thinking for quite a while that USDA did not appear to be capturing as much as the breeding herd growth that we have heard about out there," he comments. Until now the USDA had only been reporting an increase of less than 1% year-over-year for the last year and a half. Meyers further explains, "This 1.5% growth is much more in line with my expectation, and we could go up another 1% or more in the next two years from what is in the pipeline."

The numbers in USDA's Quarterly Hogs and Pigs report released Dec. 23 certainly show more pork coming than anticipated, explains Chris Hurt, professor of agricultural economics at Purdue University. For the first half of 2017, Hurt estimates an increase in pork production slightly over 4% and also near 4% for the second half 2017. Looking at the heavy numbers for first half 2017, Hurt anticipates weekly slaughter will push U.S. packing capacity but not surpass the estimate 2.5 million weekly capacity. Doing the math, Hurt calculates a 4% growth in weekly slaughter for the first three months of 2017 to average 2.34 million.

Meyers says the massive weekly slaughter that exceeds current packing capacity is behind us. He calculates the weekly packing capacity at 2.453 million head on 5.4 work days and this fall for six weeks the total weekly slaughter has been above that. Still, Meyers says by the second week of January the weekly slaughter numbers will pull back sharply and he does not see the number close to capacity until the summer 2017. He says, "The worst of the fall numbers and the capacity is behind us." John Nalivka, president of Sterling Marketing, figures the producers' farrow- to-finish margins from the last week of September to the first week of December at -$31 per head. He states this should discourage further expansion plans, but affordable feed costs, growth in the export market and new packer capacity will continue to provide an incentive to supply more hogs into 2018.

In those same weeks, the packer margins were $45 per head. Nalivka says, "That is pretty atypical to see the kind of pork processing margin." Hurt's forecast price, based on national 51-52% lean hogs, $61 per head average for 2017 with a prediction of $56 for the first quarter, $66 for the second and third quarter and $56 for the final quarter.

-- John A. Harrington FEEL OF THE MARKET

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