DTN Early Word Opening Livestock

 
Cattle: Steady-$2 HR Futures: Mixed Live Equiv $131.49 + .48* 
Hogs: Steady Futures: Mixed Lean Equiv $ 84.65 - .33**
* 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 buyers and sellers are likely to show much energy Tuesday. Indeed, the only sign of competition may be which side can look more indifferent than the other. On one hand, feedlot managers continue to sense a good deal of market clout tied to tight fed numbers (new showlists may be a bit larger than last week thanks to the South, but not by much). On the other hand, packers are disgusted that processing margins in recent weeks have gone to hell in a hand basket. We expect such posturing will last for another few days, probably postponing significant trade volume until Thursday or Friday. If asked, we assume bullish-minded producers will start out pricing steers and heifers around $125 in the South and $200 in the North. Live and feeder futures will probably open Tuesday on a mixed basis in slow volume.

The cash hog trade seems set to open with basically steady bids. Country spending seemed a bit soft Monday, but then again lackluster bids failed to move many numbers. Monday's kill of 440,000 head was about the most ambitious start we've seen for a slaughter week since late last year, and it will be interesting to see if either producers or packers feel a need to "catch up" following multiple chain speed disruptions through the first half of January. The board's slowly growing discount to spot cash seems strange, almost as if CME specs believe the best of the country's winter potential has already come and gone. Lean futures seem ready to open again with a general lack of price direction.

	BULL SIDE		BEAR SIDE
1)	Beef cutouts have opened the week back on the right foot, closing on Monday significantly higher with early-week demand described as no worse than "light to moderate."	1)	Thanks to Friday's board sell-off and Monday's tire-spinning, feedlot managers are once again looking at an unusually strong basis, a reality that could work to erode country leverage. Additionally, live chart watchers note long-term resistance between 122 and 123.
2)	According to the most recent retail meat spread data released last month, the average price of all fresh beef in December was $5.445, 2.5% below November, 7.5% cheaper than a year earlier, and the lowest since the first half of 2014. Good news for consumers and stronger demand.	2)	Regardless of the strength that may or may not develop this week in the cash feedlot trade, the board may be reluctant to stick its neck any further with the Jan. 1 Cattle on Feed report waiting in the wings (i.e., to be released Friday afternoon at 2 p.m.). Many early birds are betting that it will contain further evidence of greater placement activity.
3)	February lean hog futures are trading in the lower 10% of historical trading values and as January moves to an end, there is a tendency for the nearby board to post a modest rally.	3)	Trump's decision to pull out of the TPP and his threat to renegotiate NAFTA is seen by many in the livestock industry as a blow against U.S. export potential.
4)	During the week ending Jan. 17, noncommercial traders saw their net-long position in lean hog futures increase by 3,300 contracts to 37,000 with the addition of long positions far outweighing a modest increase in shorts.	4)	The pork carcass value closed moderately lower on Monday despite last week's moderating chain speed. Softer demand was evidentfor fresh cuts and hams.

OTHER MARKET SENSITIVE NEWS

CATTLE: (NCBA) -- Tracy Brunner, President of the National Cattlemen's Beef Association, Monday released the following statement in response to President Trump's announcement that he is withdrawing the United States from the Trans Pacific Partnership (TPP) trade deal and may seek to take action on the North American Free Trade Agreement (NAFTA):

"TPP and NAFTA have long been convenient political punching bags, but the reality is that foreign trade has been one of the greatest success stories in the long history of the U.S. beef industry.

"Fact is American cattle producers are already losing out on $400,000 in sales every day because we don't have TPP, and since NAFTA was implemented, exports of American-produced beef to Mexico have grown by more than 750 percent. We're especially concerned that the Administration is taking these actions without any meaningful alternatives in place that would compensate for the tremendous loss that cattle producers will face without TPP or NAFTA.

"Sparking a trade war with Canada, Mexico, and Asia will only lead to higher prices for American-produced beef in those markets and put our American producers at a much steeper competitive disadvantage. The fact remains that 96 percent of the world's consumers live outside the United States, and expanding access to those consumers is the single best thing we can do to help American cattle-producing families be more successful."

HOGS: (Civitas Media) -- The civil rights office of the U.S. Environmental Protection Agency has sent a "letter of concern" to North Carolina regulators in light of a two-year investigation targeting health problems affecting minority communities near large-scale hog operations.

The News & Observer of Raleigh reports the 25-page letter to the N.C. Department of Environmental Quality has not done enough to reduce stench, flies and other problems caused by the facilities.

EPA also said it has "grave concerns" about reports from minority neighbors of threats and intimidation against those who have complained. The federal agency also faults North Carolina for not having an anti-discrimination policy in place, as required by federal law.

The letter, dated Jan. 12, acknowledges the new administration of Democratic Gov. Roy Cooper, who defeated incumbent Republican Pat McCrory. Lilian S. Dorka, head of the EPA's External Civil Rights Compliance Office, writes that the agency recognizes there are new leaders who haven't been involved in the issue.

Dorka said even though the EPA hasn't finished its investigation, it sees a window of opportunity to quickly resolve the dispute, beginning with a meeting by state and local officials.

A spokesman for the state environmental agency said Wednesday the letter is being reviewed.

The N.C. Pork Council responded by pointing out that the industry is heavily regulated in North Carolina, with a ban on constructing new farms, annual inspections, mandatory setbacks from neighbors, and prohibition on discharging waste into the state's waters.

"North Carolina hog farmers are good neighbors who care deeply about protecting our water and air," Andy Curliss, chief executive officer of the Pork Council, said in a statement issued Wednesday. "We welcome the opportunity to sit down with state regulators and those who live near our farms to address any concerns they may have."

Will Hendrick, an attorney with Waterkeeper Alliance in Chapel Hill, said his group was glad that the EPA expressed and shared its concerns.

"We're also hopeful that the new administration will view this as an opportunity to take long overdue action. The state has acted as though these concerns were not legitimate," Hendrick said Wednesday.

John A. Harrington can be reached at john.harrington@dtn.com

Follow John Harrington on Twitter @feelofthemarket

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