DTN Early Word Opening Livestock

Look For Pork Paper to Open Moderately Higher

(DTN file photo)

Cattle: Steady-$2 HR Futures: Mixed Live Equiv $131.80 - .02*

Hogs: Steady-$1 HR Futures: 25-50 HR Lean Equiv $ 87.67 + .96**

* 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 buying interest should slowly start to become more evident Thursday. Look for some preliminary bids around $120 in the South and $192 to $193 in the North. On the other hand, asking prices are likely to remain firm (i.e., near $125 in the South, and close to $200 in the North), a fact that could easily delay the development of significant trade volume until sometime Friday. Live and feeder futures should open on a mixed basis as the board positions ahead of late-week cash and on feed news.

It feels like the cash hog trade has regained some of the firmer market tone since earlier in the month. Look for opening bids to start out steady to $1 higher. With the recent rekindling of wholesale pork prices, packer margins seem to be expanding once again. Lean futures are set to open moderately higher, supported by residual buying. Interest and improving carcass value.

BULL SIDE BEAR SIDE
1) The Fed Cattle Exchange Auction sold 2,729 steers and heifers on Wednesday with firm prices. The weighted average was 121.98, up from last week's weighted average of 120.52. 1) The inability of live cattle futures to move closer to cash premiums is disturbing. Why is the board so nervous, and in the middle of wintry weather prospects to boot?
2)

There's little in the fourth quarter pattern of feeder cattle placement to suggest that the fed cattle offering will significantly expand over the next 30 to 60 days.

2) More specifically, the inability of the cattle board to challenge last week's highs has reinforced overhead resistance between 122 to 123 basis spot February live.
3) Lean hog futures surged sharply higher with spot February moving to par with the cash index for first time in months. Perhaps the board is finally ready to lead cash higher through the balance of the first quarter. 3) For the week ending Jan. 21, Iowa barrows and gilts averaged 282.4 pounds, .5 lbs. heavier than the previous week and 2.2 lbs lighter than 2016.
4) The pork carcass value scored solid progress once again on Wednesday, supported by better demand for picnics, ribs, hams and bellies. 4) For the week ending Jan. 21, U.S. hatcheries set 219 million broiler eggs in incubators, up 1% from 2016. At the same time, chicks placed 180 million chicks, up 3% from a year ago.

OTHER MARKET SENSITIVE NEWS

CATTLE: (agrimoney.com) -- Threats to US trade with China or Mexico, which have been raised by Donald Trump's US presidency, look far more serious than the loss of the TPP deal, a senior CME Group executive said, foreseeing a jump in ag price volatility.

Erik Norland, executive director and senior economist of CME Group, downplayed President Trump's decision on Monday to withdraw the US from the TPP, the Trans-Pacific Partnership free trade deal, saying that "I do not think it really changes very much".

The TPP, even if Mr Trump had not intervened, "lacked support to get through Congress", Mr Norland told investors on a call organised by Chicago broker Allendale.

While the deal held out the potential for opening up "some opportunities to US farmers to export more" to other nations signed up to TPP… "the good news for US farmers is that it does not change the status quo because the agreement had not been ratified in any case".

However, Nafta -- the 24-year old free trade deal between the US, Canada and Mexico -- "is a different case", Mr Norland said.

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"The US has become a big corn exporter to Mexico, much to the consternation of Mexican farmers," he said, in comments which come as a swathe of US agricultural groups are lobbying Mr Trump to protect trade between the two countries.

On Monday, 130 ag-related groups - ranging from trade giants such as Bunge and Cargill to meat producers such as JBS and Tyson Foods to industry associations representing sectors from apples to wheat -- signed a letter to the new president stressing the significance of export market access to US farming.

"Although some important gaps in US export access still remain, increased market access under Nafta has been a windfall for US farmers, ranchers and food processors," the letter said.

"US food and agriculture exports to both countries have more than quadrupled, growing from $8.9bn in 1993 to $38.6bn in 2015."

Mexico will in fiscal 2017 buy $18.3bn of US ag products, making it the third ranked export market for the US behind China and Canada, on Washington's own estimates.

Indeed, Mr Norland also said that was he "much more concerned" over the potential for a "trade war with China", which Mr Trump has accused of currency manipulation, and threatened with steep import tariffs.

"The potential for a trade war with China is very, very significant," Mr Norland said, see two ways in which Beijing might return fire.

"One of the ways China can retaliate if President Trump attempts to protect US manufacturers would be to buy less agricultural goods from the US," threatening exports worth $21.8bn in fiscal 2017, on USDA estimates.

Another would be to depreciate the renminbi, which China has actually been trying to prop up, to stem inflationary pressures, at a cost of some $50bn a month.

"If he starts a trade war with China, it might encourage them to devalue their currency," an outcome which "could be really, really bad news for US farmers.

It would "reduce [China's] ability to buy good including corn wheat, soy pork, live cattle and all manner of other goods from the US and other countries".

Mr Norland added that hiccups to Nafta or Chinese trade would come with some compensations for US farmers, given, for instance, the boost to Mexico's own export prospects from the peso devaluation Mr Trump's threats have encouraged.

"The Mexican peso has crashed versus US dollar, making their agricultural producers very, very competitive against the US."

Furthermore, at least some of the US trade to China potentially lost through a trade war may be regained from other importers displaced by a shift by Chinese buyers to other origins.

Mr Norland contrasted the potential for ructions in agricultural trade with the weak price of crops on global futures markets, and the lack of volatility in options.

"The cost of buying options protection, or insurance if you will, is not particularly high by historical standards," he said.

"The agricultural goods markets are not pricing major volatility going into the Trump administration."

Mr Norland said that his concern was that "going into the later part of this decade, the cost of options on a variety of products like corn, wheat and soy might begin to rise very, very substantially"

This could be for reasons other than Mr Trump, with the likes of oil price volatility and a potential La Nina weather pattern other potential events to watch out for.

HOGS: (farmscape.ca) -- The National Pork Producers Council is hopeful a renegotiation of NAFTA will improve U.S. pork industry ties with both Canada and Mexico.

U.S. President Donald Trump has indicated he intends to immediately begin renegotiating the North American Free Trade Agreement.

Since 1994, when the agreement was implemented, there's been a rapid increase in U.S. pork exports to both Mexico and Canada.

Dave Warner, the Communications Director with the National Pork Producers Council, says the fact the agreement already exists and has been working should allow the administration to take the time needed to get things right.

"NPPC is certainly going to urge the administration to negotiate bilateral agreements with other countries around the world.

"We only have 23 trade agreements and we only had two in the pipeline and other countries are negotiating deals all over the world and we can't, as a country, stand still on trade.

"But having the agreement among the U.S., Canada, Mexico already in place and in place for 23 years it's much easier to rework the parts that need to be reworked rather than starting from scratch.

"We do understand that there are certain sectors in the United States that have concerns about the trade agreement between the U.S., Canada and Mexico and those should be looked at and addressed if they need to.

"I think that's what the Trump administration wants to do but we want to make sure that our exports to both countries are not disrupted in any way because that can hurt our producers' ability to compete."

Warner hopes renegotiating the deal will improve North American pork industry ties. He says Canada sends a lot of feeder pigs to the United States and the United States sends a lot of finished product to Canada so it's a symbiotic relationship.

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

Follow John Harrington on Twitter @feelofthemarket

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