DTN Early Word Opening Livestock

 
Cattle: Steady Futures: 50-100 LR Live Equiv $132.41 - .25* 
Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 88.17 + .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:

Monday's cash cattle trade will be typically quiet as packers make their rounds collecting new showlists. We expect the new offering to be about steady with last week. Market watchers will be carefully monitoring the extremely strong basis as we prepare to move into February, asking the obvious question: Is the cash market too rich or is the board too cheap? Our initial guess is that asking prices will start out around $124 in the South and $195 plus in the North. Expect cattle futures to open under pressure with deferred live issues especially catching heat tied to December's large placement confirmed on Friday.

The cash hog market is expected to open Monday with generally steady bids. Interestingly, last week's hog slaughter was barely 2% above last year. On one hand, it seems less production than the December inventory implied. On the other hand, we are still waiting for a complete week of "honest" chain speed (i.e., completely uninterrupted by weather or other problems). Lean futures seem geared to begin on a mixed basis thanks to a combination of follow-through buying and early-week long liquidation.

	BULL SIDE		BEAR SIDE
1)	Tight fed supplies have been the primary sponsor of the impressive cash rally over the last 30 to 45 days and showlists seem slated to remain quite manageable through the end of March.	1)	Friday's Cattle on Feed report documented a much larger December placement than expected (18% larger than late 2015 and the largest since 2005), news that could significantly pressure deferred live cattle futures Monday.
2)	During the week ending Jan. 24, noncommercials added to their large long commitment in live cattle futures, boosting their net-long position to 96,000 contracts, up 1,300 from a week earlier and the largest since late 2014.	2)	Cattle feeders start the week facing significant board discounts and the strongest basis since late last year, two realities that could damage country leverage and make it extremely difficult for them to hold for steady/firm prices.
3)	From Friday to Friday, the pork carcass value improved by as much $2.20, especially driven by an $18.41 surge in the belly primal.	3)	During the month of November, the U.S. exported 43.1 million pounds of pork to China/Hong Kong, below previous expectations of nearly 50 million pounds. For 2016, pork exports to China should total around 641 million pounds, significantly higher than 377.5 million pounds in 2015. Yet China has been importing more pork from Europe and 2017 shipments from the U.S. may not top 500 million pounds.
4)	The seasonal index for February lean hog futures does have a tendency of moving higher into expiration. With cash at a premium to the spot contract, that potential certainly exists this year.	4)	During the week ending Jan. 24, noncommercial traders saw their net-long position in lean hog futures decline by 2,000 contracts to the 35,000 level.

OTHER MARKET SENSITIVE NEWS

CATTLE: (CNBC) -- Amid the talk of trade wars, American beef producers see a golden opportunity overseas with Britain leaving the European Union.

The EU ban on hormone-treated beef from the U.S. essentially closed a major market for American producers more than a decade ago and made it harder to sell to the U.K., but Brexit and talks over a U.S.-U.K. trade deal could set the stage for American beef to once again enter Britain.

"A U.K. agreement will be a good opportunity for us to actually base trade on science rather than just a precautionary principle and undue fear," said Colin Woodall, vice president of government affairs for National Cattlemen's Beef Association, a U.S. trade group representing more than 200,000 cattle ranchers and feeders. "U.K. has been under the blanket EU restrictions where they will only take non-hormone, non-antibiotic treated beef."

President Donald Trump held a meeting Friday at the White House with U.K. Prime Minister Theresa May. Speaking at a joint press conference after the meeting, May said she's discussing with Trump how "we can establish a trade negotiation agreement, toward forward, immediate high-level talks, lay the groundwork for a U.S.-U.K. trade agreement."

Treating cattle with certain growth-promoting hormones is a common practice in U.S. beef industry. The EU ban on hormone-treated beef dates back to the 1980s, and eventually led the U.S. taking the issue to the World Trade Organization. The WTO found in favor of the U.S. producers in 1998 and then worked out a memorandum of understanding in 2009 with the EU trying to regain some of that access.

Yet, Woodall said the current arrangement continues to be a trade barrier for American beef producers. "We still don't have the full access that we would really like," he said.

Even if there's a U.S. trade deal with Britain after Brexit, there's no guarantee London would relax rules allowing imports of hormone-treated beef. Most of the beef consumed by British consumers Monday is produced within the EU.

In December, the Obama administration took action to reinstate trade actions against the 28-member EU over "unfair trade practices that discriminate against U.S. beef imports."

The Office of the U.S. Trade Representative is scheduled told hold a Feb. 15 hearing over the EU beef spat and then determine whether imposing additional punitive duties on particular EU food products imported into the U.S. "would be practical or effective in terms of encouraging a favorable resolution of the dispute."

The U.S. beef industry exports are roughly $6 billion annually, representing about 15 percent of the total domestic beef production. At present, Japan, Mexico, South Korea, Canada and Taiwan are the largest U.S. beef export markets. Last year, China agreed to reopen up its market to U.S. beef but thus far it hasn't started any significant imports.

HOGS: (13WHOtv) -- The North American Free Trade Agreement (NAFTA) has beneficial aspects to agriculture and Canadian pork producers are concerned about President Trump's promise to renegotiate it.

At the Iowa Pork Congress in Des Moines, General Manager of the Manitoba Pork Council Andrew Dickson says messing with NAFTA may hurt a significant trade, "I think we need to be very careful about, what are we opening up for discussion? Are we dealing with the right issues? And then how do we achieve some compromise here that is mutual benefit to both parties."

NAFTA was originally put in place to resolve trade issues between North American countries. Pork especially had issues with imports and exports before the agreement.

Dickson says since NAFTA has been in place the U.S. now supplies about 20-25 percent of Canada's domestic pork and imports about 3-4 percent of its pork from Canada. The dollar amount of imports and exports more or less equals out.

Mexico and Canada are the number two and four markets for pork exports and the U.S. has grown 50 million more hogs since NAFTA has been in place.

Dickson says, "There's cuts that are made in the United States that we are short of in Canada, there are cuts of pork that you need in the United States and we have a surplus in Canada so we trade these cuts to and fro. And it's a mutual benefit to both. Our farmers have grown with NAFTA in terms of the size of the business, the same way the American industry's grown."

Dickson says Mexico is an important export market for both the U.S. and Canada as they are a net importer of pork.

He says there's an art to negotiation diplomacy, everyone has to come out feeling they've gained something. Dickson adds the pork council is going into talks with good will and hopes they leave likewise.

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

Follow John Harrington on Twitter @feelofthemarket

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