DTN Early Word Opening Livestock

Look for Hog Paper to Open Moderately Higher

(DTN file photo)

Cattle: Steady-$2 LR Futures: 25-50 LR Live Equiv $132.56 - .22

Hogs: Steady-$1 HR Futures: 25-50 HR Lean Equiv $ 89.53 + .79**

* based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Cash cattle market watchers could start to see a few more starter bids Wednesday, perhaps some cautious preliminaries around $116 on a live basis and $187 to $188 dressed. While it goes without saying that feedlot managers will not be amused by such gut shots. On the other hand, further weakness in futures could further force producers to reassess cash potential. Our guess is that asking prices will start out around $120 to $122 live and $192 dressed. With plenty of grumbling to go around on both sides, significant trade volume could easily be delayed until Thursday or Friday. Live and feeder futures are staged to open moderately lower, checked by spillover selling and long liquidation.

Hog buyers really had to turn up the heat Tuesday, presumably a sign of tightening numbers. Look for another round of aggressive spending in the country Wednesday. It sounds like Saturday kill plans at this time will involve close to 135,000 head. Lean hog futures seem geared to open moderately higher, boosted by bullish momentum and impressive fundamentals.

BULL SIDE BEAR SIDE
1) Despite the cattle board's significant drag so far this week, the leverage and track record of the cash market has been very impressive since early December, and there's no reason to think that clout has suddenly dried up and blown away. 1) The cattle board continued to run in the opposite direction of recent cash activity. Such a huge discount on the front end virtually precludes the possibility of even steady feedlot sales this week.
2)

Although the well-established uptrend drawn across the fall and early winter lows has been breached earlier this week, which could potentially signal a trend change, declines in live cattle open interest have been modest, suggesting limited, if any, long liquidation. A sharp snap back toward cash through the second half of the week is certainly possible.

2) The annual cattle inventory report released Tuesday implied a Jan. 1 feeder cattle supply of 26.5 million head, 2.2% greater than last year. Placement activity seems set to accelerate over the next quarter or so.
3) Nearby lean hog futures soared higher on Tuesday with spot February pushing ahead of the cash index for the first time in months. At long last, the board seems to be breaking out the top side of a long-held lateral range. 3) Though spot February lean futures popped impressively on Tuesday, the structure of the market is somewhat less than reassuring. The February/April spread has moved to within 20 points and the premium into the late spring contracts is less than normal so the structure of the futures market is negative.
4) Winter fundamentals in the hog market actually seem to be improving on both the supply and demand side. Sharply higher cash sales are signaling tighter supplies and appreciating carcass value reflects healthy demand. 4) The fact that beef production is expanding at the same time as pork will obviously compound the challenge of the latter to maintain satisfactory wholesale and retail demand.

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OTHER MARKET SENSITIVE NEWS

CATTLE: (Nikkei Asian Review) -- Australia looks set to lift a 16-year ban on imports of Japanese beef by the end of this year, now that the country's government has confirmed the meat is safe for human consumption.

The Japanese government has set a goal of increasing the value of exports of agricultural, forestry, and fishery products to 1 trillion yen ($8.68 billion) in 2019. That would be a 30 per cent increase from 2015 levels.

Japanese beef - and getting import bans on it lifted - is key to reaching this goal.

Australia in 2001 halted imports of Japanese beef due to a mad cow disease outbreak in Japan.

The Japanese government has been pressing Australia to resume imports ever since.

Australian government officials will inspect Japanese slaughterhouses as early as summer as a prelude to resuming the imports.

There are an estimated 1,600 Japanese restaurants in Australia, where per capita beef consumption is three times higher than in Japan.

HOGS: (National Hog Farmer) -- National Pork Producers Council welcomes weekend announcement that the Trump administration will pursue closer trade relations with the United Kingdom

The Trump administration over the weekend announced it would pursue closer trade relations with the United Kingdom, news welcomed by the National Pork Producers Council, which urged the administration to begin talks as soon as possible.

Meeting last week at the White House, President Trump and British Prime Minister Theresa May agreed to hold preliminary talks on a trade deal, which can't be finalized until the U.K. leaves the European Union. (The U.K. in June 2016 voted to get out of the economic bloc, which was formed after World War II to promote economic growth and to avoid conflict among the 28 member countries.)

"We applaud the Trump administration for recognizing the importance of free trade agreements to American agriculture and the entire U.S. economy," says NPPC President John Weber, a pork producer from Dysart, Iowa. "We're pleased that it will work for a stronger trade relationship with the United Kingdom through a mutually beneficial trade agreement."

Trump and May agreed to set up a working group to consider ways to improve trade between the countries before the United Kingdom, which consists of England, Northern Ireland, Scotland and Wales, exits the EU. The so-called Brexit process may take up to two years.

At a Friday press conference with the president, May said the countries will work to "lay the groundwork for a U.K.-U.S. trade agreement and identify the practical steps we can take now in order to enable companies in both countries to trade and do business with one another more easily."

Given its desire to negotiate a free trade agreement with the U.K., it is unclear if the Trump administration will continue trade talks with the EU through the Transatlantic Trade and Investment Partnership. Those negotiations have been limping along nearly since the TTIP was initiated in 2013.

Although the NPPC had been supportive of the TTIP, it was skeptical that U.S. hog farmers — or any other farmers — would get a good deal out of the agreement given the EU's intransigence on eliminating tariff and non-tariff barriers on agricultural products, including pork.

"In pursuing better trade with the U.K. and working toward a free trade agreement with it, I think the administration recognized that TTIP isn't going anywhere," Weber says. "We're pleased President Trump is instead focusing on bolstering our historic ties with the U.K."

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

Follow John Harrington on Twitter @feelofthemarket

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