DTN Early Word Opening Livestock

 
Cattle: Steady Futures: mixed Live Equiv $130.11 + 0.42*
Hogs: Steady-$1 HR Futures: mixed Lean Equiv $ 90.49 + 0.05**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Look for the cash cattle market to remain in dry dock this morning with neither buyers not sellers moving to define mid-month price potential. Indeed, it could be Wednesday or Thursday before even preliminary bids and asking prices get tossed on the table. Live and feeder futures seem likely to open on a mixed basis thanks to a combination of residual selling and short covering (oscillators do appear to be oversold).

Hog buyers were not very successful in moving significant numbers yesterday. If they want to run chain speed aggressively, bigger checks may be required. Accordingly, anticipated opening bids to be steady to $1 higher. We look for another weekly round of slaughter well over 2.3 million head. Lean hog futures seem likely to begin with mixed prices as well, probably with nearby gaining on deferred. Spot Feb is scheduled to expire today at 12:00 p.m. CDT.

	BULL SIDE		BEAR SIDE
1)	Beef cut-outs bounced higher on Monday with early week box demand described as "moderate to fairly good." Lower prices may be starting to renew buying interest of retailers and food managers.	1)	The mudslide in cattle futures continued on Monday with April live closing at its lowest point since December 15. A stronger and stronger basis just keeps eating away at feedlot leverage potential.
2)	Though discouraging, the deep discount of nearby live futures certainly works to promote feedlot currentness and lighter carcasses (and total tonnage), prompting feedlot managers to pull cattle forward.	2)	Early bird guesses point to the confirmation of another round of aggressive placement last month. Indeed, cattle feeders may have surpassed the January 2016 placement by as much as 10-15 percent.
3)	Year-to-date hog slaughter is running only 1.9 percent above the first six weeks of 2016, far less than the production schedule implied by the December 1 H&P report.	3)	Despite the premium status of both spot February (which expires today) and the cash index, April lean futures are struggling, perhaps tied to the sizable estimate of the fall pig crop and to second quarter pork tonnage.
4)	Starting the week's kill with an aggressive total of 445,000 head, hog processors clearly continue to like their work. Furthermore, yesterday relatively modest movement of negotiated hog suggests that buyers will have to keep their wallets open for at least the next day or so.	4)	For the most part, the geographical distribution of winter weather has been challenge to meat demand, While production country has been relatively open (i.e., supping tonnage) and the populated Northeast corridor has been hit by several large snowstorms (i.e., curbing demand).

OTHER MARKET SENSITIVE NEWS

CATTLE: (Farm Journal) -- Shinzo Abe, Japan's Prime Minister, traveled to the U.S. late last week. This comes after President Donald Trump shot down the Trans Pacific Partnership (TPP)—a deal many in agriculture believe would have opened up doors to U.S. trade between 12 countries on the Pacific rim, including Japan. The U.S. beef herd is expanding and the industry wants export market access to grow as well.

"We have a huge value in our exports, as much as $300 dollars a head with beef," said Greg Henderson, editorial director of Drovers. Shortly after taking office, President Trump withdrew the U.S. from the TPP agreement, considered to be a big blow to the U.S. beef industry.

"Was the TPP decision a disappointment for animal agriculture? Unquestionably, it was," said Don Close, a senior analyst for Rabobank AgriFinance.

"I voted for President Trump, but he wiped that out right in front of us," said Bill Sieverkropp, a cattle producer from Ephrata, Wash. Japan was included in the deal and is one of the U.S. beef industry's biggest buyers. Now, industry leaders are asking for some form of trade deal with the country because high tariffs are a problem.

According to National Cattlemen's Beef Association (NCBA), Japan's 38.5 percent tariff on fresh and frozen beef would have been cut to 9 percent with TPP.

"If it's a bi-lateral agreement, we can support that," said Colin Woodall, vice president of government affairs with NCBA. "We need it to start sooner than later because every day that we don't have the ability to bring down that tariff and to compete with the Australians, we are losing $400,000 a day in our access to the Japanese market." Australia, one of the largest competitors with U.S. beef, signed an agreement with Japan and pays a much lower tariff rate, giving U.S. producers a disadvantage.

"The conversations we're going to have with the Trump administration is not necessarily convincing them that trade is good, but convincing them they need to work as quickly as possible," said Woodall.

President Trump is also vocal about renegotiating the North American Free Trade Agreement (NAFTA), a trade agreement between Mexico, Canada and the United States.

"Anything that goes in there and tweaks NAFTA, we hope it will not have an impact on the livestock and beef trade because right now, we think that's going extremely well," said Woodall.

"First of all, I hope we don't tear apart NAFTA," said Philip Seng, U.S. Meat Export Federation president and CEO. "If you look at the beef and pork complex, it constitutes about 40 percent of our total exports from the United States."

Seng says the U.S. has to be careful not to give up a trade agreement without something to fill the void.

"My father once said you shouldn't quit a job until you have another one," said Seng. "I would say we shouldn't quit a trade agreement until we have another one in place. A lot of what's been accomplished has been productive and very good for U.S. agriculture and we can't throw that out." But some are optimistic about reopening NAFTA since the president is engaging in trade talks.

"He has stated at every opportunity he's not anti-trade, he was anti-those agreements and is pro-trade," said Close. "Let's give him a little bit of the benefit of the doubt."

President Trump is also outspoken about adding more bi-lateral trade. Currently, the U.S. has agreements in place with some countries.

"If it takes a bi-lateral agreement, that would be fine," said Tracy Brunner, former NCBA president. "If that's an expanded multi-nation agreement, we'll be engaged in that as well."

"I think we have to look at all agreements and take a look at all opportunities," said Seng. "That's what our producers expect from us."

One of those possible one-on-one agreements may be with the United Kingdom. President Trump met with Prime Minister Theresa May in January. However, the country has to complete the Brexit process before possible implementation.

"I don't know if I'm optimistic on that front as well as some," said Close. "Would it get U.S. beef to Europe? Probably. There's going to be a lot of discussion on that before there's really anything close to implementation."

NCBA says even though volume may not be substantial to the country, it's still an additional market. "We're looking at any opportunity out there to expand our access into any country," said Woodall.

Producers hope trade relationships build as the beef herd continues to grow.

The Trump administration is considering taking on the EU's 20-year ban on hormone treated beef from the U.S.

Politico reports the office of U.S. Trade Representatives (USTR) will hold a public hearing on putting an eventual 100 percent import tariff on roughly 90 European products, ranging from Roquefort cheese to Vespa scooters.

The EU has a $45 billion trade surplus with America. Most of the products targeted for U.S. retaliation are meats, but chocolate, mustard, paprika, chestnuts and hair clippers.

HOGS: (Star Tribune) — Mama pigs at the University of Minnesota, Morris have a somewhat cushy life compared to those in most conventional hog farms. The pregnant sows live together in small groups with straw bedding, unlike the traditional swine housing of individual stalls and slotted flooring above concrete manure pits, where sows have only enough room to stand up or lie down during their 114 days of gestation.

Studying group housing for pregnant sows is one of the ways that researchers at the U's West Central Research and Outreach Center are helping pork producers and processing companies respond to public pressure about animal welfare in the swine industry. Recent studies include housing options for pregnant sows, aggressive behavior of swine in confinement, and how different amounts of living space affect swine behavior, growth rates, stress and other factors.

"A lot of our effort has been to address societal concerns about pork production," said swine scientist and operations director Lee Johnston. "Those concerns are raised by consumers and market chains, and producers in turn are asking themselves and us how to respond to those market signals or satisfy those questions and demands."

Some questions are about animal welfare, he said, and some are about nutrition and feed additives.

Protests against confinement of pregnant sows and treatment of pigs are not new, but they were brought to the surface again two weeks ago when the international animal welfare group Mercy for Animals presented undercover video of what it called cruelty to pigs and sows by a Hormel supplier in Oklahoma, the Maschhoffs. Both Hormel and Maschhoffs said they have strict codes of conduct and policies related to animal care, and both launched investigations.

At the U's center near Morris in west-central Minnesota, Johnston and associate professor Yuzhi Li, an expert in swine behavior and welfare, have been on the forefront of animal welfare and nutrition issues for the swine industry.

The center has barns that accommodate about 60 breeding sows, 900 nursery pigs and 800 finishing pigs (those from about 50 pounds to full-grown market weight of about 280 pounds). The farm is nowhere near the size of some commercial operations, Johnston said, but it's large enough to conduct research that pork producers don't have the time, space, money or expertise to study on their own.

Some studies are financed by the National Pork Board and the Minnesota Pork Producers Association, but funds also come from state and other sources.

Yuzhi said there's a difference between how activists and scientists approach animal welfare concerns. For advocates, she said, animal welfare is primarily a moral value to be achieved, whereas scientists measure animals' performance, behavior and health.

"We want to assess and evaluate animal welfare objectively, even though it's a value issue," she said. "We want to be sure animal welfare is safeguarded based on science and knowledge, rather than just saying that animal welfare is bad or good."

Johnston said there are economic considerations as well, and sometimes a disconnect between living conditions that consumers want to see — lots of space for sows and pigs — and the reality of what producers can manage or afford.

"If we have a farm with 3,000 sows and we go to a pen configuration with 20 percent more space, all of a sudden you're down to 2,500 sows with pretty much the same cost structure as you had before," he said. The farmer must either make less money on the smaller herd, he said, or spend more in construction costs to build an addition to the barn. The reality for producers, Johnston said, is that in most markets they're not getting paid any more per pound for pigs or sows raised with more space, even if that might be better in some respects for the animals.

Sherrie Webb, director of swine welfare at the National Pork Board, said there are benefits and drawbacks to both individual stalls and group housing. Individual stalls allow each sow to get the exact amount of nutrition that she needs, and the animals can be monitored more closely for health problems. But group pens allow more freedom of movement and the ability to interact socially with other sows. "Most of the time that's positive, but pigs do have to establish social hierarchy and groups," Webb said, "and it sometimes results in aggressive behaviors that can be detrimental to their well-being and cause injuries."

That's something that Yuzhi has studied in Minnesota: whether there may be ways to reduce aggression by mixing the same or different ages of sows in group housing, or changing the manner or time that they are introduced to each other and providing "escape" places in the pens where less aggressive sows can avoid fights.

Webb said that research in Minnesota, which produces more pork than any other state except Iowa and North Carolina, is key as the industry tries to accommodate consumer demands for changes.

Nine states, not including Minnesota, have regulations that require group housing for sows, she said. There are no published data on how much of the national pork industry has switched to group housing for sows, Webb said, but it's clear that animal welfare is a growing research interest, whether it be in livestock production, companion animals or laboratory animals.

Other recent projects at the center in Morris have aimed at reducing the environmental footprint of the swine industry by using solar and wind technology and conservation. One study tested piglets to determine whether the traditional practice of keeping temperatures constantly at 86 degrees in pig nurseries could be dropped 10 degrees at night. Scientists found that cycling temperatures made no difference in growth rates, health or behavior of the animals, and could save producers 20 to 30 percent of heating and electric bills.

One of the largest studies focuses on floor space for pigs as they grow to market weight. Commercial operations typically provide about 8 square feet per pig, Johnston said.

Minnesota and four other universities are now analyzing results of identical studies to see what happens when hogs are raised in five different floor plans with space ranging from 7.6 to 11.6 square feet. The diet, number of pen mates and feeder spaces were all the same, Johnston said, so the only difference was the amount of space per pig. "We measured growth rate, feed intake, and efficiency of gain," he said, as well as lesions on pigs because of fighting or injury. The researchers also placed cotton ropes in the pens, which curious pigs will chew on, to collect and analyze saliva and hormones that indicate stress levels.

Those kinds of changes may not go far enough for animal welfare advocates, but Webb said it depends on the goals.

"If the objective is that pigs should not be raised for food at all, then it's hard to find common ground," she said. "But if the objective is to achieve good welfare and look for ways to continuously improve how we raise pigs, then we may be able to bridge that gap and address some of those concerns."

John Harrington can be contacted at john.harrington@dtn.com

For more from John Harrington, see www.feelofthemarket.com

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