DTN Early Word Opening Livestock
Meat Futures Staged to Open with Firm Undertone
GENERAL COMMENTS:
Cattle: Steady-$1 HR Futures: 50-100 HR Live Equiv $130.30 + 0.19*
Hogs: Steady-$1 HR Futures: 50-100 HR Lean Equiv $ 90.73 + 0.24**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
The parameters of cash cattle potential could start to take shape this morning, though we expected the initial gap between bids and asking prices will be impossibly wide (e.g., $186-188 bid in the face in asking prices of $192-194 basis the North). Live and feeder futures seem likely to open moderately higher, boosted by spillover selling and recent cash premiums.
Cash hog bids exploded on Tuesday, presumably sparked by tightening numbers vis-a-vis aggressive slaughter plans. We expect to see another aggressive round of packer spending this morning. Lean futures should open significantly higher, led by new spot April deeply discounted to the cash lean index.
| BULL SIDE | BEAR SIDE | ||
| 1) | Cattle futures jumped sharply higher on Tuesday, possibly sparked by ideas that tight feedlot supplies would continue to ensure cash premiums. | 1) | Tuesday's rally in cattle futures seem primarily tied to oversold charts and short-term profiting. In other words, the price jump by itself was not big enough to be technically significant. |
| 2) | Beef cut-outs continue to slowly appreciate yesterday. Furthermore, if the board can build on Tuesday progress, the weakening basis should help feedlot leverage and resolve. | 2) | Early cattle slaughter estimate suggest that poorly margined packers are determined to slow chain speed again this week. Indeed, some believe †he weekly total will be even smaller than last week. |
| 3) | The cash hog market exploded sharply higher on Tuesday as well margined processors displayed a determined willing ness to spend whatever it takes to fund aggressive chain speed. | 3) | Some believe this week's hog kill could jump to 2.375 million or more, generally 4 percent larger than 2016 and back on tracks withË™ the Dec 1 weight breakdown. |
| 4) | Quickly erasing Monday's set back, lean hog futures charged forward on Tuesday, suggesting that the winter's bullish bias is alive and well. | 4) | The seasonal trend is for April lean hog futures to weaken once the February contract expires and that is typically associated with weaker pork demand during Lent. |
CATTLE: (Bloomberg BNA) -- For U.S. fans of the iconic Italian scooter brand Vespa, it may be La Dolce Vita no more. The United States Trade Representative will hold a hearing Feb. 15 on the U.S. beef industry's request to add a massive 100 percent tariff to certain small scooters and motorcycles imported from the European Union as a retaliation to EU restrictions on U.S. beef products
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The provision, included in a request for public comment that closed Jan. 30, would cover EU-made mopeds and motorcycles with engines between 51 cubic centimeters and 500 cubic centimeters. That includes many scooters and small motorcycles from popular brands like Aprilia, Ducati, BMW and Vespa, among others.
The issue stems from a years-long EU ban on U.S. beef products treated with certain hormones, which effectively prevents Europeans from buying most American cattle products. In 1999, the World Trade Organization said that the ban cost U.S. cattle farmers as much as $117 million per year. The organization's Dispute Settlement Body found in favor of the United States and authorized the U.S. to suspend tariff concessions amounting the same value for imports from the EU.
That gave the U.S. a green light to retaliate, and the USTR drew up a list of European products that would get a 100 percent tariff. That original list didn't include European motorcycles or scooters.
In 2009, the U.S. and EU reached a deal in which some beef products could be imported. But in its recent request for comments, the USTR said that the deal hasn't lived up to its expectations, and "it has not in practice provided benefits to the U.S. beef industry sufficient to compensate for the economic harm resulting from the EU ban on all but specially-produced U.S. beef."
And thus the U.S. beef industry has requested that government enforce a new tariff list for EU goods. The effort is led by the National Cattlemen's Beef Association, the North American Mean Institute and the U.S. Meat Export Federation.
Most of the items on the list are pretty predictable: beef, pork, vegetables and other agricultural products. But this time around the list includes both EU-made hair clippers and the motorcycles. And that has American cyclists in an uproar.
"We don't believe non-agricultural products should be included in tariffs connected to agricultural trade disputes," Rob Dingman, president of the American Motorcyclist Association said in a Feb. 8 statement. "In addition to substantially raising prices for American riders, this tariff would jeopardize the many small- and medium-sized businesses that rely on the sale of European motorcycles, parts and accessories."
The USTR is set to hold a public hearing on the issue Feb. 15 on the issue, where Dingman will testify. The USTR has not yet issued a timeline for a decision on the beef industry's request. The public has sent more than 10,000 comments on the tariff list the USTR, according the online posting on regulations.gov. The USTR proposed including motorcycles in the original tariff list back in 1998, but scuttled the idea after public opposition, the American Motorcyclist Association said in its statement.
HOGS: (agri-pulse.com) — President Donald Trump and Canadian Prime Minister Justin Trudeau pledged this week to improve relations under the North American Free Trade Agreement, but stressed they were mostly satisfied with the status quo.
"We have a very outstanding trade relationship with Canada," Trump said, standing next to Trudeau at a news conference in the East Room of the White House. "We'll be tweaking it. We'll be doing certain things that are going to benefit both our countries."
Trump said there will be a prolonged process to bring the U.S. and Canada closer together, when it comes to trade. Millions of jobs on both sides of the border are dependent on commerce between the two nations, he stressed. In the past, Trump has pledged to renegotiate or end NAFTA, which he has called "the worst trade deal in history." Trump today indicated most of his displeasure is with Mexico, the third partner in the 22-year old trade deal.
"When we sit down, as we did today and as our teams will be doing in the weeks and months to come, we will be talking about how we can continue to create good jobs for our citizens on both sides of the border," Trudeau said. "And during this exercise, we continue to understand that we have to allow the free flow of goods and services and have to be aware of the integration of our economies …"
Trump did not offer any examples of what needs "tweaking," but the U.S. dairy industry is asking for specific changes.
Canada has been operating programs in Ontario that provide incentives for cheese makers there to shun ultra-filtered milk from the U.S., and farmers here are worried that those barriers will be spread nationwide. The U.S. Dairy Export Council says the Ontario incentives have already blocked $150 million of U.S. exports.
"Canada's intentional and continued flouting of its trade obligations effectively blocks imports of U.S. ultra-filtered milk," Michael Dykes, president of the International Dairy Foods Association said in a statement released today. "What's more, existing Canadian tariffs that range from 200 percent to more than 300 percent on other U.S. dairy products are unacceptable.
"Exports are vitally important to the health of the U.S. economy, especially in the rural heartland of our country, and we urge President Trump to stress the importance of market access for U.S. dairy products during his meeting with Prime Minister Trudeau."
As to whether or not Trump will take the dairy industry's concern seriously, Jaime Castaneda, senior vice president for trade policy at the U.S. Dairy Export Council, said he was certain the answer is yes.
"We would certainly expect to be part of the conversation once we start updating NAFTA, whether it's discussions with Canada or Mexico," Castaneda said.
And dairy producers already have strong support in Congress for their case against Canada's trade barriers.
Dairy was on the agenda when House Speaker Paul Ryan met Canadian Foreign Minister Chrystia Freeland last week ahead of Trudeau's visit.
"Minister Freeland and I share a common commitment to the U.S.-Canada relationship," said Ryan, who represents the big dairy state of Wisconsin. "We had a productive conversation about how we can enhance these ties, including by strengthening NATO and improving dairy market access. I appreciate Minister Freeland's friendship and support for our important bilateral partnership."
John Harrington can be contacted at john.harrington@dtn.com
For more from John Harrington, see www.feelofthemarket.com
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