DTN Early Word Opening Livestock

 
Cattle: Steady-$2 HR Futures: 25-50 HR Live Equiv $137.79 + $1.33*
Hogs: Steady-$1 LR Futures: 25-50 LR Lean Equiv $ 85.84 - $1.46 **
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

The cattle trade will remain in low gear this morning. Indeed, we may bot see much in terms of bids or asking prices until Thursday or later. Again, it's a good bet that recent cash success will prompt feedlot managers to price ready cattle sharply higher (e.g., $128 plus in the South; $200 plus in the North). Packers seem to be making progress shoring up processing margins by selling boxes sharply higher. Needless to say, their ability to pass the cost of live inventory along will be a big factor in determining the eagerness of cattle buyers to stay on the spending train. Live and feeder futures are staged to open moderately higher, supported by cash premiums and appreciating carcass value. Remember that spot February live is scheduled to expire at high noon.

Hog buyers should return to work this morning with bids steady to $1 lower. Even through Monday's country run was on the slow side, packers seem much less likely to attract a bigger run through greater spending than they did earlier this month. Our guess is that this week kill will total close to 2.3 million head. Look for lean hog futures to open moderately lower, pressured by long liquidation and pork demand uncertainty.

	BULL SIDE		BEAR SIDE
1)	The wholesale beef trade remains on fire with the choice box surging more than $2 higher yesterday (i.e., closing over $201 for the first time since January 6). Furthermore, early week product demand was described as "moderate to good."	1)	New showlists distributed in feedlot contracts on Monday were generally larger than last week with only Colorado offering fewer ready cattle.
2)	While not necessarily stoking market psychology, the deep discount of soon-to-be-spot April live could go far in promoting feedlot currentness, aggressive marketing, and limiting both carcass weights and total beef production.	2)	According to the DTN placement model, big lots now have 7-8 percent steers and heifers scheduled to finish in May, the largest spring total since 2014.
3)	The spot April lean hog contract following last week's hard break is now trading the lower 5-7% of recent historical trading values, perhaps unrealistically assuming an extremely negative set of supply/demand fundamentals as compared to the past five years.	3)	The pork carcass value slumped lower on Monday as the once red-hot belly primal continues to unravel. Specifically, the belly primal was quoted another $13.31 yesterday. It now sits $36.58 below the February 20 close.
4)	The structure of the lean hog futures is considered positive, as the spread from April to June is relatively wide which reflects trader expectations for a moderate to strong rebound in depressed cash values currently anticipated over the next 4-6 weeks.	4)	Even though hog slaughter and pork production seems to be falling, the wholesale pork trade is struggling. Is the edge coming off early year pork demand?

OTHER MARKET SENSITIVE NEWS

CATTLE: (Chinanews.com) -- If U.S. President Donald Trump launches a trade war against China, the country could retaliate starting with red meat imports from the U.S., which have been considered as a sector with high potential in recent years, an industry expert told the Global Times on Sunday.

The comment came after Iowa Governor Terry Branstad said that he will work to promote such sales after becoming the U.S. ambassador to China.

He made the comments at the U.S. Department of Agriculture (USDA) annual Agricultural Outlook Forum, Reuters reported on Thursday (U.S. time).

Branstad was chosen as ambassador by Trump.

"Mad cow disease is long since gone in (the U.S.), and there is no reason why the Chinese should continue to restrict American beef," Branstad was quoted as saying in the report.

With the Chinese customers' appetite for imported beef growing, countries such as the U.S., India and Brazil have been tapping into the market in recent years, Ma Wenfeng, a senior analyst at Beijing Orient Agribusiness Consultant, told the Global Times on Sunday. "The prices of imported beef are much lower than (that available from) breeding domestically, and this has become a profitable business for merchants," he said.

China lifted a decade-plus ban on some beef from the U.S. in September 2016, according to the Chinese Ministry of Agriculture and General Administration of Quality Supervision, Inspection and Quarantine, and the ban on bone-in and boneless beef from cattle under 30 months old from the U.S. was removed.

The nation halted beef imports from the U.S. in 2003 to prevent the spread of mad cow disease.

The greater China area including the Chinese mainland, Hong Kong, Macao and Taiwan was the top beef importer in the world in 2015, accounting for 25 percent of the total imports, according to the U.S. Meat Export Federation. Australia, India, Brazil and the U.S. were the top four sources, with shares of 19 percent, 17 percent, 17 percent and 13 percent of imported beef, respectively.

"Once China lowers the barriers for the U.S. to export more beef products to the country, it will definitely become a strong rival for countries like Australia and India," Ma noted.

In 2015 and 2016, beef exports from Australia to China totaled 129,478 tons worth $867.5 million, according to the website of the Australian government. China's demand for high-quality beef grows rapidly, driven by a growing middle class, the website showed.

Beef imports will continue to rise in the coming years, the analyst noted. "As a huge gap still exists between demand and supply in China, it is a huge market for the U.S.," he said.

The company welcomes imported beef products as allowed by authorities that are also reasonably priced, a PR representative of the Inner Mongolia Kerchin Cattle Industry Co told the Global Times on Sunday.

"We expect to expand more sales channels, not only domestically but also overseas," the representative said.

Total beef output in China was 6.62 million tons in 2014, but demand was 7.96 million tons, domestic food news site cnfood.cn reported, citing a report about beef imports and exports published in 2016 by consulting firm Meat International Group.

Although China opened up its market for U.S. beef products in September 2016, U.S. beef products were already being smuggled on a large scale into the Chinese mainland through Hong Kong and Vietnam, according to the report.

"If U.S. put more tariffs on some Chinese products, China's growing beef market could be a bargaining chip in any trade talks," Ma noted. Trump claimed during the election campaign that he would impose punitive tariffs of up to 45 percent on Chinese-made goods. However, he has not taken any action yet.

HOGS: (Farm Journal) -- A pork processor in South Australia that supplies meat to Southeast Asia will undergo a major expansion to become one of the biggest facilities of its kind.

Big River Pork, about 75km east of the South Australian capital Adelaide, has announced a $14 million expansion, which will grow its workforce from 190 to 300 staff.

The plant at Murray Bridge will increase the number of pigs it processes each week from about 11,000 to 16,000. Big River Pork airfreights between 700 and 900 carcasses a week to Singapore and a small amount of pork products to other Pacific Rim countries including China.

The company's chairman Geoff Hampel said while the expansion would mainly service growth in the domestic market, there was room for further increase exports into Asia. He said the exports to Singapore had already grown significantly in the past 18 months.

"Singapore has a limited capacity to take meat but we would hope that would to continue to improve," Hampel said. "There could be opportunities in other countries in the region." The expansion, boosted by a $900,000 grant from the South Australian Government, will make Big River Pork the second or third biggest facility of its kind in Australia. Hampel said the expansion would lead to increased efficiency, allowing South Australian pork to be priced more competitively. He said pork from Australia was of high quality and had a clean and green reputation. "It's very hard to compete with exporting pork at the moment because there's some very cheap pork coming out of places like the USA, Brazil, Denmark and Canada," Hampel said

South Australia's two-way trade with Southeast Asia was valued at more than $3.9 billion in 2015-16. Major commodities traded included Copper, wheat, motor vehicle parts and wine.

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

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

(BAS)

Copyright 2017 DTN/The Progressive Farmer. All rights reserved.