DTN Early Word Opening Livestock
Live and Feeder Issues Are Set to Open Moderately Higher
GENERAL COMMENTS:
Cattle: Steady-$2 HR Futures: 25-50 HR Live Equiv $140.05 + $2.26*
Hogs: Steady Futures: mixed Lean Equiv $ 87.33 + $1.49**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Market watchers should start to gather greater definition regarding the potential of the cash cattle trade at midweek. In short, look for more preliminary bids and asking prices. Eyes will also be focused on the internet auction this morning, hoping to get a better handle on bullish potential in the country. Our guess is that significant trade volume will be delayed until Thursday or Friday. Live and feeder futures seem geared to open moderately higher, boosted by residual buying interest and encouraging fundamentals.
Hog buyers are expected to resume business this morning with basically steady bids. As March begins, the USDA will begin to survey pork producers and take the next temperature on herd expansion. Lean futures are staged to open on a mixed basis thanks to a slow combination of short covering and long liquidation.
| BULL SIDE | BEAR SIDE | ||
| 1) | The wholesale beef trade is on an amazing roll. The total carcass scored its biggest single-day jump since March 15, 2016. Over the last nine sessions, the choice box has exploded by $16.39. | 1) | Running up beef prices so aggressively well before the first sign of spring and budding seasonal demand could would to check the featuring plans of retailers and food manager. |
| 2) | Country sources in parts of the South indicate that packers have purchased cattle at $123-125 to be delivered over the next four weeks. Such long term procurement suggests a high degree of confidence in bullish fundamentals. | 2) | Running up beef prices so aggressively well before the first sign of spring and budding seasonal demand could would to check the featuring plans of retailers and food manager. |
| 3) | The pork carcass value rebounded nicely on Tuesday with all primals firming except the loin. | 3) | While discounted April live futures may seem to have a natural attraction for new buyers. the looming large index fund roll scheduled to start in a few days could limited any significant rally in the short term. |
| 4) | Relatively low ham prices should be close to a seasonal bottom as demand tied to Easter heats up over †he next 30 days. | 4) | Hog carcass weights moved up last week, tied in part to lower slaughter levels. Weights are expected to trend slightly higher on a seasonal basis. |
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CATTLE: (hpj.com) -- Beef trade is a critical component of keeping cattle markets at a profitable level for producers, but recent political events have brought concern to cattlemen across the country.
The United States withdrawal from the Trans-Pacific Partnership trade deal recently has led to concerns about where beef trade will be made up without involvement from that deal.
"Exports add at least $250 per head to the value of a beef animal. The loss of potential trade with Asian countries and especially China is nervewracking," said Dan Cook, cattle producer from New Providence. Cook has served on the Iowa Beef Industry Council board of directors and has been on trade missions overseas. He said trade missions by different state beef councils gives the U.S. unique access to difficult export markets.
"The great thing about having trade with other countries is it adds value to parts of the animal that aren't used by American consumers," Cook said.
The U.S. Meat Export Federation helps put the right cut in the right market to maximize the value. Dan Halstrom, senior vice president of marketing for USMEF, said in November 2016 exports were adding $294.34 of value per head.
The 2016 beef exports increased 11 percent in volume and 1 percent in value from 2015. December exports were up 24 percent year-over-year. This was the largest monthly volume since July 2013 and the largest ever for December. Export value was $619.1 million in December, up 22 percent.
"We send beef tongue to Japan, which is sold for $5.70 per pound. Beef tongue is sold for $2 per pound in the U.S.," said Halstrom. "We want to help maximize demand for all parts of the beef carcass."
A diversified mix of products is being exported. The largest opportunities for growth are in Japan and China. In 2016, U.S. beef exports increased by 16 percent to Japan, totaling $1.39 billion and increased by 25 percent to Korea totaling $930 million.
China's lift of the ban on U.S. beef leads to large potential for exports. The ban began in 2003, following the confirmation of a case of Bovine Spongiform Encephalopathy in a dairy cow in Washington state. With the increase of China's middle class and the need of protein in the diet, Halstrom said this could be a fast growing market.
"We know we have a good product and more of the world is seeing that too," said Kent Bacus, director of international trade for the National Cattlemen's Beef Association. "The U.S. cow herd is expanding, up 3 percent in 2016 over 2015. Our cattle numbers can grow, but we still have to have a market for the beef."
Building access to new markets has been important to the increase in the cowherd. Bacus said growth in new markets will only compete if the beef industry is allowed to gain them without the interference of politics.
NCBA works to open markets and have competitive markets for U.S. beef. NCBA has asked President Donald Trump to initiate free trade agreement negotiations with nations in the Asia-Pacific region, especially Japan. For U.S. beef exports, Japan is the highest value international market. Demand in the Asian nation for U.S. beef is strong despite Japanese tariffs and other import measures that limit market access. Restoring access to China and improving access to European Union countries also are important to NCBA.
"China is nominally open, but we are waiting for the approval of the needed policy to begin trade," Bacus said.
"If each person in China consumed 1 pound of beef, that would be 1.38 billion pounds of beef. We can't underestimate the importance of exports," said Cook. HOGS: (USAgNet.com) -- Russia lost its appeal last week against a World Trade Organization ruling on its ban on imports of European Union pigs and pork products.
According to Reuters, Russia imposed the ban after a handful of cases of African swine fever in some EU areas in 2014, invoking sanitary and phytosanitary measures allowed under WTO rules.
A WTO adjudication panel ruled against the ban in August 2016.
Russia appealed, and the WTO's Appellate Body upheld the ruling, albeit on different grounds, and reversed one of the panel's findings in favour of the EU.
John Harrington can be contacted at john.harrington@dtn.com
For more from John Harrington, see www.feelofthemarket.com
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