DTN Early Word Opening Livestock
Hog Futures Staged to Open with Firm Undertone
GENERAL COMMENTS:
Cattle: Steady-$2 LR Futures: 25-50 LR Live Equiv $162.50 + 0.09*
Hogs: Steady-$1 HR Futures: 50-100 HR Lean Equiv $90.39 + $1.11**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Buying and selling interest could take shape at midweek, through much may depend upon the stability of cattle futures. Both sides will be closely monitoring FCE results. We'll post internet sales ASAP on the cash cattle page. Some showlists are priced around $138-140 in the South and $220-222 in the North. Live and feeder futures seem set to open some lower, pressured by follow-through selling and uncertain cash prospects.
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Hog buyers are expected to go to work this morning with bids steady to $1 higher. Saturday's slaughter will probably total close to 80,000 head. Lean futures should open moderately higher, supported by follow-through buying and technical bullishness.
| BULL SIDE | BEAR SIDE | ||
| 1) | While feedlot cash sales may erode further this week, realities of large beef orders needing to be filled and very current producers should the late-spring sell-off becomes more measured and controlled. | 1) | Spot June live cattle has now closed under support at 122. A succession of lower lows and lower highs on daily and weekly charts paint an increasingly bearish picture. |
| 2) | Given the fact that the most recent feedlot sales are $16-plus premium to nearby live futures, follow-through hard board selling could be difficult to marshal. A risk/reward analysis just doesn't favor more selling. | 2) | Though live cattle open interest has liquidation 15,000-plus loads since the early month high, the fact that it remains way over 400,000 suggests the threat aggressive long liquidation and lower prices remains real. |
| 3) | The pork carcass value closed sharply higher on Tuesday, especially power by a $6.50 surge in the belly primal. | 3) | Sommer lean hog futures now face significant overhead chart resistance just over 80 (i.e., near contract highs). |
| 4) | Nearby lean hog futures scored triple-digit gains yesterday and closing at their highest price levels since mid March. New contract highs are now within shooting distance. | 4) | Pork packer margins have reversed direction two weeks in a row, giving up 14 percent last week as the cutout has been rising, but not to the extent of hog prices. Margins are expected to tighten over the next four to six weeks, maybe declining $1 to $2 per week. |
CATTLE: (GLOBE NEWSWIRE) -- Green Plains Inc. announced on Tuesday that its subsidiary, Green Plains Cattle Company, completed the previously announced acquisition of two cattle feed yards from Cargill for approximately $36.7 million, excluding working capital. The transaction includes feed yards located in Leoti, Kan. and Yuma, Colo., adding capacity of 155,000 head to the company's operations, and positions Green Plains Cattle Company as the fourth largest cattle feeder in the United States with total capacity of more than 255,000 head.
"This acquisition achieves scale in our cattle feeding operations and creates significant internal demand for our ethanol co-products," said Todd Becker, president and chief executive officer of Green Plains. "We will use our risk management expertise to optimize this acquisition's contributions and further diversify our earnings stream."
The company also entered into a long-term supply agreement with Cargill Meat Solutions to provide a reliable supply of cattle from the Leoti and Yuma locations, as well as Green Plains' existing feedlot in Kismet, Kan. The transaction was financed using cash on hand. HOGS: (nationalhogfarmer.com) -- Canadian Pork Council representatives stressed the importance of trade within North America and beyond during a recent meeting with the House of Commons Standing Committee on International Trade.
Hans Kristensen, a New Brunswick hog producer and the Maritime representative of the CPC's Board of Directors, spoke on behalf of the council, outlining the importance of trade in North America, particularly between Canada, the United States and Mexico for Canadian hog producers.
"With well over 70% of our industry's output now exported to almost 100 countries, the Canadian pork sector is a classic example of what can occur with improved terms of trade," Kristensen says. "In the roughly 25 years since implementation of the Canada-United States Trade Agreement, followed by NAFTA, completion of the Uruguay Round of multilateral trade negotiations and the ratification of several bilateral and regional trade agreements, our industry's exports have grown from just over $700 million to $4 billion.
"Over the past 16 years we have increased the amount of exported pork and pork products by 387%," he continues. "In 2016, we broke previous records in both volume and value when we exported 1.246 million tons of fresh and frozen pork valued at $3.8 billion."
Canada currently ships most of its product south to its North American Free Trade Agreement partners. The United States is Canada's strongest market with 408,000 tons of pork worth $1.4 billion. Mexico is the fourth largest market where it ships 314 tons valued at $587 million.
The North American meat and livestock industries benefit from trade under NAFTA. Mexico and Canada are the No. 2 and No. 4 export markets, respectively, for U.S. pork. There are challenges, however.
"Although we speak frequently of an integrated North American market, the unfortunate reality is that Canadian meat entering the U.S. is subject to substantially greater bureaucratic requirements and costs than is U.S. meat coming into Canada," Kristensen says, pointing to Canadian meat entering the United States needing to go to privately owned inspection houses while U.S. meat entering Canada goes to a federally registered establishment as an example. "This U.S. requirement continues to interrupt trade without adding to food safety.
"There is an opportunity to smooth the flow of pork between the Canada and U.S. by reducing regulatory barriers and we support the work of the Canadian government in its work toward this end," he concludes
John Harrington can be reached at feelofthemarket@yahoo.com
Follow John Harrington on Twitter @feelofthemarket
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