DTN Early Word Opening Livestock

 
Cattle: Steady-$2 LR Futures: 50-100 LR Live Equiv $162.62 - .50* 
Hogs: $1-2 HR Futures: 50-100 HR Lean Equiv $100.44 +1.83**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Bearish cracks started to surface late Tuesday in the cash cattle trade as some feedlot managers suddenly decided to use lower, early-week bids to move cattle. Light trade volume developed in parts of Kansas and Texas at $132 to $133, $4 to $5 lower. Some dressed deals in parts of the North ranged mostly from $215 to $217, generally $3 to $5 lower. It was tough to get a good handle on trade volume given the relatively late hour, so we will be eager to see Mandatory totals later Wednesday. Live and feeder futures seem set to open under pressure thanks to cash weakness, technical selling and further long liquidation.

Look for the cash hog market to be solidly higher as packers increasingly give chase to tightening live supplies. Tuesday's country trade was impressive in this regard, both in terms of sharply higher prices and significant negotiated trade volume. Lean hog issues should open on a firm basis, supported by strengthening fundamentals and bull spreading. Spot June is scheduled to expire Wednesday at high noon.

	BULL SIDE		BEAR SIDE
1)	The finalization of specs and protocols relative to U.S. beef shipments to China is at hand with officials suggesting business could begin sometime over the next several weeks.	1)	The surfacing of light to moderate selling interest in parts of Nebraska and Kansas despite lower bids on Tuesday clearly indicated that cattle feeders are increasingly nervous about the threat of defensive business over the next 30 to 45 days.
2)	The World Board's forecast for total meat production has been lowered from last month per 2017. Beef production for 2017 is lowered primarily on lighter carcass weights, which more than offsets higher expected slaughter in the later part of 2017. Pork production for 2017 is lowered on the current pace of second-quarter slaughter and lighter carcass weights.	2)	Cattle futures continued to be significantly pressured by long liquidation Tuesday with spot June live closing below the bullish chart gap created right after Memorial Day.
3)	The cash hog market exploded higher Tuesday with the national lean base jumping $2.54 higher. Bullish fundamentals continue to build, a fact that should spur soon-to-be-spot July lean futures to keep leading cash higher.	3)	The completion of Seaboard's new pork plant is running somewhat behind schedule (see article below). Total capacity tied to this addition won't increase until early fall instead of midsummer as originally planned.
4)	The pork carcass value surged nearly $2 higher on Tuesday with all primals making major contributions (especially the belly and rib, up $4.50 and $4.42, respectively).	4)	While the seasonal tendency for cash hog values is to strengthen over the next few weeks, the premium in the August contract typically results in a sideways to lower seasonal pattern for the board.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Prime) -- Russia's production of cattle and poultry for meat increased 3.1% on the year to 5.4 million tonnes in January--May, the Agriculture Ministry said in a statement on Tuesday.

Pig production grew 4.1% in live weight, poultry output rose 4.1%. Cattle output fell 1%, sheep and goat one 1%.

Egg production amounted to 18.2 billion, which is 2.4% more than in the same period a year ago.

Russia's total cattle herd amounted to 19.7 million head as of June 1, it fell 1.4%. The cow herd stood at 8.4 million, falling 1.4%, pigs amounted to 23.4 million, rising 1%, the sheep and goat herd to 27.1 million head, falling 0.8%, poultry on industrial farms 465.2 million birds, up 5.9%.

HOGS: (National Hog Farmer) --Mexico's concern over North American Free Trade Agreement renegotiations sparks the country to begin seeking other viable options for pork supplies, reports pork leaders during a press conference held at the World Pork Expo in Des Moines, Iowa, last week.

While Mexico appreciates and values the pork trade relationship with the United States, they too have reservations over the Trump administration's intentions to revamp NAFTA. "They want to continue the positive relationship that we have with them, but they are very concerned," says Maria Zieba, National Pork Producers Council deputy director of international affairs.

Last year, 26% of U.S. pork and pork variety meat was exported with the largest volume shipped (730,000 metric tons) to Mexico, accounting for 90% of the pork imported into the country. U.S. exports to Mexico are coming off a fifth consecutive volume record in 2016

During March, the National Pork Board trade team traveled to Mexico City, building trade relations and pursuing new trade opportunities. The delegation invested its time immersing itself in Mexico, which is one of America's most important export markets. Zieba and other NPPC staff accompanied the NPB members and staff on the trip.

"Our visit to Mexico was eye-opening. As board members, we were able to witness why Mexico is such an important trading partner," says Jan Archer, NPB immediate past president and a North Carolina pig farmer. "The average Mexican family spends 30% to 40% of its income on food, so they appreciate the ability to access safe, nutritious and affordable U.S. pork."

If the United States withdraws from NAFTA, Mexico is likely to place a 20% duty on pork. The fear of imposing a 20% duty on various products sent Mexico researching other potential suppliers of pork. "The biggest worry for us and what we heard is they are looking at other markets. They are looking at diversifying where they purchase their pork from," stresses Zieba.

Global pork trade is extremely competitive. Other leading pork-producing countries are eager to step up and supply Mexico with pork. As U.S. exports to Mexico comes off a fifth consecutive volume record in 2016, the U.S. pork producers understand the economic impact of trade with its No. 1 volume customer.

America's pig farmers export pork to more than 100 countries worldwide. However, the United States ships more pork to the 20 countries with free trade agreements than all other countries combined. Market access through free trade agreements is essential to selling additional pork.

John Weber, NPPC immediate past president and Iowa pork producer, says while gaining new market opportunities is a leading offense priority, its top defensive priority is NAFTA. "We want to protect pork exports to two of our biggest markets -- Canada and Mexico," explains Weber.

The United States withdrawing from NAFTA would be devastating to U.S. pork producers. Iowa State University economist Dermot Hayes calculates that if Mexico places a 20% duty on U.S. pork, the industry eventually will lose the entire Mexican market. Consequently, this would result in a 5% loss in pork production, 10% reduction in the live hog market which will ultimately cost America's pig farmer $14 per pig or an aggregated loss of nearly $1.7 billion to the U.S. pork industry alone.

"We are asking the Trump administration to 'do no harm' to agriculture when renegotiating NAFTA," stresses Weber. "For our industry, that means maintaining zero tariff rates on North American trade."

Pork leaders recognize that NAFTA is not a perfect agreement for all sectors of the U.S. economy. NPPC supports the modernization of NAFTA. However, the organization firmly asks for no tweaks to NAFTA when it comes to pork trade.

(Feedstuff) -- Much of the hog industry market discussions during the 2017 World Pork Expo, held last week in Des Moines, Iowa, centered on the new pork processing plants coming on line during late summer that will help alleviate fall hog slaughter capacity issues.

In fact, this was so much the case that Seaboard Foods and Triumph Foods held a press conference to discuss their new joint venture, the Seaboard Triumph Foods fresh pork processing facility in Sioux City, Iowa. Executives from all three companies provided an update on the construction progress as well as provided details on plant features, capacity, sourcing and the workforce.

"We're drawing close. The plant is fully closed in, the majority of the equipment is installed and we're moving very rapidly into the phase where we start to test equipment, turn on permanent power and prepare ourselves for operations," said Mark Porter, chief executive officer of Seaboard Triumph Foods. "We are planning to begin operations here no later than the first part of September. That's our goal to begin the (ramp-up)."

The plant doesn't intend to come up full speed that first week, he added, emphasizing the need for a safe, methodical beginning of operations.

According to Mark Campbell, president and CEO of Triumph Foods, the new state-of the-art plant draws upon the lessons learned from the development and operation of the Seaboard plant in Guymon, Okla., which opened in December 1995, and the Triumph Foods plant in St. Joseph, Mo., which opened in January 2006.

"As many of you know, the scale of this project is immense," he said of the Sioux City plant. "It occupies 110 acres in its totality. We also have an additional 75 acres that are undeveloped, which we have for future growth."

Campbell continued, "At over 925,000 sq. ft. of floor space and costing in excess of $300 million, the plant is designed with capacity to process and fabricate more than 21,000 hogs per day into fresh pork cuts."

The plant features a sanitary design noticeable to all visitors, Campbell said. Additionally, robotics, automation and vision systems have also been incorporated into the design.

"There is an attribute-driven carcass sortation system designed to enable product segregation for unique customer demands and expectations and defatting, deboning and sizing for virtually 100% of all of the primals that come out of the pig," he said.

An 18 million lb. freezer is attached to plant to support the growing needs of the company's export customers, Campbell said, as well as 31 outbound shipping docks.

There is also a covered anaerobic pretreatment system with full methane recovery that will be used to fire the plants three large broilers, he added.

The Sioux City plant will produce a full line of fresh pork products that will be marketed and sold by Seaboard Foods. A large portion — 70% -- of the company's products are sold domestically, while 30% are exported to more than 30 countries.

The plant initially will employ 1,100 people, accounting for $48 million in payroll. An additional 1,000 employees will be added when a second shift commences in the summer of 2018. The company said it is working on an innovative staffing strategy that works with the city, as well as other business leaders, to recruit local residents from all around the Sioux City and surrounding regions.

Once the local workforce pool is exhausted, Porter said they have been working with state offices to update Sioux City to a primary refugee resettlement location as it is currently a secondary refugee resettlement location. This essentially means that the primary refugee will come from abroad into the U.S. Porter said the company has also partnered with some staffing agencies and a law firm to explore the possibility of having a formal immigration directly into Sioux City from abroad.

"So, in other words, we've put together layers of staffing in terms of our strategy, and we're not done," Porter said. "We don't think these layers are the only layers that will work. We see it as a good starting point, and we will continue to explore as we continue to grow."

In terms of sourcing hogs, the Seaboard and Triumph parent companies will supply the majority of the hogs, but the company will also source from regional farmers who align with the company's quality expectations and genetic requirements.

Porter said the plan is for one-third of the hogs to be sourced from Seaboard, one-third to be sourced from Triumph and then one-third to be sourced from farmers. For now, the company said it is focusing on developing relationships specifically with producers in northwestern Iowa, northeastern Nebraska and southern Minnesota.

"We've been actively soliciting contracts for animals for the plant over the course of the last nine months," Porter said. "We have a nice share of them lined up. We don't have all of them yet, but we're happy with the progress we've made."

He said they will be competitive for a portion of their hogs, but unlike a lot of the other packers, Seaboard Triumph will have two-thirds from its own supply. Porter emphasized that "we will be in the market, rest assured. One question several people asked: What impact are you going to have on hog prices? Well, we're probably going to raise them."

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

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