DTN Early Word Opening Livestock

 
Cattle: Steady-$2 LR Futures: 100-200 LR Live Equiv $157.10 -1.26* 
Hogs: Steady-$1 HR Futures: 50-100 HR Lean Equiv $106.68 +1.67**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

As feedlot managers move into the final week of June, and the second quarter, they are hoping that the cash market can somehow find a way to pull out the bearish tailspin of the last two weeks. A crucial first step would no doubt involve the stabilization of live and feeder futures. For that to happen, we may first have to quickly digest the June 1 Cattle on Feed report, which some saw as somewhat disappointing in terms of larger than expected May placement. Cash activity will be limited to the distribution of new showlists. The late-month offering is likely to be somewhat larger than last week. Asking prices may not be well defined until midweek or so. Live and feeder futures should open lower, pressured by on feed implications and long liquidations.

The cash hog trade is expected to resume Monday with bids steady to $1 higher. Last week's slaughter fell to 2.14 million head, the smallest non-holiday kill seen so far in 2017. This week's chain speed should be as small or smaller, and of course, next week's production scheduled will be shorted by Independence Day. This should all be good news in terms of wholesale pork demand and prices. Look for lean contracts to open higher, supported by Friday's rebound in carcass value and bull-spreading interest.

	BULL SIDE		BEAR SIDE
1)	Gross beef processing margins are starting the week near record-high levels thanks to the way cattle costs have imploded much faster than carcass value over the last several weeks. If deemed necessary, cattle buyers have an abundance of incentives to support the cash trade.	1)	The June 1 Cattle on Feed report turned out to be somewhat more negative than expected with May placement surpassing the average trade guess and May marketing somewhat short of the average trade guess.
2)	The fact that discounts in the late summer and fall live cattle contracts remain wider than average may suggest that any negative implications in the June 1 Cattle on Feed report are already fully dialed into the board. Furthermore, oscillators suggest that cattle futures are generally oversold.	2)	Given the holiday-shortened week ahead, cattle buyers will start this week with shorter shopping lists and with less need to support the cash market.
3)	The pork carcass market quickly reclaimed its mojo on Friday, surging significantly higher in all primals except the ham.	3)	Despite impressive spot fundamentals, lean hog specs seem to be getting nervous about market prospects around the next corner. For the week ending June 20, noncommercial traders were net sellers of 3,200 contracts, decreasing their net long to 51,600 contracts.
4)	Despite the weakness in the lean hog board late last week, both the short- and long-term market trends remain positive.	4)	Though we are now probably seeing the tightest market hog supplies of the season, the next major shift in tonnage will be bearish. Following the July Fourth holiday, kill levels look to slowly increase, with significant supply gains expected for August.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Kyodo) -- U.S. Trade Representative Robert Lighthizer urged Japan on Wednesday to make "unilateral concessions" on beef imports as part of an effort to reduce its trade surplus with the United States.

"I think in the areas like beef and the others, they ought to make some unilateral concessions -- at least temporary concessions," Lighthizer said at a hearing at the Senate Committee on Finance, prodding Japan to further open its beef market.

It was not known what kind of concessions Lighthizer was referring to, but he may be calling for reducing a 38.5 percent tariff Japan imposes on fresh and frozen beef cuts imported from the United States.

"And I don't quite understand why that doesn't happen," he said. "That's a simple way to get that trade deficit down and doesn't cost them anything."

Lighthizer's remarks may reflect concern that the United States lags behind other major farming nations, such as Australia, in exporting beef to Japan, the world's third-largest economy.

Japan, for example, has begun lowering its tariffs on Australian beef from 38.5 percent in stages since a Japan-Australia free trade agreement took effect in 2015.

Lighthizer criticized Japan for maintaining a trade surplus with the United States "for decades," adding that Tokyo does not seem to be interested in holding trade negotiations bilaterally with Washington.

President Donald Trump's administration, which withdrew the United States from a 12-nation trade deal known as the Trans-Pacific Partnership in January, is conducting a strategic and economic analysis of which of the remaining 11 TPP members the country should start bilateral trade talks with, according to Lighthizer.

"The president's idea is to have a series of bilateral agreements," he said. "We're in a process of trying to determine which of those countries should come first."

Lighthizer made it clear that the United States is unlikely to return to the TPP fold, which includes Japan. "They are hoping the United States will come back and join the TPP, which obviously is not going to happen," he said.

In Tokyo, the Japanese government's top spokesman said Thursday he was aware of Lighthizer's remarks, but that Tokyo has not formally received any such request.

"The U.S. government has not made any specific calls for increased market access in talks between us, including the Japan-U.S. economic dialogue that was held recently," Chief Cabinet Secretary Yoshihide Suga told a press conference.

At the first round of the dialogue in April, helmed by Japanese Deputy Prime Minister Taro Aso and U.S. Vice President Mike Pence, the two sides agreed to discuss a bilateral framework for trade and investment rules.

"In any case, we will hold constructive discussion in that dialogue about what sort of bilateral framework is best for Japan-U.S. economic ties," Suga said.

In his Senate confirmation hearing in March, Lighthizer called Japan "a primary target" for greater market access for U.S. farm products.

Similarly, the Office of the USTR in March urged Japan to fully open its market to U.S. beef and beef products from "animals of all ages."

In the 2017 National Trade Estimate Report on Foreign Trade Barriers, the office called for removing the remaining part of the import ban Japan imposed in 2003 following the detection of an animal with mad cow disease in the United States.

Currently, Japan allows imports of U.S. beef and beef products from cattle less than 30 months of age slaughtered in the United States.

HOGS: (Quartz) -- China, the world's biggest pork consumer, is struggling with too much meat.

The country devours millions of tons of pork every year and expects to own some 700 million hogs (link in Chinese) by the end of this year. But producers are cranking out more pork than consumers can handle.

The "lean-type pork price index," which reflects the nation's pork spot price, was earlier this month down around 25% (paywall) compared to January. The index data, not freely available, comes from the agriculture ministry and Sublime China, a Shandong-based research firm that tracks China's commodity markets. "The demand [for pork] has shown no obvious positive signs," reads a June 20 report from Sublime.

Pork prices in China have long been volatile, in part because the market is dominated by small-scale farmers highly sensitive to swings. Ominously for the industry, though, the recent slide comes after consumption fell in both 2015 and 2016—the first two-year decline since the 1970s.

China's pig-farming industry suffered "huge losses" in 2014 because of oversupply, notes Alice Xuan, a commodity analyst at Shanghai JC Intelligence. The losses have persisted since then, she adds, and Monday producers are "still dealing with the overcapacity problem."

Their struggles are also reflected in the number of imported breeding pigs.

Declining prices will continue for some time, many believe. Wan Long, chairman of China-based WH Group—the world's largest pork producer—predicted last August that the downward trend would last for 15 months.

But another trend should, perhaps, worry the nation's pork producers more: Many Chinese consumers, prodded by the government, are shifting to more vegetables and less meat for health reasons.

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

(BAS)

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