DTN Early Word Opening Livestock

Lean Hog Futures Staged to Open Moderately Lower

(DTN file photo)

Cattle: Steady-$2 LR Futures: Mixed Live Equiv $131.83 - .21*

Hogs: $1-2 LR Futures: 50-100 LR Lean Equiv $ 94.64 -1.42**

* based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Cash market should slowly start to take shape at midweek thanks to greater definition of both bids and asking prices. That's not to say that significant trade volume couldn't be delayed until Thursday or Friday. Look for FCE results to be posted on the cash cattle page later Wednesday. Asking prices should be around $110 to $112 in the South and $178 plus in the North. Live and feeder futures are expected to open on a mixed basis thanks to a combination of spillover buying and midweek long liquidation.

Look for the cash hog trade to reconvene Wednesday with bids $1 to $2 lower. The sharp discount of nearby futures continue to encourage finishing floor managers to kick near-ready inventory out the door as possible. Saturday slaughter plans should total close to 132,000 head. Our guess in that the weekly kill will come very close to last week, just a bit over 2.33 million head. Lean futures should begin at least moderately lower, pressured by follow-through selling and crashing carcass value.

BULL SIDE BEAR SIDE
1) Although this week's fed offering is mixed across the feeding area, overall ready numbers appear to be generally smaller than last week (primarily thanks to a large reduction in Nebraska). 1) Although cattle futures did manage large bounces Tuesday, real technical progress was difficult to identify. Indeed, most live and feeder contracts remain below 10-day moving average highs.
2) It would appear that lower wholesale beef prices are working to stimulate the longer-term appetites of retailers and food managers. Out-front boxed beef sales (i.e., with delivery off 22 days or more) surged last week to 1,325 loads, the biggest round of business seen since mid-July. 2) The best you could stay about beef cutouts on Tuesday is that erosion might be slowing. It would appear that demand help typically linked to Labor Day is a real bust in 2017.
3) Frozen pork stockpiles as of July 31 totaled 556.179 million pounds, 1.2% below the prior month and 7.1% below 2016. More signs of strong export demand. 3) For the fifth consecutive session futures closed lower, fearlessly leading the cash market lower. Spot October settled at its lowest level since April 24. The board's short-term trend is bearish as is the long-term market trend and the structure of the market.
4) Most lean hog futures have now fallen below the RSI threshold of 30, typically a reliable sign of oversold conditions. 4) The pork carcass value fell hard on Tuesday, stripped by imploding demand for bacon in the wake of its seasonal peak. The belly primal crashed by $12.24.

OTHER MARKET SENSITIVE NEWS

CATTLE:(Nikkei) -- Japan's newly imposed emergency tariff on frozen American beef has raised a question about the wisdom of hanging on to a relic of a bygone trade framework when securing enough beef to meet domestic demand could become a challenge amid the tightening global supply.

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Japanese imports of U.S. beef abruptly skyrocketed around mid-May. The safeguard tariff was triggered as food companies such as beef-bowl chain operators made big purchases of frozen American beef, a government source with knowledge of the situation said.

Stubbornly high Australian beef prices, stemming from a drought, played a role. But China was the main factor.

Beijing announced plans May 11 to resume imports of U.S. beef for the first time in 14 years, ending a ban imposed in response to an outbreak of mad cow disease. It was the first big success to come out of an agreement at a U.S.-China summit in early April that paved the way for the start of a bilateral economic dialogue and the execution of a 100-day action plan for correcting trade imbalances.

Fearing that a rush of Chinese buying would send prices soaring, Japanese companies scrambled to get their hands on American beef first. This boosted imports of frozen U.S. beef by 20% on the year in the April-June quarter, breaching the 17% threshold at which the safeguard mechanism automatically kicks in.

The duty was raised from 38.5% to 50% on Aug. 1 and will remain in effect until the end of March. The change already has affected prices for some products.

In the Uruguay Round of talks on the General Agreement on Tariffs and Trade in the 1990s, Japan agreed to reduce its beef duty in exchange for the ability to hike the levy as an emergency measure to rein in sudden import surges.

But more than two decades later, new risks present themselves. Japanese food companies worry that even if they want to import American beef, they could lose out to Chinese rivals able to offer higher prices.

China's beef imports ballooned from just 10,000 tons in 2004 to 780,000 tons in 2014 -- making the country one of the world's top buyers -- and the inflow is expected to surge again to 1.51 million tons in 2024, Japanese government data shows. Japan's annual beef imports, by contrast, have hovered in the 500,000-ton range.

Beef has become less of a buyer's market, and exporting countries are gaining the upper hand.

As negotiations on a Japan-Australia economic partnership agreement entered the home stretch in March 2014, the two sides butted heads over beef tariffs. Japanese ruling-party lawmakers affiliated with farm interests were reluctant to touch the duty. But Barnaby Joyce, Australia's agriculture minister, noted that Aussie farmers had no need to bend over backward to export to Japan's market, since China would be happy to wrangle as much Australian beef as it could.

This trend goes beyond beef. China was a pork exporter in 2004, but the nation imported 780,000 tons of the meat in 2014 and is expected to bring in 1.28 million tons in 2024. Global demand for cereal crops is swelling as well, from 1.85 billion tons in 2000 to a projected 2.8 billion tons in 2025.

Steps must be taken not only to make Japanese agriculture more competitive, but also to secure the country's access to global markets. In this light, safeguard tariffs may not be a good fit.

The government has made little progress on discussing how the measure should look in the future. "Logically speaking, if we are to revise the safeguard, we have to raise the tariffs back again," recently appointed agriculture Minister Ken Saito told local media this month.

President Donald Trump's campaign against trade deficits has focused largely on China and Japan. The latter may have made matters worse by raising trade barriers further. The safeguard tariff could become a sticking point at the U.S.-Japan economic dialogue set for October.

China, by contrast, has opened its doors wider. U.S. Agriculture Secretary Sonny Perdue, visiting China on June 30 to mark the lifting of the beef ban, thanked Beijing on behalf of the Trump administration for its efforts.

HOGS: (GLOBE NEWSWIRE) -- Smithfield Foods, Inc. announced Tuesday it will build a new distribution center and expand its blast cell cold storage capabilities at its processing facility in Tar Heel, North Carolina. Smithfield will invest $100 million and add approximately 250 new jobs to bring both projects to life. In addition to the new positions, additional employment opportunities will also be available within Smithfield's logistics partner.

"This expansion reflects the promising new era we're experiencing at Smithfield," said Kenneth M. Sullivan, president and chief executive officer for Smithfield Foods. "It supports our continued growth and helps us better serve our customers by providing additional capacity and optimizing our distribution footprint."

Smithfield will begin construction of the new distribution center this month. The new distribution center will be 500,000 square feet with 47,000 pallet positions. The blast cell cold storage expansion, announced earlier this year, is underway and will increase the facility's capacity by 140 million pounds. Both projects will be complete fall 2018.

"At Smithfield, we're constantly evaluating strategies to achieve greater operational efficiencies and make our supply chain more sustainable," said Dennis Organ, senior vice president, supply chain & direct store delivery (DSD) for Smithfield Foods. "This project will help us accomplish both goals while better serving our customers in the southeastern U.S."

Smithfield's Tar Heel facility is the largest pork processing plant in the world and produces fresh pork products for customers across the globe. Currently, the facility employs nearly 5,000 people and processes more than 30,000 hogs each day.

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

(BAS)

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