DTN Early Word Opening Livestock

Expect Mixed Opening in Livestock Futures

John Harrington
By  John Harrington , DTN Livestock Analyst
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(DTN file photo)

Cattle: Steady Futures: mixed Live Equiv $131.02 - 0.01*

Hogs: $1-2 LR Futures: mixedLean Equiv $ 87.36 - 0.04**

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

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

GENERAL COMMENTS:

There's little reason to think that this won't be a typically slow Tuesday in the cattle market. Optimistic feedlot managers will be pointing at board premiums and cautious packers will be highlighting the lackluster wholesale beef trade. With both sides expressing such early week stubborn, we don't expect much definition in terms of bids or asking prices. Depending on how short bought packers feel, significant trade volume could be delayed until Thursday or Friday. Live and feeder futures seem set to open on a mixed basis thanks to a slow combination of follow-through buying and profit taking.

Look for hog buyers to stick with their winning strategy of consistently lower bids this morning. Producers show no intension of shutting off the supply. faucet, just as processors show no need to slow chain speed. Indeed, Monday's kill of 450,000 head seem to put to rest (assuming it is not significantly revised lower) any concern that the late blows of Irma might cause some slowing of chain speed in the Carolinas. Lean futures also appear likely to begin with uneven price action with residual selling surfacing on one hand and short covering evident on the other.

BULL SIDE BEAR SIDE
1) The firmness of spot October live cattle and the weak basis it implies should encourage feedlot managers to stand tall in terms of higher asking prices. 1) New showlists distributed in feedlot country look generally larger than last week with only Texas offering more ready steers and heifers.
2) Building premiums in 2018 live cattle futures reflects trade confidence relative to the extended growth of U.S beef exports. 2) Weekly cattle slaughter could work its way back up toward the 635,000-head area through the remainder of September, averaging four to five percent larger than year ago.
3) Given the sustained record large pork production expected through the end of the year, many are surprised that fourthzquarter lean futures aren't even lower. They created increased packer competition vis intensified chain speed and strong export demand. 3) After last week's slowdown in chain speed tied to Labor Day, hog slaughter is expected to quickly resume its record breaking pace. Look for a weekly total of 2.425 million head or more.
4) On the other hand, some argue the pork cutout has likely made most of the corrections from this past summer's highs, at least for the next couple of weeks. A few of the primals are carrying price risk upward for the next few weeks, as such, 4) While there is a possibility of a slight seasonal increase in the pork carcass value over the next two weeks, the general trend remains defensive. The cutout is still expected to lose nearly 20 percent from current levels into the end of the year.

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OTHER MARKET SENSITIVE NEWS

CATTLE: (beefmagazine.com) -- "If you look at grocery store scanner data—prices actually paid for beef at retail—demand was higher four of the first six months of this year," says Glynn Tonsor, agricultural economist at Kansas State University (KSU).

Aggregate data, however, points to softer demand. Consider the beef demand indices that Tonsor maintains.

The second-quarter Choice Beef Demand Index (CBDI) was 2 points less than last year and five points less than in 2015. It was 5% les year over year in the first quarter. Last year's annual CBDI was 3 points less than the previous year.

The All Fresh Beef Demand Index indicates similar trends.

There are a couple of likely reasons for such a disconnect between the indexes based on aggregate data and the picture offered by scanner data. Tonsor explains the most-utilized beef demand indexes like those mentioned here aggregate the volume of beef disappearance from both retail and food service, and use simple average in-store product label retail prices, rather than actual grocery-store transaction prices adjusted for volume.

"They reveal nothing about heterogeneity in demand response across market channel, U.S. region, or product type," Tonsor explains. "Having beef demand indices that measure actual consumer purchases by market channel and use volume-weighted prices actually paid by consumers are more accurate and precise than existing beef demand indexes."

That's one reason Tonsor and fellow KSU agricultural economist, Ted Schroeder, developed some alternative indexes for the industry's consideration, via a beef checkoff-funded study. HOGS: (National Hog Farmer) -- President Trump's proposal to have the United States withdraw from the South Korea-U.S. Free Trade Agreement is on hold for now. The White House announced last Friday that Trump had instructed White House staff to prepare a letter to withdraw from KORUS. The president has complained that since KORUS went into effect in 2012, the U.S. trade deficit has increased. The possibility of withdrawing from KORUS is a major concern to agriculture and business, but also with national security experts during a time of increasing tensions over the crisis with North Korea's nuclear weapons.

South Korea is the sixth largest export market for U.S. agriculture. It is a significant market for U.S. beef, pork, corn, soybeans and wheat. U.S. agricultural exports to South Korea have grown from $2.9 billion in 2006 to $6.2 billion in 2016. U.S. beef exports to South Korea were $1.1 billion last year compared to $582 million in 2012 making it the second largest market for U.S. beef exports. Pork exports were $365 million in 2016 and making South Korea the fifth largest export market. The first six months of this year have seen U.S. pork exports increase by 31% in volume and 38% in value to South Korea.

Withdrawing from KORUS met strong opposition from agriculture, business and Congressional leaders.

The North American Meat Institute sent a letter to Congress urging Members to contact the administration and asking that the United States not withdraw from KORUS. NAMI says, "If we walk away from KORUS, our nation's producers and processors will be directly and immediately harmed. We urge you to contact President Trump, Secretary Perdue and Ambassador Lighthizer, asking them to refrain from threats to withdraw from KORUS. As with the NAFTA agreement, agriculture has benefitted greatly and we must pursue a 'do-no-harm' approach to any trade discussions."

The American Soybean Association reminds President Trump that if the United States withdraws from KORUS, tariffs will be reinstated and the United States is not the only supplier in the world. The ASA says, "With respect to South Korea, we supply nearly half of the 1.3 million tons of soybeans that country imports, with no tariffs as a result of the KORUS agreement. Most of Korea's soybean imports, however, come from our competitors in Brazil and Argentina. If we withdraw, reinstatement of tariffs will make it hard to maintain our market share and will further increase our competitors' advantage. And it would be devastating for our U.S. livestock customers who export meat products to South Korea.

"The idea that we're the only game in town when it comes to selling soybeans or other agricultural products abroad is false. So is the notion that there's always another country that will buy our commodities. Furthermore, even the threat to withdraw from this or any trade agreement is a dangerous course of action. Repeatedly walking our trade relationships to the brink, or actually breaking them, only weakens our standing abroad."

President Trump and the Democratic leadership in Congress reached an agreement to avoid a government shutdown at the end of the month, raise the debt ceiling and provide $15.3 billion in disaster assistance for areas hit by Hurricane Harvey. The package funds the federal government and raises the debt ceiling until Dec. 8. The agreement passed the Senate and the House will approve the measure today or Saturday.

President Trump has announced three nominations for key positions at USDA. Bill Northey will be the undersecretary for Farm Production and Conservation and will oversee the Farm Service Agency, Natural Resources Conservation Service and the Risk Management Agency. Northey is currently serving his third term as Iowa secretary of agriculture and is a former president of the National Corn Growers Association.

Greg Ibach is being nominated to be the undersecretary for Marketing and Regulatory Programs. Ibach will oversee the Animal Plant Health Inspection Service, Agricultural Marketing Service and Grain Inspection, Packers and Stockyards Administration. He is currently the Nebraska director of agriculture.

Stephen Vaden will be USDA's general counsel, and is currently serving in that position.

Earlier, Trump announced the nominations of Steve Censky as deputy secretary, Ted McKinney as undersecretary for Trade and Foreign Affairs, and Sam Clovis as undersecretary for Research, Education and Economics.

The Senate Agriculture Committee is expected to hold a confirmation hearing on the nominees on Sept. 19.

John Harrington can be reached at feelofthemarket@yahoo.com
Follow John Harrington on Twitter @feelofthemarket

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John Harrington

John Harrington
Connect with John: