DTN Early Word Opening Livestock

Meat Paper Staged for Further Selling at Midweek

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

Cattle: Steady Futures: 50-100 LR Live Equiv $130.84 - 0.18*

Hogs: $1-2 LR Futures: 50-100 LR Lean Equiv $ 85.69 - $1.67**

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

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


We expect to see the first signs of cattle buying interest this morning. Not that any of it may be tempting enough to generate a serious market test. But you have to start somewhere, Our guess is that asking prices will also start to take shape (e.g., $107 in the South and $167-plus in the North). While today's FCE auction and CME action could spark biz in one direction or the other, significant trade volume will probably be delayed until Thursday or Friday. Live and feeder contracts are likely set to open moderately lower, weighed by spillover selling and nervousness regarding cash price potential.

In the torrential spirit of both Harvey and Irma, it continues to rain hogs in major pork production areas. Not only was Monday's 450,000 head kill no revised down, Tuesday's slaughter was estimated at 451,000 head. The pork carcass value continues to buckle in the face of the tall wall of tonnage. In order to maintain decent margins, packers must answer softening wholesale prices with lower and lower bids for live inventory in the country. Look for another round of lower bids this morning. Early estimates of the Saturday slaughter should be around 180,000 head. Lean futures are expected to open moderately lower, pressured by residual selling and negative fundamentals.

1) Second-half beef production forecasts have been reduced by the World. Board, reflecting a slower expected marketing pace for fed cattle although cow slaughter is higher. For 2018, the beef production forecast is lowered from the previous month as a slower rate of placements during the second-half of 2017 is expected to result in reduced steer and heifer slaughter in the first half of 2018. 1) Live cattle futures slumped significantly lower on Tuesday, suggesting that it may be easier for cash to pull the board lower than the board to pull cash higher. Further basis strengthening would not be good news for country leverage.
2) Early bird guesses regarding the size of feedlot placement activity last month sound somewhat friendly, generally ranging 4-6 percent below 2016. 2) As the potential size of the 2017 corn crop continues to grow, so does the potential for accelerated meat production. Cheaper feed costs typically spark greater tonnage, both in terms of numbers and carcass weight.
3) The third and fourth quarter broiler production forecasts were also reduced by the World Board thanked to hatchery data and the current pace of slaughter. 3) The pork carcass value imploded on Tuesday, losing as much as $1.67 with all primal reflecting softer demand (e.g., the belly lost another $4.40).
4) Lean hog futures are becoming increasingly oversold from a technical standpoint. Such a reality could become more and more explosive as we move toward the unveiling of the September 1 H&P report (i.e., Thursday, the 28th) and traders feel need to position ahead of possible surprises. 4) Spot October lean hogs gapped lower yesterday and close below psychological support at 60. December settled back below its 8-day moving average low, opening the door to retest the late August low of 55.77.


CATTLE: (cattlenetwork.com) -- Brazil's total beef exports in August rose by 34 percent year-on-year both by volume and in revenue terms, industry group Abiec said on Monday, indicating the worst of a food safety scandal that rocked Brazil's protein industry may be over.

Abiec said Brazil shipped 145,822 tons of fresh and processed beef in the period, generating revenues of $607 million, the highest amount for any month in 2017 and nearly a 13 percent rise from July.

The numbers signal the resilience of one of the world's largest beef exporters in the wake of a food safety probe that led to stricter sanitary controls in Brazil and its main export destinations.

In March, a federal investigation accused companies and food inspectors of colluding to evade safety checks, leading the government to promise an overhaul of food oversight and quality control systems.

The scandal led to temporary bans on Brazilian beef imposed in Hong Kong and the rest of China, among several other countries. Now, places with restrictions represent less than 1 percent of Brazil's total beef exports last year, Abiec told Reuters in a separate statement.

Hong Kong remains Brazil's largest beef importer by volume followed by Egypt and China, where Abiec said more Brazilian meatpacking units will be allowed to sell beef products, potentially doubling the volume of exports there.

August also marked a shift in the origin of the beef exported out of Brazil. Historically, São Paulo state was the largest exporter but since July Mato Grosso has taken the lead position, Abiec said.

HOGS: (eubulletin.com) -- The free trade agreement between the European Union and Japan has the potential to become a very symbolic and substantive move when it comes to challenging the stance of US President Donald Trump towards multilateral trade liberalization. The EU-Japan deal, which was aptly timed with the G20 summit in Germany, may serve as a turning point for Washington as the new US administration is deciding on its future trade agenda.

Both Europe and Japan have a very special connection to the United States -- their present-day security and prosperity is largely derived from the US-led international rules-based order. As major export-oriented economies, they have a huge stake in shaping the future of world trade. Both sides have for years been focused on separate trade agreements involving the United States -- Japan on the 12-nation Trans-Pacific Partnership (TPP) and the EU on the Transatlantic Trade and Investment Partnership (TTIP).

The rationale behind the economic integration with the United States was both economic and geostrategic for both Europe and Japan. They saw their respective prospective FTAs as a way to uphold the international rules-based world trade by setting high joint standards in multiple areas such as labor, digital, environment, safety and consumer protection underpinned by shared values, thus essentially forcing emerging countries, such as China, to adhere. Moreover, free trade deals with Washington would also boost their security partnership with the United States, which would be more than desirable at a time of growing pressure from Russia in Europe and China in Asia.

The rise of Donald Trump and his immediate decision to withdraw the United States from TPP and de facto freeze the TTIP negotiations was a major setback for both Brussels and Tokyo. The EU and Japan, however, turned this disappointment into an opportunity and decided to intensify works on their own free trade pact -- the Japan-EU Economic Partnership Agreement (JEEPA).

The swift progress with JEEPA demonstrated that neither Tokyo nor European capitals are planning to sit idle and wait for Washington to make up its mind. However, beyond symbolism and negotiation tactics, the potential impact of JEEPA is what counts the most. American businesses that produce or market pork, beef, wine, shoes, cosmetics, or plastics to Japan could face a substantial drop in price competitiveness, as tariffs will fall for EU exports. US automakers could be in turn disadvantaged in both the EU and Japanese markets and, importantly, rules around auto safety standards, intellectual property rights or trade in services might end up being written without US input.

Although JEEPA does not include important part of today's economy -- such as digital trade -- and its ratification might be a lengthy process, it raises the question of whether global trade liberalization is possible without Washington's leadership. And as such, the JEEPA is already a potential landmark deal and a significant milestone.

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


John Harrington