DTN Early Word Opening Livestock

Cattle Futures Should be Sparked Higher by Late-Week Cash Strength

John Harrington
By  John Harrington , DTN Livestock Analyst
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Cattle: Steady-$2 HR Futures: 100-200 HR Live Equiv $129.92 - .06*

Hogs: $1-2 LR Futures: Mixed Lean Equiv $ 83.03 -1.45**

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

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

GENERAL COMMENTS:

Friday's cash cattle market was late in fully developing, but most sellers who were patient enough finally got cattle buyers to cough up a buck more this week (i.e., $106 live in most areas). We'll be eager to see Mandatory summaries later Monday since the late hour made it tough to judge volume. At this time, our guess is that moderate movement generally developed across the entire feeding area. Activity Monday will typically be limited to the distribution of new showlists. Ready numbers should be about steady with last week. Look for cattle futures to open significantly higher, boosted by follow-through buying and stronger feedlot sales.

Hog buyers should resume procurement chores with another round of lower bids. Clearly, they'll keep using the hammer until it no longer works to move numbers and maintain decent processing margins. For the week ending Sept. 12, noncommercial traders once again were net sellers in lean futures, reducing their net-long position by 10,500 contracts to 28,700. Look for the hog board to open on a mixed basis Monday thanks to a combination of residual buying on one hand and product demand worries on the other.

BULL SIDE BEAR SIDE
1) Feedlot managers successfully demonstrated late Friday decent leverage in the face of short-bought packers, forcing cattle buyers to pay up to $106 live in most areas, $1 higher than the previous week. 1) Although live cattle futures closed near the top of the lateral trading range on Friday, it would be the first time bulls have looked opportunity in the eye and cowered. Until proven otherwise, attempts to rally the live futures market continue to meet with considerable overhead resistance.
2) Live and feeder futures closed significantly higher on Friday, accurately anticipating greater packer spending on one hand, further steeling country resolve with great board premiums on the other. 2) As board premiums continue to grow, so does the danger of delayed feedlot marketing, especially as feeding country moves into ample fed numbers over the next 60 days plus.
3) There are reasons to doubt the aggressiveness of swine herd expansion. Sow slaughter through the first seven months of the year totaled as much as 712,000 head, roughly 64,000 more than January-July 2016 (up nearly 10%). Gilt retention may not be up enough to spark much of a net gain. 3) When it comes to NAFTA, pork producers are concerned about repeated comments within the Trump administration about terminating the deal. Just last week, Commerce Secretary Wilbur Ross said President Trump is "not a bluffer" about the possibility of withdrawing from NAFTA. That would result in agricultural products going from a non-tariff situation to allowing Mexico to implement a variety of tariffs on various pork products. Canada would also put tariffs in place.
4)

With only a month left until contract expiration, the October lean hog contract is trading $3 to $4 below the current settlement index value. With the seasonal tendency being for October futures to rally into expiration, it seems likely that at least a modest rally should be expected over the next few weeks.

4) The pork carcass value hit the skids again on Friday, (i.e., off $1.44) substantially by softer demand for bellies, hams and loins. From Friday to Friday, the pork cutout lost $3.49

OTHER MARKET SENSITIVE NEWS

CATTLE: (oklahomafarmreport.com) -- The National US Beef Checkoff has been around since the late 1980s, collecting a dollar a head on cattle sold to fund efforts pertaining to promotion, education and research. This fall, Oklahoma cattle producers will vote on whether or not to approve a secondary state beef checkoff program, to collect an additional dollar on cattle sold in the state to enhance those same purposes here in Oklahoma. Texas cattle producers approved their own secondary checkoff back in 2014 and according to Texas Beef Council Executive Vice President Richard Wortham, they have found great success with the new program as he explained recently to Radio Oklahoma Ag Network Farm Director Ron Hays.

"With the additional state dollar, it has given us the opportunity to do things that we could have only dreamed about, four or five years ago," Wortham said. "We've enhanced our advertising, specifically as it relates to television ads in Texas."

This year, Wortham says the promotional budget is focused on digital TV, radio, print and billboard advertising. Another program being funded with this additional money, is what the Texas Beef Council calls its MD Outreach project. TBC began the project in the Dallas and Houston areas, employing knowledgeable representatives with ties to the medical community to engage physicians and educate them on the health and nutritional benefits of beef. Wortham says this project has steadily changed the minds of physicians who once limited beef in their patients' diets, to now recommending more. At the end of the day, Wortham insists the program has been highly successful and believes producers see the value in it, based on producers' right to opt out of the program.

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"The good news is, refunds are running well below what we projected when the program started," he said. "With no historical data to go off of, we budgeted 20 percent. Right now, it's running less than five percent, which has been very encouraging."

If approved, Oklahoma's secondary beef checkoff program will also be refundable. The actual voting will begin on November 1st of this year, at your local county extension office. Any beef producer that would be required to pay the checkoff, regardless of age, is eligible to vote. Producers can also request a ballot in the mail from the Oklahoma Cattlemen's Association between October 2-20.

HOGS: (producer.com) -- Canada, struggling to compete in the South Korean meat market behind the United States and Australia, could take a leap forward if U.S. President Donald Trump carries through on threats to tear up the U.S.-South Korea free trade deal.

Trump thinks the five-year old agreement is unfair to the United States because the Asian country's trade surplus with the U.S. has doubled since it was signed.

"If the U.S. rips up its free trade agreement with South Korea, they'll be back up at 40 percent (tariff on beef sales)," said John Masswohl, the government and international relations specialist at the Canadian Cattlemen's Association.

"If it happened Monday, we'd go from being eight percent behind them to being eight percent ahead of them."

Similarly for U.S. pork exports, if the U.S. ended its trade deal with South Korea, it would mean Canada would have lower tariffs and better access to that market than the Americans.

"Anything that makes competitors disadvantaged has a positive effect for us," said Cesar Urias, Canadian Pork International's international trade expert.

Canada's weaker position in South Korea for beef and pork compared to the U.S., Australia and European Union is due to South Korea signing free trade deals with those countries first.

South Korea agreed with all the countries it has agreements with to gradually reduce high tariffs on beef imports, but because their deals came into force years before Canada's, the Americans and Australians are seeing reductions first.

Currently, Canada, which signed its deal with South korea in 2015, pays eight percent more in tariffs on beef compared to the U.S., a spread that is expected to continue until almost 2029.

If the U.S. leaves the free trade deal, it would immediately be disadvantaged, and that disadvantage would steadily grow if U.S. beef faces South Korea's Most Favoured Nation tariff rate.

Canadian beef currently pays a 32 percent tariff, while U.S. beef pays 24 percent. Australian beef pays 29.3 percent.

Those tariffs are scheduled to be reduced in stages until they disappear.

Tariffs are less steep for pork, with Canada's trade deal reducing them to an average of less than 10 percent in 2017 from 21 percent in 2015, with total elimination scheduled for 2027. Some categories of pork already enter South Korea tariff-free.

That's been a relief for the Canadian industry, which had been struggling in the market because of the head start the U.S. and European Union had with their trade deals.

"We had a good market share … before, but more and more the U.S. and Europe took part of that share," said Urias.

"We had to wait years to be competitive (again) and become one of the preferred suppliers of pork."

If the U.S. pulls out of its trade deal with South Korea, American pork would face a massive disadvantage. Urias has trouble believing that Trump would be able end the deal without facing a wall of opposition from the U.S. pork industry.

Canadian Agri-Food Trade Alliance acting executive director Martin Rice said a failure of the U.S.- South Korea deal would not necessarily create a windfall for Canadian meat.

Market access gains in South Korea might be offset by lower North American prices.

Pork that would have gone from the U.S. to South Korea would stay in North America, or would have to find markets somewhere else, and that would likely reduce the North American price.

"It could end up as a wash, really," said Rice.

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

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John Harrington

John Harrington
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