DTN Early Word Opening Livestock

Hog Futures Likely to Open Under Selling Pressure

John Harrington
By  John Harrington , DTN Livestock Analyst
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Cattle: Steady-$2 HR Futures: 25-50 HR Live Equiv $130.83 + .09 *

Hogs: $1-2 LR Futures: 50-100 LR Lean Equiv $ 81.59 -1.77 **

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

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

GENERAL COMMENTS:

Though feedlot country could see a few preliminary bids Wednesday, we don't expect to see enough agreement between buyers and sellers in order to generate a real market set until Thursday or Friday. Perhaps FCE business later Wednesday will give us more direction. Look for these results to be posted on the cash cattle page as soon as possible. Live and feeder futures should open moderately higher, supported by residual buying and some degree of cash optimism.

Look for cash hog buyers to bear down even more at midweek. Just consider the bearish hand won Tuesday. On one hand, lower bids succeeded in generating a huge country run (e.g., 22,000 head plus in negotiated country sales basis the national report). On the other hand, the pork carcass value broke herd in the face of record production. Lean futures are set to open moderate lower, pressured by defensive fundamentals.

BULL SIDE BEAR SIDE
1) Given the way nearby live futures keep knocking on the door of overhead resistance this market acts like it wants to go higher. Spot October rallied late Tuesday to close just below its 40 cent moving average. 1) With deferred live cattle futures owning bigger and bigger premiums, it stands to reason that greater beef production and tonnage is being incentivized. Indeed, the bullish roll of feeder futures (as well as the cash index) suggests somebody is chasing calves and yearlings toward the feed bunk.
2) Despite greater spending by cattle buyers last week, beef processing profit potential continues to look excellent with gross margins still averaging over $300 per head. 2) Last week's slaughter, 642,000 head, was larger than generally expected and 5% over last year's 611,400 head harvest. Fed cattle kills ranging from 510,000 to 515,000 should increase through the fall. Cow slaughter in the 105,000 to 110,000 head range is also expected to seasonally expand into the fall.
3) According to last week's comprehensive boxed beef report, retailers and food managers continue to be actively interested in out-front (i.e., delivered in 22 days or more) product sales. Last week, total sales of this type jumped to 1,162 load, up from 997 the prior week. 3) After a token rally on Monday, the pork carcass value resumed its seasonal crash on Tuesday thanks to significant erosion in all primals except the picnic.
4)

Don't look now, but what were once huge discounts in late-year lean hog futures have become relatively minor vis-a-vis the cash index. It would appear that more and more spec and commercial traders are unwilling to bet that the late-year cash hog trade will be significantly worse than what we are now seeing.

4) Tuesday's hog kill was officially estimated at 455,000 head, another new record for a daily slaughter if it holds up under revision. Of course, we'll see a bunch of record smashing this fall as new plants slowly unlimber toward full capacity.

OTHER MARKET SENSITIVE NEWS

CATTLE: (USAgNet.com) -- The Beef Checkoff will relaunch their famous "Beef, it's what's for dinner" campaign next month. The iconic beef brand known across the U.S. turns 25 this October.

Alisa Harrison is Senior Vice President of Global Marketing at the National Cattlemen's Beef Association in Denver, Colorado.

"The last couple of years it's been in the background in our consumer marketing. We went out and talked with consumers, especially to millennials to see what kind of equity we had in Beef it's what's for dinner and it is still really strong 25 years later," Harrison said. "It's the voice and it's also the rodeo music. When those young millennial parents hear it, it is a latent memory for them. They smile, get's them excited about beef, and reminds them of growing up."

She adds the checkoff's challenge is how to make beef relevant Wednesday. By doing that, it is not just about pushing the product but explaining how beef is raised.

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The Beef Checkoff launched the original campaign in 1992. The upcoming relaunch is part of a bigger campaign to educate consumers about beef along unveiling a new logo and website.

(Nebraska Rural Radio Association) -- The first USDA beef buying mission from China was in Gothenburg Tuesday to tour a feedyard and sample some quality Nebraska beef.

The group toured the Hi-Gain feedlot south of Gothenburg, before returning to the operation's main office in town to sample some brisket and steaks off the grill.

Mark Ford is Director of the Ag Trade Office for the Embassy of the Unites States in Beijing. He tells the Rural Radio Network he selected these group of ten Chinese buyers because they were coming to him before the Chinese market re-opened to US beef in June.

Ford says he was in contact with Nebraska Department of Ag trade representative Stan Garbacz soon after the re-opening. Ford said, "As soon as the market opened, Stan and I were talking and I told him we'd like to do a beef mission now that the market is open." Ford says Garbacz replied by saying, "I've got the best state for you."

Ford says a lot of the cuts coming to China are high-end cuts which are expensive. He says he told the buyers you will always pay a little more for high-end cuts, but when the production starts to increase, the market will dip. Ford says they've already started to see that in China.

The group will now travel to Omaha Tuesday to tour processing facilities.

HOGS: (The New York Times) -- The top United States trade negotiator said Monday that it was unclear whether Canada, Mexico and the United States could reach a deal to overhaul the North American Free Trade Agreement within the ambitious timetable set by the Trump administration.

In remarks ahead of a third round of talks beginning on Saturday in Ottawa, Robert Lighthizer, the United States trade representative, said negotiators were "moving at warp speed, but we don't know whether we're going to get to a conclusion, that's the problem."

"We're running very quickly — somewhere," Mr. Lighthizer said in a rare question-and-answer session at the Center for Strategic and International Studies, a Washington-based think tank.

The Trump administration has carved out a narrow path to victory on Nafta, pledging to hammer out substantial changes in a matter of months to a sweeping pact governing most of the North American economy.

In the coming round, negotiators are hoping to forge progress as they discuss specific proposals to address some areas of disagreement for the first time.

But reaching an accord looks increasingly difficult as the administration continues to push for ambitious changes that rankle Mexican and Canadian counterparts. Those include setting new requirements for the use of American-made goods and lowering barriers to exporting American agricultural products.

The White House is particularly eager to show progress on the trade agenda — one of President Trump's signature campaign issues — given the failure of Congress to repeal and replace the Affordable Care Act and the uncertainty about tax reform.

For a new Nafta pact to be approved by lawmakers in the three countries, negotiators say it needs to be largely concluded by the end of the year. They fear approval could be complicated by a series of events, including Mexico's presidential election on July 1, 2018, midterm elections in the United States and provincial elections in Canada.

Legislation authorizing Congress to pass a trade deal with a simple up-or-down vote is also scheduled to expire in July.

"The political calendar is such that if we don't get a deal more or less by the end of the year... it will get harder and harder," Commerce Secretary Wilbur Ross, who helps lead the trade agenda, said last week.

New proposals by the Trump administration are adding pressure to the already complex negotiations.

Last week, Mr. Ross told an audience that the administration was considering adding a "sunset clause" to the North American pact. Under such a measure, the agreement would terminate after five years unless all three countries voted to continue it.

Canadian officials and business community representatives have expressed concern about a temporary pact.

David MacNaughton, Canada's ambassador to the United States, criticized the provision. "If every marriage had a five-year sunset clause, I think our divorce rate would be a heck of a lot higher than it is right now," he said.

Chad Bown, a trade analyst at the Peterson Institute for International Economics, said a sunset provision would create so much uncertainty that businesses might end up ignoring Nafta altogether in their planning. It can take years for businesses to recoup the returns from investments, by which time Nafta might no longer exist.

A Canadian government official briefed on the negotiations, speaking on condition of anonymity, said that Canadians were surprised by the proposal. Mexican officials could not immediately be reached for comment.

Mr. Lighthizer, the trade representative, declined to comment Monday on whether the administration would seek to add the five-year limitation to Nafta.

Also hanging over the negotiations is Mr. Trump's ongoing threat to pull out of Nafta — an outcome that economists say would be a blow to industries whose supply chains stretch across the continent.

While Mr. Trump has the support of labor unions on trade, many business and agricultural groups have argued that withdrawing from Nafta could cut them off from major export markets and devastate their businesses.

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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