DTN Early Word Opening Livestock

Cattle and Hog Futures Staged for Mixed, Late-Week Opening

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

Cattle: Steady-$2 HR Futures: mixed Live Equiv $130.40 - 0.24*

Hogs: $1-2 LR Futures: mixed Lean Equiv $78.31 - $3.28**

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

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

GENERAL COMMENTS:

Once again cattle buyers and sellers have reached the last business day of the week with not a hoof traded. Moderate trade volume will have to develop sometime today, perhaps not until the feedlot inventory hit the press. Packers bids are likely to begin this morning around $104-105 live and $165-168 dressed, still far below asking prices of $119 in the South and $172-174 in the North. The September on feed report is scheduled to be released this afternoon at 2:00 CDT. Average trade guesses look like thing: on feed, up 2-3 percent; placed in August, off 2-3 percent; marketed n August, up 6 percent. Live and feeder futures are staged to open on a mixed basis as traders position ahead of cash and on feed news.

The cash hog trade will remain on the defensive this morning. Yesterday's gutting of the pork carcass value was a bit shocking, especially given how far the cut-out had already fallen since Labor Day. It would appear that pork demand is drowning as the waters of production continue to rise. Assuming a Saturday kill of 230,000 head, the weekly total will easily exceed 2.5 million head. Lean contracts should open on both sides of unchanged with deferred issues losing ground on their nearly counterparts.

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BULL SIDE BEAR SIDE
1) Although cattle futures settled no better than mixed on Thursday, the board's ability to hold the lion's share of Wednesday's bullish serve worked to underscore its technical significance. 1) For the week ending September 9, cattle carcasses jumped higher again: all cattle averaged 829 lbs, 6 lbs heavier than the week before and 8 lbs smaller than 2016; steers averaged 869 lbs, 6 lbs bigger than the prior week and 7 lbs lighter than last year; heifers averaged 816 lbs, 5 lbs larger than the previous week and 5 lbs below a year earlier.
2) Short-bought and well-margined cattle buyers have painted themselves into a late week corner, facing still current feedlot mangers and now have a renewed sense of bullishness and determination thanks recent CME action. 2) Between large, pre-existing premiums in deferred live cattle futures and the fact that the much of the fourth quarter is already loaded for substantial beef production, it seems virtually impossible to imagine on feed numbers capable of moving the board higher.
3) New strength in fourth-quarter live cattle futures could bode well for eventually helping to stabilize and bottom late-year lean hog contracts. 3)

The pork carcass value collapsed on Thursday as all major primals stumbled in the face of wave after wave of record production.

4) New strength in fourth quarter live cattle futures could bode well for eventually helping to stabilize and bottom late year lean hog contracts. 4) Spot October lean futures hit the skids Thursday, falling to a close of 57.32 and setting a new contract low in the process. The board is once again signaling a willingness to lead the cash market lower.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Fox Business News) -- David MacLennan, CEO of Cargill -- the number two beef player in the U.S. -- told FOX Business consumers are tired of chicken.

"Our beef business in the U.S. is growing," MacLennan told Mari Bartiromo on Mornings with Maria Wednesday. "People are eating more beef. I think they are rotating now out of chicken."

According to MacLennan, fish is also becoming more popular. "The world is going to eat more fish -- more salmon, more shrimp, more tilapia. So we have a significant fish feed business in Cargill."

MacLennan attributed the trend to healthier lifestyles. "It's about health. Consumer preferences are changing. People are more aware, especially in developed economies, about the food that they eat, what's in it [and] who made it."

HOGS: (nationalhogfarmer.com) -- The North American Free Trade Agreement, when enacted in 1994, created the world's largest free trade area, encompassing 450 million people and a gross domestic product of more than $20 trillion. That progress in trade is in jeopardy as trade officials from the member-countries of the United States, Canada and Mexico are at the negotiating table.

During his campaign, President Donald Trump had threatened that the United States would pull out of NAFTA altogether. Negotiators have had two rounds of discussions, with a third round beginning in Ottawa on Sept. 23.

According to a Reuters article, NAFTA trade accounts for 39% of Canada's GDP and 49% of Mexico's, but just 5% in the case of the United States, the world's largest economy. Both Canada and Mexico sell more than three-quarters of their exported goods to the United States. The 23-year-old trade deal encompasses agricultural and industrial goods to intellectual property and environmental regulation.

The National Pork Producers Council says since NAFTA implementation, U.S. trade with Canada and Mexico has more than tripled, growing more rapidly than U.S. trade with the rest of the world. These countries are the two largest destinations for U.S. goods and services, accounting for more than one-third of total U.S. exports.

Pork producers rely on export markets for adding value to their product as about 26% of U.S. pork produced ends up in foreign markets. Exports added $50 — representing 36% of the $140 average value of a hog — to every U.S. hog marketed in 2016, when $5.9 billion of U.S. pork was exported. Mexico and Canada are particularly important export markets.

As U.S. pork production is on the rise, the Canadian and Mexican pork sectors are also forecast to show continued growth through next year. The Daily Livestock Report, citing USDA's Foreign Agricultural Service Global Agricultural Information Network Report, says "for (Canadian) pork, both increases in slaughter levels and carcass weights are forecast, resulting in tonnage produced in 2017 up 2.5% year-over-year. In 2018, pork output is expected to continue to uptick (rising 2.0% from 2017)."

According to the GAIN Report on Mexico, "For the first time, Mexico is exporting live swine, and the pork sector continues to vertically integrate. However, Mexico depends on imports of pork to meet domestic demand."

The Mexican pig crop production for 2018 is forecasted at 19.9 million head, up from the revised 2017 figure, as genetics introduced in the domestic herd are reportedly propelling growth. Production continues to be bolstered by domestic demand. The vertical integration, as noted in previous reports, is happening at a higher rate than in the beef sector. Recent growth by the larger players in the swine industry is supporting further production, according to the GAIN Report.

According to the Daily Livestock Report, "Exports of hogs and pigs to the United States should post year-over-year gains driven by new U.S. slaughter plants. Canadian pork exports worldwide are forecast to continue growing. To meet Mexican domestic pork needs, imported tonnage from the United States is forecast to continue higher." Reuters recently polled economists who say Mexico and Canada will come out of the NAFTA talks relatively unscathed. "Any changes will likely be incremental," Brett Ryan, economist at Deutsche Bank in New York, says in the Reuters article. "U.S. corporations, particularly automakers, would be at substantial risk of supply chain disruptions.

The U.S. farm lobby would also be opposed."

Changes are likely to encompass dispute settlement mechanisms, labor and environmental standards, supply-management protections and rules of origin, among other areas, and may have the biggest impact on the auto and agriculture industries, Reuters poll respondents say.

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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