DTN Early Word Opening Livestock

Cattle Paper Likely to Open Moderately Higher at Midweek

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

Cattle: Steady-$2 HR Futures: 50-100 HR Live Equiv $133.47 + 1.59*

Hogs: Steady-$1 LR Futures: Mixed Lean Equiv $ 77.76 - 1.01**

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

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


Cattle-buying inquiry could start to show more life Wednesday, at least in terms of more starter bids of the time. At the same time, preliminary asking prices should become more evident. Our guess is that the South will initially price showlists around $110 to $112 live. Northern feedlots are likely to begin asking somewhere in the $172 to $174 plus neighborhood. Both buyers and sellers will be monitoring the board as well as the FCE internet auction for clues regarding cash prospects through the balance of the week. Chances are the development of significant cash volume will be delayed until sometime Thursday or Friday. Live and feeder futures seem geared to open moderately higher Wednesday, supported by midweek short-covering and the early-week appreciation of beef carcass value.

The cash hog market seemed to stabilize a bit on Tuesday. While weighted averages were still lower, bids needed to move significantly. Country trade volume seemed closer to steady than we've seen in several weeks. No big deals, but possibly a sign that cash has become oversold for a minute or two. Time will tell. So look for opening bids to be no worse than steady to $1 lower. Needless to say, there's still an abundance of live inventory for packers to choose from. Furthermore, processing margins remain very attractive, attractive enough to probably plan a Saturday kill close to 240,000 head. Lean futures are likely to open mixed in slow volume as traders jockey ahead of the Sept. 1 hog inventory scheduled for release on Thursday.

1) For the second consecutive session, beef cutouts exploded sharply higher on Tuesday with box movement once again described as "moderate to fairly good." Packers seem to be quickly recovering any loss in profit margins suffered last week. 1) Nearby live futures continued to retreat on Tuesday with December underscoring Monday's technical damage by sliding further below the 100-day moving average (settling below its eight-day moving low for the first time since Aug. 21).
2) Although losing more ground Tuesday, spot October live cattle did seem to dig in above its 40-day moving average at 108.12. If bulls can draw a line in the sand here, feedlot managers will roll up their sleeves again with higher asking prices. 2) Now that spot October has fallen a bit below last week's 5-area steer average (i.e., $108.50), renewed basis strength could make it tougher for feedlot managers to hold for higher asking prices.
3) Hams moved into cold storage in August at a below normal rate, hinting that holiday needs later this year could work to stabilize prices later this fall even as fresh production increases. Additionally, trade sources suggest that Mexican demand for bone-in hams remains excellent. 3)

Bearish expectations in lean hog futures continues to dominate the CME marquee with spot October once again setting a new contract low on Tuesday (i.e., $55.02).

4) Though most analysts believe that prior farrowing estimates by the USDA have been understated, if the new Hogs & Pigs report due out Thursday happens to affirm previously estimated farrowing levels, support could enter the marketplace with a tighter supply moving forward than current pricing would suggest. 4) After the shortest of reprieves, pork carcass value is back on the defensive, closing more than a buck lower on Tuesday thanks to struggling demand for bellies, ribs, and picnics.


CATTLE:(RABOBANK) -- US beef exports are up 11% YOY in volume for the year to July and up 15% YOY in value terms. This highlights the ongoing availability of product for export from the US, as well as challenges in exporting from Australia and Brazil. US beef exports are up for the year to date to Japan (22% YOY), Hong Kong (33% YOY), and Canada (5% YOY).

Australia has been restricted by availability of beef for export, while the 'weak flesh' scandal in Brazil slowed exports of all proteins in 1H 2017. At the same time, the US has recorded stronger-than-expected beef imports, which are up for the year to date by 11% YOY.

After reaching the trigger level, the Japanese government introduced safeguard measures and increased the tariff on imported frozen beef to 50%. This will impact all nations sending beef to Japan, apart from Australia, Mexico, and Chile, which have trade agreements.

Argentina is trying to start shipments of fresh beef to the US. In August 2017, negotiations appeared to have taken a step closer to reaching an agreement, when Argentina announced that it had opened its market to American pork products, showing that bilateral meat trade is under discussion. If Argentina is successful in gaining entry to the US fresh beef market, it will have access to a 20,000-tonne beef quota.

After having declined by more than 8% during 1H 2017, Brazilian beef exports have shown a strong recovery during Q3 2017. In August 2017, they reached their highest level in four years. Consequently, beef exports reversed the negative results and have already increased slightly for the first eight months of 2017. Moreover, Brazilian beef exports are likely to sustain volumes above 2016 levels during Q4 2017.

HOGS: (nationalhogfarmer.com) -- With a clearer vision on how to elevate U.S. pork as the global protein of choice, three National Pork Board officers and two members of the senior leadership team have returned from an Asian trade mission. The team representing the Pork Checkoff toured Japan and China from Sept. 5-16, visiting with pork processors, distributors and retailers, as well as importers and traders. Asian team members of the U.S. Meat Export Federation also accompanied the Pork Checkoff crew.

"Pork is the No. 1 most consumed protein in the world, and that was certainly obvious as we toured parts of Japan and China," says National Pork Board CEO Bill Even. "It is important for us to see firsthand how pork is raised, processed and promoted in Asia. The Asian customer and consumer culture is unique, and we need to understand the global motivation to purchase U.S. pork."

The United States is facing record-breaking pork production in 2017. The Pork Checkoff is committed to growing demand, not only in the United States, but also among top customers in Asia. In terms of pork volume (pounds), China/Hong Kong and Japan are currently the No. 2 and 3 export customers of the United States. Combined volume in these areas is 534,953 metric tons (or about 1.18 billion pounds). In terms of pork value (U.S. dollars), Japan is No. 1 and China/Hong Kong is No. 3, with a combined value of nearly $1.6 billion of exports, both according to the most recent (through July) USMEF data.

"Marketing pork comes down to building long-term relationships and having a safe, dependable, high-quality product that is presented well to the buyer," says Pork Board President Terry O'Neel, a producer from Friend, Neb. "Consumers are encouraged to experience U.S. pork through fun events and social activities."

While in Japan, the trade team was able to see specifically how U.S. pork is marketed, including through USMEF's current Gochipo (sumptuous pork) campaign. That marketing campaign extols the virtues of high-quality, delicious U.S. pork and the rising value of U.S. pork products.

"My most distinct takeaway as a producer is the vital and versatile role that U.S. pork plays in the Asian diet," says Pork Board Treasurer Brett Kaysen, a producer from Nunn, Colo. "No matter the level of retail outlet in Japan — from discount to high-end — U.S. pork is present."

After spending five days on the ground in Japan, Checkoff leadership traveled to China. While in China, O'Neel and Even presented the U.S. pork production perspective at the annual China Swine Industry Symposium. O'Neel spoke on managing financial, environmental and labor risk in U.S. pork production.

"China is a huge market in terms of volume and opportunity," says Pork Board Vice President Steve Rommereim, a producer from Alcester, S.D. "While China is 98% self-sufficient in pork production, we need to further our outreach efforts here. The economic growth and infrastructure development we saw in China is intimidating, to say the least. This level of growth points to a greater dependence on foreign market imports, with price a key buying criteria."

Kaysen adds, "In China, I envision cold pork storage experiencing dramatic growth as the population grows and as the country continues to consume more meat. Our job is to make U.S. pork truly recognized in the meat case at the retail level in China as much as it is in Japan."

"Our leadership gained a greater understanding of the Asian market by visiting with people in the Japanese and Chinese meat trade," O'Neel says. "U.S. pork is doing well in Asia, but we can do more to improve. Free trade issues remain both a barrier and a pathway to future U.S. pork export growth."

Rommereim agrees, saying, "This was an important trip for the officers to make. As the U.S. pork industry expands, our dependence on these markets becomes even more important and valued. Through increasing our level of knowledge, we are better qualified to spend Checkoff dollars wisely to expand exports."

Including both muscle cuts and variety meat, exports have increased to 27.5% of total production in 2017 (up from 25.6% last year). Growing that amount is the result of developing Asian customer relationships and working with the USMEF and the National Pork Producers Council.

John Harrington can be reached at feelofthemarket@yahoo.com
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John Harrington