DTN Early Word Opening Livestock

Follow-Through Buying Interest Should Sponsor Firm Openings for Meat Contracts

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

Cattle: Steady-$2 HR Futures: 50-100 HR Live Equiv $135.60 + .29*

Hogs: Steady-$1 HR Futures: 50-100 HR Lean Equiv $ 83.68 +1.01**

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

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

GENERAL COMMENTS:

Feedlot country seems set for a typically quiet Tuesday with bids and asking prices poorly defined. Significant trade volume probably won't surface until the second half of the week. Live and feeder futures should open moderately higher, lifted by residual buying interest and technical bullishness.

Hog buyers opened the week Monday with firm bids, but generated no better than moderate trade volume. This probably means they will find it necessary to work with firm bids again Tuesday. That said, most expect slaughter hog numbers to steadily grow over the next four to six weeks. Lean futures are set to open moderately higher, supported by spillover buying and constructive fundamentals.

BULL SIDE BEAR SIDE
1) Cattle futures didn't lose a beat running after feedlot cash on Monday with a large handful of both live and feeder months setting new contract highs. 1) New showlists distributed in feedlot country on Monday were generally larger than last week with only Colorado offering fewer ready cattle.
2) Last week's comprehensive beef cutout jumped as much as $2.72, the largest weekly advance since mid-May. Furthermore, beef sales reported another impressive round of out-front sales (1309 loads). 2) Now that feedlots have been teased by at least one wave of sharply higher packer bids, the threat of delayed marketings and larger carcass weights becomes even greater (i.e., "yes, deferred premiums are worth waiting for").
3) The pork carcass value surged more than a buck higher on Monday with all primals reflecting better demand except the loin. 3) The lower price of feed costs for the fourth quarter as well as better-than-expected margins will help to encourage producers to remain in expansion gear and guarantee processors with ample supplies throughout 2018.
4) Lean hog futures powered solidly higher Monday with February through June setting new contract highs. 4) Look for cash hog prices to increasing falter as we move into November, showing evidence that demand is not increasing above current levels. At prices above a year ago by 30%, the wholesale pork trade should hurt demand going forward. In order to keep product moving, prices will need to ease, especially as demand for product is expected to ease in proportion to the extra live numbers.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Sydney Morning Herald) -- A Chinese ban on Australian beef exports has been lifted, resolving one of the year's major friction points in the Australia-China trading relationship.

Trade Minister Steven Ciobo says the federal government has been notified that six Australian beef exporters, who made up a third of Australia's beef trade to China, can resume exporting.

Mr Ciobo had raised China's suspension of exports from the beef processors during a series of meetings in Beijing last month.

The suspension by Chinese customs and quarantine regulators in July was blamed on labelling concerns.

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Australian trade officials said the issue had been resolved relatively quickly. In contrast, it had taken Germany five months to resolve a similar ban on pork over mislabelling, while Canada took 18 months to recover from a ban on pork imports, where there was concern over additives.

Australia's beef exports to China were worth more $670 million last year, making it Australia's fourth-largest market. The ban had coincided with the entry of US beef to China.

Mr Ciobo said: "This is terrific news for the six affected facilities, great news for their workers and suppliers."

He said he appreciated the "constructive engagement with the Chinese authorities".

The problem had been non-compliance with labelling regulations, but Mr Ciobo said it had been "resolved very quickly".

HOGS: (Western Producer Publications)--Japan's imports of Canadian pork are rising, said Tatsuo Iwama, ex-executive director for the Japan Meat Traders Association, which comprises 30 major Japanese meat traders.

"Canadian pork meets Japan's quality and price requirements," Iwama said.

Japan Ministry of Finance figures bear Iwama out. Imports of Canadian pork rose almost 20 percent last year compared to 2015, from more than 149,318 tonnes to almost 178,610 tonnes.

Imports of chilled Canadian pork increased more than 13 percent from almost 121,121 to almost 137,231 tonnes. Frozen product made an almost 47 percent import jump, coming in at more than 41,379 tonnes in 2016 compared to about 28,197 tonnes the previous year.

When Japan sources pork, it does so at a high-price tariff system, so importers take in a combination of high-end cuts, such as loin and tenderloin, and low-end cuts, such as shoulder and thighs.

"Whether chilled or frozen, loin is the most in demand, with frozen loin being used for bacon," Iwama said.

Canada Pork International Japan marketing director Shoji Nomura agreed with Iwama about the rising trend of Japan's imports of Canadian pork. Quoting ministry of finance statistics, Nomura pointed out a 2.5-fold increase in Canadian chilled pork imports in 2010-16. Totals rose to 137,231 tonnes from 54,425.

Various reasons explain the import increase, including recognitions of Canadian pork's good quality and of the Canadian pork industry's high-level food safety system, Nomura said.

The frozen-to-chilled pork ratio Japan imported from Canada in 2010 was 69.5 percent to 30.5 percent. In 2015, the proportion had almost reversed to 21.7 percent frozen and 78.3 percent chilled, Nomura said.

"Although volumes have not significantly changed, demand for back and spare ribs for barbecue is increasing little by little," he said.

Last year, the total value of Canadian pork sold to Japan marked a new record at $3.812 million.

To succeed in the Japanese market, Quebec pork producers must put out a custom-made product, generally raised, cut and packed according to the specifications of the Japanese customers, outgoing Quebec agent general Claire Deronzier said.

For example, some Quebec producers let their pigs rest 16 to 24 hours before slaughtering, compared to the industrial standard of two to five hours. "That makes for a more tender and juicy meat," Deronzier said.

Of Canada's major pork-producing provinces, only Quebec and Alberta maintain representative offices in Japan. Alberta works in collaboration with federal government, industry associations and private industry, said senior commercial officer at Alberta's Japan office Mary Beth Takao.

Alberta has long produced pork that the Japanese favour, partially owing to the province's barley feed, "which creates a beautiful flavour and clean white fat," Takao said.

Many Alberta producers are also raising the favoured Sangenton breed. "Many of the (processing) companies have also worked very hard to put in equipment that will meet the Japanese specifications," Takao said.

CANSET Canadian international trade statistics provided by Takao show Alberta's pork exports rose almost 10 percent overall last year to 251,001 tonnes, compared to 2015's 228,386 tonnes.

Since last year, CPI's Japan office has been promoting the Verified Canadian Pork program, in which each CPI member packer exporting to Japan participates. Costco Japan, which had a strong interest in this program, changed in April from U.S. to Canadian chilled pork throughout its chain after a January-February trial, Nomura said.

Costco Japan's 25 stores now sell Canadian Three Breed Cross pork (Landrace, Large White and Duroc), mostly from Olymel's plant in Vallée-Jonction, Quebec.

"In the first half of May, the chain achieved 130 percent sales of imported pork compared to the same period last year," Nomura said.

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

(BAS)

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John Harrington

John Harrington
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