DTN Early Word Opening Livestock

Cattle Futures Geared to Open on Firm Basis

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

Cattle: $1-3 HR Futures: 50-100 HR Live Equiv $137.28 + .32*

Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 83.14 - .51**

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

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

GENERAL COMMENTS:

Cattle-market watchers should start to be better defined Thursday, both in terms of bids and asking prices. Our guess is that asking price will start out around $122 to $124 plus on a live basis and $195 to $200 plus dressed. Yet given such large board premiums, bullish feedlot managers may be tough to shake from the trees. That could mean we're set for another late Friday trade. Live and feeder futures should open moderately higher, supported by follow-through buying, technical bullishness and ideas of stronger cash sales ahead.

Look for the cash hog trade to open with steady/firm bids. The Saturday kill is now expected to total 165,000 head. Lean futures should open on a mixed basis tied to a combination of residual buying and profit-taking. Nearby contracts are likely to sag more than deferred in the early rounds.

BULL SIDE BEAR SIDE
1) The amazing bullish roll in cattle futures (landing yet another round of contract highs) continued on Wednesday with traders unafraid of packing board premiums. The CME seems confident and determined to lead the cash market higher. 1) Mostly flat to modest week-to-week increases on carcass weights, coupled with declining showlists, further supported the notion of currentness, but larger year-over-year supplies of fed cattle still are expected deeper into the fourth quarter.
2) Although the cash cattle trade remain untested at midweek, the handful of opening bids thrown on the table all looked higher than last week's weighted average for the area. 2) For the week ending Oct. 28, U.S. hatcheries set 220 million eggs in incubators; up 4% from a year ago. At the same time, chicks placed totaled 174 million chicks, up 1% from 2016.
3) While lean hog contracts settled no better than mixed on Wednesday, most months once again set new contract highs before selling off late in the session. 3) The pork carcass value closed moderately lower at midweek with all major primals losing ground except the belly.
4) The seasonal tendency is for December lean hogs to trade sideways into early November and then turn higher into early December. 4) For the week ending Oct. 28, Iowa barrows and gilts averaged 283 pounds, 1.3 lbs. heavier than the week before and 1.1 lbs. larger than 2016.

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OTHER MARKET SENSITIVE NEWS

CATTLE: (blackseagrain.net) -- Beef imports reached 502,887 tonnes valued at USD 2.2 billion in the first nine months of 2017, up 14.7% and 15.2% respectively from a year earlier, according to China Customs. In September alone, the import volume rose 23.5% year-on-year to 47,140 tonnes.

Separately, the Tianjin port in north China said it imported about 212,000 tonnes of beef in the nine months, with Uruguay, Brazil, Argentina and New Zealand figuring as the top four suppliers. Imports from Argentina booked the fastest rise of 69.1%, while those from Australia fell 16.3% during the period, noted the port.

HOGS: (National Hog Farmer) -- When the bell rang at the end of the fourth round in North American Free Trade Agreement negotiations, all sides came away fighting mad or at least that is how the mainstream media portrays it. In days before the latest meeting, U.S. Agriculture Secretary Sonny Perdue warned that revamping the landmark free trade agreement will be like a championship boxing match, going many rounds.

"If you ever watch a boxing match, they circle one another for a while," Perdue notes. "I think we are done circling. So we are going to lay some things on the table in the next round."

U.S. Commerce Secretary Wilbur Ross confirms the negotiation is just getting to the real hard issues. While the talks are confidential, the statements from Canadian and Mexican officials afterward indicate they are not exactly thrilled with the punches the United States is throwing.

Speaking at the Toronto Global Forum, Reuters reports Canada's Minister of Foreign Affairs Chrystia Freeland said the United States had presented some "troubling" proposals in the NAFTA talks.

Later, in a press conference, Freeland criticized a one-sided strategy in NAFTA negotiations after U.S. Commerce Secretary Ross said he wasn't prepared to make concessions to reach a deal.

Meanwhile, in the United States, groups are waging bets if President Trump's next move is withdrawing from NAFTA altogether. A move, very few in agriculture would cheer on at ringside. Mexico warned if Trump pulls out of NAFTA, they will strengthen ties with other trading partners.

Eighty-seven food and agricultural organizations on Oct. 25 sent a letter to Ross disputing his recent assertions that there is no world oversupply of agricultural products and that the threat to American agriculture from a United States withdrawal from the NAFTA was an "empty threat."

Yet, Ross said in a New York conference if the United States doesn't secure substantive changes to NAFTA, President Trump will make every effort to withdraw the country from the 23-year-old treaty. "The president is not a bluffer," Ross said.

So eliminating any doubt, the agriculture group put the numbers to pen. As outlined in the letter, if Canada, Mexico and the United States return to "most favored nation" tariff rates upon any withdrawal from NAFTA, here is some of the impact by the numbers.

256,000 A net loss of 256,000 U.S. jobs, a net loss of at least 50,000 jobs in the U.S. food and agriculture industry

$13 billion A drop in gross domestic product of $13 billion from the farm sector alone

40% Mexico and Canada account for nearly 40% of U.S. pork export volume. An economic analysis by Iowa State University found that withdrawal would decrease total U.S. pork production by 5%, resulting in an aggregate industry loss of around $1.5 billion, jeopardizing more than 16,200 U.S. jobs.

150 million The United States exported $3.2 billion worth of corn to Mexico and Canada last year, supporting 25,000 sector jobs. Withdrawal would cause U.S. production to fall by an average of 150 million bushels annually, erasing $800 million in value and increasing the need for farm program payments by $1.2 billion.

70, 27, 16 Looking at the other animal proteins, U.S. beef exports to Mexico and Canada exceeded $1.7 billion and accounted for 27% of total U.S. beef exports. In 2016, U.S. poultry exports were 7.95 billion pounds, over 16% of total production. Almost 70% of U.S. turkey exports go to Mexico.

While agriculture recognizes some sectors benefit from a NAFTA 2.0, the numbers support any revamping should include "do no harm" to agriculture and withdraw will have a long-lasting negative effect.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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John Harrington

John Harrington
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