DTN Early Word Opening Livestock

Cattle Futures Expected to Open Moderately Higher

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 $137.58 + .15*

Hogs: Steady-$1 LR Futures: Mixed Lean Equiv $ 85.28 + .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:

Feedlot country should be typically slow Monday as cattle buyers limit their efforts to the gathering of new showlists. We expect the supply of ready steers and heifers to be steady to somewhat larger than last week. Asking prices will no doubt be sharply higher eventually, but perhaps not until midweek or later. Live and feeder futures are primed to open moderately higher, supported by follow-through buying and early-week cash optimism.

Hog buyers should return to work Monday looking for better leverage in the country in order to improve upon seasonal margins. Look for opening bids to be around steady to $1 lower. Lean futures will probably open on a mixed basis thanks spillover selling on one hand and the premium status of the cash index on the other.

BULL SIDE BEAR SIDE
1) With live and feeder futures once again exploding with triple-digit highs on Friday (and yet another round of new contract highs), the board still seems determined to lead the cash market higher. 1) As the cost of live inventory has soared over the last two weeks, beef packer margins have taken a serious hit. Specifically, gross packer margins are starting the week at their lowest level seen since early May.
2) The net-long position in live cattle futures held by noncommercials picked up again in the week of Oct. 31, increasing the total to 7,900 loads to 127,500. 2) The "official" index roll begins on Tuesday, when index funds will be rolling December live cattle longs into mostly February and April. Accordingly, December could have trouble attracting new long for a while, especially given its premium over feedlot cash.
3) For the week ending Oct 31, noncommercial traders increased their net-long position in lean hog futures by 5,400 contracts to 52,000. 3) Given the fact that spot December lean hogs is currently holding a 418-point discount to the cash index, many traders clearly remain nervous about prospects of large hog supplies later this fall and winter, and whether pork demand will be sufficient to clear the additional product.
4) Pork processing margins improved last week with the reduction in chain speed perhaps forcing retailer to support the product market more aggressively. The carcass value closed moderately higher on Friday, girded by better demand for hams, bellies and butts. 4) Halting wage growth remains a problem. Average earnings in October fell by 1 cent an hour, up 2.4% over 2016. Many economists expected slower wage growth in October, but few expected an outright drop.

OTHER MARKET SENSITIVE NEWS

CATTLE: (USMEF) -- Even though U.S. beef doesn't have a large presence in Europe, the fact that it's on restaurant menus and in grocery stores is important. "Sales of U.S. beef in the EU, in both the restaurant and retail sectors, is seen across the world as an endorsement of the quality, consistency and safety of our product," says Yuri Barutkin, U.S. Meat Export Federation (USMEF) representative in Europe. "That image pays dividends for U.S. beef elsewhere around the globe."

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Helping to enhance that image, U.S. beef was featured prominently at Anuga, a biennial event that is considered the world's largest food show, attracting 165,000 visitors to Cologne, Germany, in early October. Nearly 7,500 exhibitors participated, including the USMEF and 12 of its member companies. USMEF's participation in Anuga was supported by the USDA Market Access Program.

According to Barutkin, discussions at Anuga resulted in many promotional plans and projects for the coming year -- with both existing customers and new contacts. Barutkin has spearheaded a number of U.S. beef promotions in Europe this year, including seminars designed to enhance interest in alternative cuts from the round and the shoulder clod.

"Higher-end middle meats are quite popular in this market, but with the EU's demanding import requirements, it is important to develop outlets for as much of the carcass as possible," he said. "That's why USMEF's educational seminars, which make foodservice and retail professionals aware of more cuts that will appeal to European customers, are so essential."

Discussions with European importers and distributors at Anuga revealed that demand for U.S. beef remains high, but availability is limited by the growth in imports from other supplying countries under the European Union's duty-free high-quality beef quota.

In 1999, the World Trade Organization (WTO) ruled that the EU's ban on beef produced with synthetic growth hormones had no scientific basis and authorized the U.S. to impose retaliatory duties on certain products imported from the EU unless the ban was lifted. Ten years later, the U.S. and the EU agreed to replace U.S. retaliation with a 45,000 mt duty-free quota for beef that met a very strict product definition. The EU agreed to limit imports to countries that it determined had controls in place to ensure that beef shipped under the quota met this definition.

"Since it was clear that the EU was not going to lift its hormone ban, replacing the retaliatory duties -- which did not benefit the U.S. beef industry -- with a duty-free quota was viewed as a way of creating an important new opportunity for U.S. beef in one of the world's highest-value markets," explains Thad Lively, USMEF senior vice president for trade access. The EU sought to include in the 2009 agreement a provision for resolving the hormone dispute in the WTO. The beef industry took the position that as long as the hormone ban remains on the EU's books, it will not be possible to resolve the dispute.

This has continued to be the U.S. industry's position, but recently Canada, as part of its bilateral trade agreement with the EU, took the opposite view and notified the WTO that it was giving up its rights to compensation in the hormone case, even though the EU has taken no action to come into compliance with the WTO's 1999 ruling.

Prior to the 2009 agreement, U.S. beef entering the EU was subject to a 20% duty, making it uncompetitive except in a tiny niche at the very top of the market. The duty-free quota opened up a wider range of opportunities by somewhat offsetting the higher cost of producing beef from hormone-free cattle.

In the early going, the quota was an effective tool for U.S. exporters looking to gain a foothold in Europe and develop business over time. But then the EU expanded the list of countries that are eligible to supply beef under the quota to include not only the U.S. and Canada, the two countries that brought the original complaint against the hormone ban in the WTO, but also Australia, New Zealand, Uruguay and Argentina.

In the past few years, the quota has been completely filled, but beef from the other supplying countries has accounted for the majority of the business, leaving the U.S. with a small and shrinking share of the market. This situation has been compounded by the fact that the EU only makes the quota available on a quarterly basis, and the quota amount is used up well before the end of each 12-week period, creating gaps of as many as seven weeks when no beef is imported under the quota.

This uneven flow of product has created bottlenecks in the production and marketing chain and made it nearly impossible for companies to build long-term relationships with buyers who demand a consistent supply.

"This situation is becoming untenable for U.S. companies doing business in the EU," said Lively. "We have emphasized the urgency of the situation to our government and told them that the best way to make the 2009 agreement workable is for the EU to allocate a significant share of the quota to the U.S. for our exclusive use."

The quota was certainly a hot topic at Anuga, noted USMEF President Dan Halstrom.

"A solution is absolutely needed that will not only put an end to these current disruptions, but also allow for further expansion of U.S. beef exports to the EU," he said.

Halstrom added that uncertainty surrounding the quota can also have a negative impact on supply, causing U.S. cattle producers to question whether hormone-free production is a viable long-term option. But the reopening of China, which was closed to U.S. beef for more than 13 years, may provide momentum for producers interested in serving both the Chinese and European markets.

"The export requirements are not identical, but both markets require hormone-free and beta agonist-free cattle production," Halstrom said. "So if we can build demand for U.S. beef in Europe and in China, and smooth the flow of product to these markets, U.S. producers will see opportunities worth pursuing."

HOGS: (foodmarket.com) -- The tasty fan favorite -- the McRib -- is back! The iconic McRib returns for a limited time at participating U.S. restaurants.

The McRib's most loyal fans will be able to quickly locate the sandwich with the official "McRib Finder app" for iOS and Android phones. Consumers can simply download the app and from there, find locations, swap McRib-themed stickers and plan McRib sandwich dates with their friends.

The McRib is made with 100 percent seasoned boneless pork, McDonald's signature McRib sauce -- a sweet, tangy, barbeque style sauce -- and served with dill pickles and mild, fresh slivered onions on a toasted hoagie-style bun. Like all of McDonald's national sandwiches, the bun for the McRib is now free of high-fructose corn syrup. The sandwich dates back 35 years ago and was inspired by McDonald's first executive chef -- it first appeared on the menu in Kansas City, Kansas.

"The McRib is truly an iconic sandwich and has been a fan favorite since its debut on the McDonald's menu 35 years ago," said McDonald's Chef Chad Schafer. "Our customers are passionate and tell us they enjoy the sweetness of the barbeque sauce, which pairs perfectly with the hints of pickles and onions. It's more than a sandwich, it's a legend and has become an experience for so many to enjoy at McDonald's."

Fans were last able to order the beloved sandwich in December 2016. Customers can visit a participating U.S. restaurant location to enjoy McRib now, and new this year, you can have it delivered with McDelivery* on UberEATS.

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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