DTN Early Word Opening Livestock

Hog Futures Likely to Open Moderately Higher

(DTN file photo)

Cattle: Stdy/wk w/Thus Futures: 50-100 HR Live Equiv: $150.11 + .49*

Hogs: Steady-$1 HR Futures: 50-100 HR Lean Equiv: $ 80.58 + 1.11**

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

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

GENERAL COMMENTS:

Weighted trade volume totals look relatively small in some cattle feeding areas, so we could see one last round of light-to-moderate business before this ugly week gets put to bed. Yet when markets seem to implode by the hour, sellers are less than enthusiastic to report lower money. In short, it's been a difficult week to accurately track volume in a timely fashion. Possibly, cash trading is done for the week. Our guess is that whatever steers and heifers remain unsold will be priced around $118 in the South and $185 in the North. Live and feeder futures should open moderately higher, supported by follow-through short-covering and the need to correct oversold charts.

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Hog buyers should wrap up cash procurement Friday morning with bids steady to $1 higher. Decent processing margins seem to be holding, but packer profit typically shrinks through the first half of the summer. Conversely, producer margins have moved back into the green this month and should steadily improve over the next 30 to 45 days. Lean futures seem staged to open moderately higher with nearby contracts better supported than their deferred counterparts. Early buying should be motivated by bull-spreading interest and constructive fundamentals.

BULL SIDE BEAR SIDE
1) Don't show seasonal beef demand the door yet. The choice cutouts moved sharply higher on Thursday, closing at its highest level since June 27, 2017. Furthermore, box demand was described as "moderate to fairly good." 1) Thursday's long delayed rally in cattle futures was not very impressive given the way prices collapsed Monday through Wednesday. Indeed, it seemed nothing more than a dead cat bounce, and not a very good one at that. Short- and long-term trends remain very defensive.
2) For the week ending May 5, fed cattle carcass continued to lose weight: steers averaged 849 pounds, 1 pound less than the prior week and 17 pounds more than 2017; heifers averaged 786 pounds, 2 pounds less than the week before and 17 pounds more than last year. 2) Net beef export sales last week slid to 11,000 MT, down 3% from the previous week and 34% from the prior four-week average. For the same period, actual exports totaled 16,400 MT, down 2% from the previous week (though up 3% from the prior four-week average).
3) Net pork export sales last week totaled 21,900 metric tons (MT), up 33% from the previous week and 12% from the prior four-week average. At the same time, actual exports totaled 22,400 MT, up 2% from the previous week, but unchanged from the prior four-week average. 3) With fed cattle prices plummeting lower and live cattle discounts suggesting a dark summer of meat demand, cash hogs, wholesale pork, and lean futures could find it difficult to avoid the bearish fallout.
4) The pork carcass value closed more than a buck higher on Thursday, supported by stronger demand for loins, bellies and picnics. 4) Ongoing NAFTA negotiations have limited gains this week, compounding concerns regarding the adequacy of U.S. and export demand needed to clear the large available hog supplies projected in the coming months.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Drovers.com) -- U.S. beef exports for the first three months of the year are up 12.2 percent with March up 11.4 percent. So far in 2018, the U.S. has exported beef to 100 different countries. However, 85 of those countries only account for 5.9 percent of year to date beef exports. The top fifteen beef export markets represent 94.1 percent of exports with the top six markets accounting for 86.5 percent of total beef exports.

The number seven to fifteen export markets account for 7.6 percent of beef exports. Most of these are small markets with limited potential to be significantly bigger markets for U.S. beef. These markets include such countries as Chile, Philippines, Netherlands, Guatemala, the Dominican Republic, and United Arab Emirates. Vietnam, currently number ten, has been as high as the sixth largest export market, however, most of that is believed to be trans-shipments into China.

Among those top fifteen markets is mainland China. China is currently the number twelve beef export market for the U.S. and has accounted for less than one percent of total beef exports since exports to China resumed in June, 2017. Despite the slow pace of exports to China thus far, there is tremendous potential for China to be a very significant beef export market for the U.S. Despite relatively low per capita beef consumption, China is the second largest beef consuming nation in the world, behind the U.S.

Historically, China has been isolated from global beef markets with consumption matching domestic production. However, in the past six years, Chinese beef consumption has sharply outpaced domestic production and Chinese beef imports have grown rapidly. By 2016, China was the second largest beef importing country, behind the U.S. Current projections by USDA's Foreign Agricultural Service include Chinese beef imports still second to the U.S. but jumping from 72 percent of U.S. import levels in 2017 to 87 percent of U.S. beef imports in 2018. The implication is that China could well be the largest beef importing country in the world in the next year or two. The U.S. clearly wants to increase market share in this rapidly growing market.

Among the top six beef export markets, Japan remains number one, with January to March imports of U.S, beef fractionally lower year over year. Number two South Korea continues to be a very strong market and is up 28.8 percent for the year to date. Number three Mexico is up modestly by 3.1 percent compared to last year. Hong Kong is the fourth largest beef exports up 33.7 percent year over year. Beef exports to number five Canada are down 9.6 percent compared to last year. Taiwan is the number six beef export market and is up 36.7 percent year over year.

Beef exports continue to support cattle and beef markets with six strong major markets plus a number of smaller markets including lots of potential for China to be a much bigger market for U.S. beef over time.

HOGS:(Hoosier Ag Friday) -- The Chairman of the House Ways and Means Committee is echoing comments from House Speaker Paul Ryan, calling on the North American Free Trade Agreement talks to conclude in an agreement this week. That is if the Trump administration wants Congress to consider an updated NAFTA before the end of 2018. House Ways and Means Chairman Kevin Brady says "we're hopeful they'll continue to make progress on this agreement." However, the week is quickly coming to an end, and top trade negotiators from Mexico and Canada are not on-site with others this week.

Dan Ujczo, an international trade lawyer, told Politico that to reach an agreement, negotiators may have to concede to a "skinny NAFTA," one without addressing key issues including reducing the trade deficit, preventing job outsourcing and providing better market access to Canada for U.S. dairy farmers. The "skinny NAFTA," Ujczo says, would fall in line with the "do no harm" pleas by U.S. agriculture, but he says not addressing key issues gives Democrats an advantage to say President Trump "did not fulfill his campaign promises to dairy farmers," and others.

John A. Harrington can be reached at john.harrington@dtn.com

Follow John Harrington on Twitter @feelofthemarket

(BAS)

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