DTN Early Word Opening Livestock

Cattle and Hog Paper Seem Staged to Open on a Mixed Basis

(DTN file photo)

Cattle: Steady Futures: Mixed Live Equiv: $147.54 +.37*

Hogs: Steady-$1 HR Futures: Mixed Lean Equiv: $ 82.35 + .84**

* 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 will probably remain in slow gear Tuesday with bids and asking prices poorly defined. Assuming that nearby live futures at least remain in their lateral ranges, significant trade volume may be delayed until the second half of the week. Given the continuation of outstanding packer margins, there should be no problem in weekly slaughter totaling 655,000 head or better. Live and feeder futures are set to open on a mixed basis thanks to both spillover selling and short-covering.

Hog buyers will return to work Tuesday with bids steady to $1 higher. Seasonally, market numbers of barrows and gilts continue to tighten and force the hand of buyers. Our guess is that the weekly slaughter could sink as low as 2.3 million head. Lean futures should also open with uneven price action thanks to both residual selling and short-covering.

BULL SIDE BEAR SIDE
1) The volume of out-front (with delivery of 22 days or more) boxed beef sales last week was decent, totaling 1,046 loads. Retailers still have a good deal of grilling demand to buy for the summer season just beginning. 1) New showlists distributed Monday in cattle-feeding country were generally larger than the prior with only Texas offering fewer ready steers and heifers.
2)

The beef carcass value moved moderately higher on Monday thanks to a big jump (i.e., up $1.46) in the select box. Furthermore, early-week box movement was described as "moderate to fairly good."

2) For the beginning of June, the discount in August live cattle compared to spot June is wider than seen in the previous five years. The market continues to project expectations of lower cash cattle prices heading into summer.
3) The cash lean hog index is clearly accelerating. Indeed, if it continues to surge forward, it could still work to stabilize/firm summer lean futures. 3) For the week ending May 29, noncommercial traders continued to increase their net-short position in lean hog futures by another 2,600 contracts, which now stands at net-short 21,200.
4) The pork carcass value recovered by nearly a dollar on Monday, supported by better demand for all primals except the loin. 4)

The future of NAFTA becomes more and more unclear. One thing is clear. President Trump is no cheerleader. Last Friday Trump told reporters he "would not mind seeing NAFTA whereit would go by a different name, a separate deal with Canada, a separate deal with Mexico." The President also reiterated his view that the U.S. loses "a lot of money with Canada" because of the NAFTA deal and also loses "a fortune with Mexico."

OTHER MARKET SENSITIVE NEWS:

CATTLE: (Drovers) -- Increasing consumer demand for beef played a role in higher than expected cattle prices during the early months of 2018.

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Demand will be critical to market performance as fed cattle numbers increase into the summer. I [John Nalivka, president of Sterling Marketing, Inc., Vale, Oregon] have said that more than once over the last several months. However, after looking at 1st quarter market performance, I think the outlook could be a lot more positive than the increased supply might otherwise portend, particularly with that added kicker as consumers buy those juicy Choice ribeye steaks or burgers to grill.

The 1st quarter's performance got the industry off to a good start and at a time of the year when seasonal demand is not that good. Taking a look at first quarter data, my estimates for U.S. beef consumption (production + imports -- exports) was 2% higher than the prior year. At the same time, consumers paid a 1% higher retail price for that beef in the supermarket. This left 1st quarter retail beef expenditures up 2% from a year earlier. When adjusted for inflation, those beef expenditures were about even with a year ago. Considering a 3% increase in beef production coupled with the competition from 4% more pork and 1% more chicken, 1st quarter beef expenditures represented solid demand for that time of the year.

Further up the supply chain, wholesale beef prices during the 1st quarter were 6% higher than a year earlier while packers paid 2% more for Choice steers than a year ago. Feeder cattle prices for the period were up 13% from the prior year.

Trade represents the other part of demand and it may pose one of the greatest uncertainties with the talk of tariffs becoming reality. But, at the same time I think it is easy to get whipped up into a frenzy when the word tariff is even mentioned.

Beef exports were up 12% from prior year during the first quarter. The value of those exports was up 19% from prior year. The question is: will the added cost of a higher tariff on U.S. beef in key export markets have a significant negative impact? I don't think that the answer to that is question is cut and dried.

In short, demand for increased U.S. beef production both globally and at home and has been quite positive to the market. While we are facing increased cattle numbers as the 3rd quarter approaches, we are also headed into the summer grilling season and the evidence for U.S. consumer demand so far I think suggests limited downside pressure from supply.

HOGS: (The Hill) -- Concerns over retaliatory tariffs from Mexico have cost Iowa pork producers roughly $560 million, the Des Moines Register reported Friday.

According to the newspaper, Iowa pork producers could take another hit if Mexico follows through on its threat to impose a 20 percent tariff on hams and pork shoulders from the U.S.

Producers in the state already face a 25 percent tariff on pork exports to China. But duties from Mexico -- the largest export market for American pork by volume -- could put further strain on producers.

Iowa is the largest pork producer in the U.S., according to Gregg Hora, the president of the Iowa Pork Producers Association. Hora told the Register that the threatened tariffs are "potentially devastating news for Iowa's pig farmers and the rural Iowa economy."

While the possible tariffs from Mexico would hurt U.S. pork producers, it would ultimately drive down the cost to consumers, the Register reported.

The tariff threats from Mexico came after President Trump announced Thursday that the U.S. would impose steep duties on steel and aluminum imports from Canada, Mexico and the European Union (EU).

Those markets had initially been exempted from the tariffs when they were first announced in March. But Commerce Secretary Wilbur Ross said that trade talks had not advanced far enough to warrant a continued exemption.

In turn, Canada, Mexico and the EU proposed a series of retaliatory tariffs on U.S. goods, ranging from blue jeans, to bourbon and yogurt.

Canada and the EU have also brought cases against the U.S. at the World Trade Organization.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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