DTN Early Word Opening Livestock

Cattle: Steady-$2 HR Futures: Mixed Live Equiv: $146.33 - .22* 
Hogs: $1-2 HR Futures: 50-100 HR Lean Equiv: $ 84.22 + .79**
* 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 be typically quiet Monday as packers limit their efforts to the collection of new showlists. It seems like a good bet that the fed offering will be steady to somewhat larger than last week. But it may be an even better bet that feedlot managers will not hesitate in pricing showlists another $2 to $3 higher. Live and feeder futures are staged to open substantially higher, supported by Friday's major surge in feedlot sales and technical buying.

Hog buyers should return this week once again faced with the challenge of tightening supplies. Expect opening bids to be $1 to $2 higher. Chain speed should total close to 2.15 million head this week, supporting further appreciation in the pork carcass value. Lean futures are likely to open at least moderately higher with the help of positive fundamentals and spillover support from the cattle complex.

	BULL SIDE		BEAR SIDE
1)	Surging feedlot sales on Friday underscored both manageable fed cattle supplies and the continuation of impressive early-summer beef demand.	1)	Hit by both sharply higher cost of live inventory and declining carcass value, beef processing margins have dropped significantly. This reality could make cattle buyers much more cautious in terms of procurement.
2)	Nearby live cattle futures scored significant technical progress with spot June closing above its 100-day moving average for the first time since late February.	2)	With the Father's Day feature in the can and put to bed, the wholesale beef trade is likely to be even slower and softer thanlast week'saction.
3)	Confirming the seasonal tightening in slaughter hog numbers, last week federally inspected kill totaled just 2.27 million, the first full week total under 2.3 million in months.	3)	With Mexico being the pork industry's largest trading partner, at roughly 7% of U.S. pork production, the hike in tariffs should eventually weigh on U.S. hog and pork prices.
4)	U.S. pork producers and processors will not feel a Mexican tariff immediately as they take advantage of the duty-free quota (as long as it lasts).	4)	As the June 1 Hogs & Pigs report and news of further herd expansion begins to rise on the horizon (due out June 28), spec buying may be more and more difficult to marshal.

OTHER MARKET SENSITIVE NEWS:

CATTLE: (Oklahoma Farm Report) -- Taking into consideration the last few days of May and into early June, Jim Robb of the Livestock Marketing Information Center says demand continues to look pretty good.

"The drivers in the market are clearly the robust demand. We had the boxed beef cutouts slightly weak last week," he said. "But, for the holiday-shortened week, we had very good movement during the week. So, in other words, we had almost five or six days worth of movement in the holiday-shortened week."

Which, Robb says, is good news. And even though wholesale markets were slightly softer in recent days past, he reports that prices are still higher than they were during the first week of May. A sign of "pretty good" strength in the marketplace. With that being the case, Robb says packer margins continue to be very strong which in effect continues to pull cattle through the marketing chain at a very aggressive pace. The one wild card that could throw a wrench in the works now it seems, is the uncertainty of trade access being heavily influenced currently by political rhetoric. Our NAFTA partners have each responded with threats of retaliation to President Trump's decision to move forward on the implementation of steel and aluminum imports. Robb says that while Canada's actions so far have no real impact on beef markets, Mexico's does. As the largest customer of US pork products, which is where Mexico has focused its retaliatory attack, any harm done to the beef industry will most likely be indirect.

"The bigger story has been in the short-term with respect to Mexico. Mexico is placing very large tariffs on US pork products. So, the beef impacts will be mostly indirect," Robb said. "What's not sold to Mexico, we have to consume here in the United States."

HOGS:(brownfieldagnews.com) -- An analyst with Informa Economics says even with tariffs in place, U.S. pork is still the best buy for Mexico.

Adam Speck tells Brownfield the cost of production in the United States runs about 40 percent below Mexican production costs.

"Even with the tariff, it's still cheaper to buy our bone-in product and bring it across the border for them to process and use it for their domestic markets."

He says Mexico has become reliant on U.S. pork in the 20 years since NAFTA was formed.

"It got easy for them, and I don't want to say they got lazy and complacent, but it was like fantastic that the U.S. keeps producing it, prices keep getting better, and Mexico kept taking it. It was like a match made in Heaven."

Speck says other pork exporters like Brazil and the European Union could become cost-competitive in the future, but he hopes for resolution on NAFTA before it gets to that point.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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