DTN Early Word Opening Livestock

Look for Cattle Futures to Open Mixed at Midweek

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

Cattle: Steady-$2 HR Futures: Mixed Live Equiv: $136.41 - .09*

Hogs: Steady-$1 LR Futures: 50-100 LR Lean Equiv: $ 83.47 -1.65**

* 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 buyers and sellers are expected to renew the cash parameters suggested on Tuesday. More specifically, look for opening bids around $110 live/$177 dressed in the face of asking prices of $115 plus/$183 plus dressed. Our guess is that significant trade volume will not develop until Thursday or Friday. Live and feeder futures should open on a mixed basis thanks to follow-through selling on one hand and cash premiums on the other.

Hog buyers will stay with a winning plan Wednesday, starting out with bids steady to $1 lower. With Smithfield scheduled to be dark on Saturday, the weekend kill may be no larger than 63,000 head. Lean futures should open moderately lower, checked by eroding cash and product values.

BULL SIDE BEAR SIDE
1)

While the cash cattle market remains untested on Tuesday, packer inquiry seemed decent for so early in the price-discovery process. Indeed, initial bids (i.e., $110 live; $177 dressed) looked several dollars higher than when they started last week.

1)

Despite the higher cash trade last week, live cattle futures ended Tuesday's session lower, with the spot contract posting the largest decline on the day. Many traders simply believe the market is not yet out of the dog-days-of-summer woods.

2)

Out-front boxed beef sales (i.e., with delivery specs of 22 days or more) last week totaled well over 1,000 loads last week, the second consecutive week of such volume. Retailers and food managers are showing confidence in late-summer beef demand.

2)

With outstanding beef export sales (i.e., product sold but not yet shipped) running record large for the early summer timeframe (holding in the 330-million-pound area), expectations for further aggressive shipments remain intact. In fact, many analysts believe that the remaining seven months of 2018 could easily be record large.

3)

Tuesday's hog kill jumped back to 455,000 head, a sure indication that JBS at Marshalltown was back in the saddle. With this many barrows and gilts around us, the cash market needs all the shackle space it can find.

3)

The pork cutout continued to deflate on Tuesday with a major drop in total value tied to struggling demand for bellies, picnics, and loins.

4)

Discounted nearby lean futures are working to encourage hog marketers to pull barrows and gilts forward, no doubt limiting carcass weights in the process.

4)

Tuesday's combination of lower cash hog sales and greater negotiated receipts (e.g., 16,377 head sold on a carcass basis) accentuated the realities of large country supplies and the weakening leverage of finishing floors.

OTHER MARKET SENSITIVE NEWS

CATTLE:(CNBC) -- President Donald Trump's trade policy may be harmful to the beef industry for years to come, said Kent Bacus, director of international trade at the National Cattlemen's Beef Association.

"We support the administration in enforcing trade," he told CNBC on Monday. "We would differ on how some of this has been carried out. We would much prefer the use of trade agreements like the Trans-Pacific Partnership. We've seen a lot of benefit from having rules-based, science-based trade from those free trade agreements."

Trump's tariffs and China's retaliatory measures come at time when there is a lot of supply piling up in storage, he said.

"The use of tariffs to try to bring leverage, we need to look at other options," Bacus said on "Power Lunch."

"If we don't see something turn around, this could have negative repercussions for us," he added.

Last week, Trump told CNBC he is "ready" to put tariffs on all $505 billion of Chinese goods imported to the Unitage ed States.

Washington has already slapped tariffs on $34 billion of Chinese products. Beijing hit back with retaliatory tariffs on the same amount of U.S. goods.

That caused tariffs on beef to go from 12 percent to 37 percent, said Bacus.

"We're worried that the repercussions of some of these tariffs is essentially going to squeeze us out of the market," he said.

The Chinese market for U.S. beef is not a big one. While China began importing U.S. beef last year after at 13-year ban due to concerns over mad cow disease, there are still a lot of restrictions, Bacus said.

The beef industry exports about 15 percent of what it produces, with three of its top five markets being in Asia. It exports things that American don't typically want to buy -- like beef tongues and short ribs, he said.

Meanwhile, meat is reportedly piling up in storage. Federal data are expected to show more than 2.5 billion pounds of beef, pork, poultry and turkey stockpiled in U.S. warehouses, according to The Wall Street Journal.

The glut is due to an expansion in cow herds, pork production and poultry production, which came in response to strong foreign demand, Bacus said.

"It takes about three years for our cows to come to market. So we were basing our production off of the market signals at the time. So we have a lot of product that's going to come online," he said.

"There's a lot of demand for it but trade policies are kind of getting in the way right now. And we may not have that same access for the next few years."

HOGS: (Business Standard) -- A "window of opportunity" to resolve complex issues in renegotiating the North American Free Trade Agreement (Nafta) has shown up, Mexican Minister of Economy Ildefonso Guajardo has said.

"Clearly there is a window of opportunity to be able to bed down a series of open issues," Guajardo said on Monday at Puerto Vallarta.

The minister is scheduled to meet with Canadian Minister of Foreign Affairs Chrystia Freeland and US Trade Representative Robert Lighthizer in Washington on July 26.

Nafta renegotiations began in August 2017 after demands made by the Donald Trump administration, which denounced the deal and threatened to abandon it.

The negotiating teams hoped to reach an "agreement in principle" at the beginning of May, but talks were suspended after Mexico and Canada disputed over the demands made by the US.

The minister is scheduled to meet with Canadian Minister of Foreign Affairs Chrystia Freeland and US Trade Representative Robert Lighthizer in Washington on July 26.

Nafta renegotiations began in August 2017 after demands made by the Donald Trump administration, which denounced the deal and threatened to abandon it.

The negotiating teams hoped to reach an "agreement in principle" at the beginning of May, but talks were suspended after Mexico and Canada disputed over the demands made by the US.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

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John Harrington