DTN Early Word Opening Livestock

Hog Futures Likely to Open Lower Tuesday as Fundamentals Stay Stubbornly Bearish

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

Cattle: Steady Futures: Mixed Live Equiv: $136.29 - .27*

Hogs: $1-2 LR Futures: 50-100 LR Lean Equiv: $ 79.59 -2.43**

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

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

GENERAL COMMENTS:

Market watchers will probably not be stressed Tuesday documenting the limited activity of the cash cattle trade. We expect neither bids nor asking prices to be well defined. Meaningful definition in that regard will likely not surface until Wednesday at the earliest. Given smaller trade volume totals generated last week, we believe cattle buyers are generally short bought, but it's tough to translate that into how business will be timed in the days ahead. Look for live and feeder futures to open on a firm basis thanks to a slow combination of short-covering and long liquidation.

Hog buyers continue to swing a big hammer thanks to plentiful ready supplies of barrows and gilts, and eroding carcass value. Expect cash bids to open $1 to $2 lower as buyers continue to lean into the big offering of market hogs. Lean futures should open at least moderately lower, further checked by bearish fundamentals.

BULL SIDE BEAR SIDE
1)

Although new showlists distributed in feedlot country were mixed (i.e., smaller in the South, larger in Colorado, and about steady in Nebraska), the overall offering appears to be smaller than last week.

1)

Lower cattle futures continued to be oblivious to the premium realities of the cash feedlot trade on Monday, apparently convinced that cash will drop to futures faster than futures will rally towards cash.

2)

Out-front boxed beef demand remains quite strong. Sales with 22-day delivery or more totaled 1,164 loads last week. Such an aggressive pattern of advanced booking in the last three weeks essentially commits packers to aggressive chain speed through much of August.

2)

Most believe that this week's cattle will be at least the same size as last week (640,000), possibly some bigger.

3)

Given the historically larger late-year discounts in lean hog futures, it's very possible that the board already reflects a worst case scenario for the cash market in the last third of 2018.

3)

The pork cutout on Monday crashed and burned, losing nearly $2.50 thanks in large part to a $12.18 drop in the belly primal.

4)

There has not been any additional news of worsening trade situations and the now favorable price points for pork are likely to keep exports moving (though at the expense of producer profitability this fall and winter).

4)

Although chain speed got off to a relatively slow start, many analysts believe this week's hog slaughter could total as much as 2.3 million head. The potential of such tonnage is apt to seriously challenge the already struggling status of the pork carcass value.

OTHER MARKET SENSITIVE NEWS

CATTLE:(Agrinews Publications) -- A convoy of federal bills that would ease the electronic-logging device burden on livestock haulers is continuing to move through Congress.

"We have a lot of things in the mix right now that we are working hard to get done before Sept. 30. I am very aware of the deadline," said Allison Rivera, the executive director of government affairs for the National Cattlemen's Beef Association.

Rivera and the NCBA have been at the forefront of the charge to find a way to exempt livestock haulers and haulers of live animals, including bees.

They are seeking to exempt livestock truckers from the requirement to use ELDs, which electronically record driving time.

Livestock groups received a boost in May when Sen. Ben Sasse, R-Neb., introduced SB 2938, Transporting Livestock Safely Across America.

The legislation would exempt livestock haulers from the hours of service driving time calculation when livestock are being loaded and unloaded.

It would extend the hours of service on-duty maximum hour limit from the current 11 hours to 15 hours.

Rep. Ted Yoho, R-Fla., and Rep. Collin Peterson, D-Minn., introduced a companion bill in the U.S. House, HR 6079.

"NCBA is supportive of the Sasse and Yoho bills. We were pretty instrumental in helping to craft those bills," Rivera said.

On June 12, Sen. John Hoeven, R-N.D., and Sen. Michael Bennet, D-Colo., introduced the "Modernizing Agricultural Transportation Act." The bill calls for the DOT to convene a working group to examine current hours of service and ELD rules.

The group would examine the current regulations to identify obstacles to transporting livestock, insects and "other perishable agricultural commodities," then develop guidelines and recommend regulatory action to overcome the obstacles they identify.

"The idea would be to get everybody together talking with (the Federal Motor Carrier Safety Administration) at the table to try to find a path forward on what flexibilities on hours of service would work for everybody. It's a gathering of the minds and bringing people with very different perspectives on the issue together," Rivera said.

The bill establishes a deadline of one year, after the group is established, for submitting its findings to the U.S. transportation secretary. Then, the secretary is required by the bill to propose changes to the hours of service and ELD regulations within 120 days of receiving the group's recommendations.

A major benefit for livestock haulers would be that the bill would suspend the E LD requirement for livestock and insects and other perishable ag products until the DOT secretary officially proposes changes to those regulations.

Rivera conceded that caveat is not popular among all the groups who might come together under the working group idea.

"The reason we like the bill, the caveat there is that until that group can come to some kind of consensus on moving forward on hours of service, the ELDs wouldn't go into place. Those who like the ELDs are not super supportive of that bill," she said.

The compliance extension for ag commodity haulers to implement ELDs ended as of June 18, although federal ELD exemptions, such as the FMCSA's Agricultural Commodity Exception continue to cover many ag haulers.

The FMCSA announced on July 2 that it was denying a request for exemption by the Owner-Operator Independent Drivers Association. The OOIDA requested at least a five-year exemption for motor carriers that are classified as small businesses.

Rivera said that there has been a flurry of bills being put forth regarding the ELD requirement. That, she said, indicates both a recognition of the need for action on the legislative side and a demand for changes to the ELD requirement, as well as the hours of service rules.

"It's not just agriculture who feels like they want to see changes on ELDs or on hours of service because of the ELDs. There are a lot of truckers out there who want to see something," she said.

Rivera added that it's hard to say if the OOIDA exemption request being declined is indicative of how requests from other groups, including agriculture groups, might be handled by FMCSA in the future.

"It's hard for me to say yes or no. We continue to remind FMCSA that we are the group out there that is not like the others in the fact that we are hauling livestock, we are hauling live animals and we feel like we need flexibility. That's our bottom line with them, and until they make a decision on our petition, we are going to continue to beat that drum," she said.

HOGS: (USDA) -- U.S. Secretary of Agriculture Sonny Perdue Monday celebrated the reintroduction of American pork products to the Argentine market after more than 20 years by slicing a ten pound honey baked ham.

"The U.S. is the world's third largest pork producer and a top exporter," Secretary Perdue said. "This new market is a big victory for American farmers and ranchers. I am confident that once the people of Argentina get a taste of American pork products, they will only want more. This is a great day for our agriculture community and an example of how the Trump Administration is committed to supporting our producers by opening new markets for their products."

The return of U.S. pork products to Argentina was sealed during Vice President Mike Pence's visit to Buenos Aires. Technical staff from the U.S. Department of Agriculture and the Office of the U.S. Trade Representative have been working with Argentina's Ministry on the terms of the agreement that are practical, science-based and consistent with relevant international animal health standards.

As President Trump and President Macri agreed in a Joint Statement in April 2017 in Washington, both countries are committed to further expansion of agricultural trade between the two countries.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

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John Harrington