Cattle: Steady Futures: Mixed Live Equiv: $136.22 - .07*
Hogs: $1-2 LR Futures: Mixed Lean Equiv: $ 79.10 - .49**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Cattle buying interest could start to improve at midweek with more starter bids of $110 in the face of asking prices around $115. Yet significant trade volume could easily be delayed until the second half of the week. Look for live and feeder futures to open on a mixed basis with nearbys better supported than deferreds.
The late-summer cash hog trade is becoming a bearish monotony. Look for packers to once again start out Wednesday with bids $1 to $2 lower. The Saturday number should be close to 70,000 head. Lean hog futures should also open with uneven price action. We assume nearbys will lose ground to deferreds, at least in the early rounds.
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The August live cattle futures contract has a tendency to strengthen from here into expiration next month.
Even though the rise appears to be less aggressive than previously anticipated, cattle carcass weights are expected to continue rising heading into the fall months.
Led by declines in August live contracts and most actively traded October, total open interest declined by 4,200 contracts on Monday to less than 308,000, the lowest since the beginning of January 2017. Long liquidation could be running out of gas. Furthermore, the board appears to be consolidating at this time at a modestly higher range of $106.80 to $110.67 in August live and $108.17 to $112.25 in October live.
Spot beef sales were down sharply on Monday, 17% under the week prior and 20% under last year. Spot sales are expected to move mostly sideways into mid-August before trending higher into mid-September, with sales dropping, following the Labor Day fill-in buying.
The tendency this time of year is normally for live hog weights to come down for another two or three weeks yet.
After collapsing to $60.88 earlier in the day, spot August lean hog futures ended Tuesday's session at $61.13, down nearly 220 points on the day, a 970-point discount to Tuesday's cash index, and setting yet another new contract low.
Mexican Economy Secretary Ildefonso Guajardo said late last week that the working teams for the North American Free Trade Agreement (NAFTA) are ready to kick off talks after they stalled last month. Mexico and the U.S. agreed on Thursday to step up talks on updating NAFTA in hopes of reaching an agreement on major issues by August.
The pork carcass value closed moderately lower on Tuesday with the belly primal once again bleeding the most (i.e., off $10.26).
CATTLE:(Penton Business Media) -- With the European Union and Japan recently signing a comprehensive economic partnership agreement and the 11-member Comprehensive and Progressive Trans-Pacific Partnership moving toward implementation, the U.S. Meat Export Federation has prepared an initial assessment of the potential U.S. pork and beef industry losses that could result from Japan's participation in these agreements.
USMEF Economist Erin Borror explains that the EU is already Japan's largest supplier of frozen pork cuts, and has recently made gains in the ground seasoned pork category. Canada, which is a CPTPP participant, is the United States' largest competitor in Japan's chilled pork market.
On the beef side, Australia already has a significant tariff rate advantage in Japan through a bilateral trade agreement, but this gap will widen further under the CPTPP. Beef from Canada, New Zealand and Mexico will also enjoy more favorable market access in Japan once the CPTPP is implemented.
USMEF anticipates that both the Japan-EU EPA and CPTPP could enter into force by April 2019, at which point all major non-U.S. suppliers of pork and beef to Japan will have preferential duty access. Japan, Mexico and Singapore have already ratified CPTPP, and once the agreement has been ratified by six participating countries, it will enter into force after 60 days. While no specific timeline has been established for ratification of the Japan-EU EPA, there is a good chance it could enter into force prior to the next Japanese fiscal year, which begins April 1, 2019.
HOGS: (Dow Jones) -- U.S. President and well-known fast food aficionado Donald Trump is putting meat producers on a diet with his tariff policies.
Industry giant Tyson Foods on Monday lowered its earnings projections for fiscal year 2018 by 10% to 13%, citing "uncertainty in trade policies and increased tariffs." Its shares were down around 6% midday.
Tyson is directly impacted by China's 25% tariffs on beef, chicken and pork imports, and Mexico's 20% pork tariff, both levied in retaliation against U.S. trade actions. More important though is a secondary impact of less meat being exported - the great "meat wave" of 2018, an oversupply of that is giving U.S. consumers some bargains but costing farmers and meat processors a lot of money.
In a note, Bernstein analyst Alexia Howard points out that pork packer margins have declined to around $15 per hog, from over $26 a year ago. Margins even briefly dipped into negative territory after the Mexican tariffs were announced.
John Harrington can be reached at firstname.lastname@example.org
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