DTN Early Word Opening Livestock

Meat Futures Set to Open With Mixed Prices

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

Cattle: Steady-$2 HR Futures: Mixed Live Equiv: $137.00 + .67*

Hogs: Steady-$1 LR Futures: Mixed Lean Equiv: $ 77.86 +1.13**

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

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

GENERAL COMMENTS:

Tuesday's slow session in cattle country will be typically sleepy with both bids and asking prices poorly defined. Our guess is that cash potential will not take on much definition until Thursday or later. Live and feeder futures should open on a mixed basis thanks to long liquidation on one hand and short-covering on the other.

While hog buyers should remain generally defensive Tuesday, it's possible that initial bids could reflect a degree or twoof more stability. For one thing, negotiated receipts on Monday were very light (i.e., barely over 3,000 head on a national basis) perhaps discouraged by yet another round of lower packer bids. So packers may find it necessary to reduce cash pressure to some extent in order to keep numbers flowing at satisfactory levels. Lean futures should also open with uneven price action tied to short-covering and follow-through selling.

BULL SIDE BEAR SIDE
1)

New showlists distributed in feedlot country Monday were generally smaller, especially in Kansas. Only Colorado feeding companies seem to be offering a few more ready steers and heifers than last week.

1)

Both August and October remain at discounts to cash. The futures market is suggesting the potential for at least some modest weakening of cattle and beef prices going into late summer.

2)

Beef cutouts closed significantly higher on Monday with early-week box demand described as "moderate to fairly good."

2)

Preliminary guesses by private analysts suggest that July placement activity may have been as much as 8% to 10% above July 2017.

3)

The pork carcass value recovered by more than a buck Monday with all primals significantly reflecting better demand except the ham and picnic.

3)

After setting a new record in April, pork export volume has trended lower the past two months, mainly due to lower exports to the China/Hong Kong region. June exports totaled 191,303 metric tons (MT), down 4.5% from a year ago, despite a slight increase in muscle cut exports (to 153,083 MT). June export value was $510.4 million, down 3%.

4)

While U.S. pork exports to China in June clearly suffered from increased tariffs (i.e., declining 37% from a year ago in volume (28,569 metric tons), the positive side indicates pork exports are achieving solid growth in most other markets, reaching new heights in destinations such as Korea and Latin America.

4)

Pork production seems set to remain in high gear this week with total slaughter once again over 2.33 million head. Spot August lean continues to race lower, once again setting a new contract low on Monday.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Business Insider) -- The Trump administration will "try and force" Britain to apply American standards in return for a trade deal after Brexit, demanding major concessions including the import of hormone-treated US beef and chlorine-washed chickens, according to the former UK ambassador in Washington.

Sir Peter Westmacott, who served between 2012 and 2016, warned that the US is "playing hardball" and would demand that the UK ditches European standards in favour of Washington's -- especially in the highly sensitive agricultural sector -- in order to secure a prized post-Brexit trade deal, something which could do "serious damage" to Britain's farming industry.

"When you speak to farmers, they are deeply worried about the implications of Brexit," he told Business Insider.

"They see a free trade agreement with America as one that is inevitably going to embrace agriculture.

"In would come high growth hormone beef, chlorine-washed chickens, GMOs, and even lamb produced at high volume and relatively low cost, all of which have the potential to do serious damage to Britain's agricultural industry."

The US fight with the EU over agricultural products runs back decades. The EU bans the imports of US-produced products including high-growth hormone-treated pork and beef, genetically modified cereals, and chlorine-washed chicken.

Many British farmers worry that US producers will attempt to flood the market with such products after Brexit and undercut domestic producers. Liam Fox, the trade secretary, has defended the practice of chlorine-washing chickens and is desperate to secure a speedy trade deal with the US to shore up Britain's position as a post-Brexit trading powerhouse.

In an interview with Business Insider last week, Fox said that the UK would have "complete control over tariffs and quotas" in agricultural goods after Brexit, which would provide "quite a scope" for a US trade deal, although he said the UK would continue to follow many EU rules in order to access its markets.

But Westmacott said that even a comprehensive UK-US trade deal would have a minimal impact on UK GDP and would be offset against a weaker trading relationship with Europe.

"The greater the distance we put between ourselves and the European Union, the greater the economic cost but the greater the scope for doing our own free trade agreements," he said. "Unfortunately, those agreements are not going to make much difference. America is by far our biggest trading partner already. There are virtually no tariffs. In what way is our own free trade agreement going to improve those terms of trade?"

"In some ways, it will be worse because the Americans are going to drive a tough bargain.

"Whose regulatory and technical standards are we going to apply? They will try and force us to apply American standards."

If the UK does strike an independent free trade agreement, it would likely still face extensive protectionist legislation such as the Buy American Act, which stipulates that United States government to prefer US-made products in its purchases, Westmacott said.

"None of this stops US having a trading and investment relationship with the US that is second to none," he said.

"But not even the most optimistic forecasts expect a free trade agreement to make more than a minimal difference to the UK's GDP."

HOGS: (Illinois News Network) -- Pork farmers across Illinois are gearing up for what may be one of the more significant financial losses in recent years.

Pork production across the country is expected to increase by 5 percent this year, an increase that will force lower prices, according to the U.S. Department of Agriculture.

"Our farmers in the United States have gotten more efficient at raising hogs every year, and the bigger picture is those gains in efficiency have surpassed the gains in increased demand for pork products," said Mike Doherty, senior economist and policy analyst for Illinois Farmers Bureau.

Due to the increased supply of pork this year coupled with the tariffs placed on pork exports to Mexico and China, prices are expected to drop significantly.

"They estimate that this will further decrease the price by about $9 per head," Doherty said. "So, we are already looking at some kind of a loss per head going into late 2018 and then into 2019. Basically, it's making a bad situation worse."

The tariff on pork products to China is at an additional 25 percent since early July.

Doherty said the losses will be drastic.

"We have not had a price outlook this bad except for a couple times over the last 20 -- 30 years. So, this is a particularly bad price cycle," he said.

Illinois pork farmers were increasing their exports to China and Mexico, but with the tariffs in place, Doherty said profits from increased sales will likely be offset by the losses this year.

While many pork farmers may be eligible for farm aid, Doherty said it is unclear how any money will be distributed to help farmers absorb the loss.

"We just don't have details yet," he said. "But whatever it is, I doubt that it would be anywhere close to enough to make up for what's going to happen by this fall.

Independent pork farmers will get hit the hardest because they do not have some of the benefits integrated producers have because they are not operating on a contract.

"We'd really like to see the Trump administration get an agreement locked in with Mexico because of all the countries we sell to, Mexico is the largest overseas buyer of pork from Illinois," Doherty said.

The next step would be making a more favorable agreement with China to eliminate the tariff on pork products and then make other bilateral agreement with other countries, he said.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

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John Harrington