DTN Early Word Opening Livestock

Lean Hog Futures Remain Trapped in a Bearish Quagmire

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

Cattle: Steady-$2 HR Futures: 50-100 HR Live Equiv: $137.15 + .18*

Hogs: $1-2 LR Futures: 100-200 LR Lean Equiv: $ 76.02 -1.08**

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

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

GENERAL COMMENTS:

Look for the cash cattle trade to take on greater definition Thursday, both in terms of bids and asking prices. Look for buyers to start out around $110 on a live basis, which is about $5 under asking prices. Live and feeder futures seem set to open some higher as specs and producers anticipate cash strength by week's end.

The cash hog trade seems bottomless this month as large supplies and inadequate pork demand represent major bearish forces. Look for the abused cash trade to lose another $1 to $2 on Thursday, maybe more. Packer margins are improving, a fact that partially explains projections of a Saturday kill close to 139,000 head. Lean futures should open considerably lower, pressured by residual selling interest and bearish fundamentals.

BULL SIDE BEAR SIDE
1)

Though no ball of fire, beef cutouts seem to be maintaining a steady/firm undertone, supporting packer margins and cash spending potential.

1)

For the week ending Aug. 4, U.S. hatcheries set 229 million eggs in incubators, up 1% from a year ago. At the same time, chicks placed totaled 184 million, up slightly from a year ago.

2)

With beef processors cutting kills last week, expectations remain for a push higher on the composite cutout to shore up declining margins ahead of Labor Day before the seasonal slide resumes.

2)

For the week ending Aug. 4, Iowa barrows and gilts averaged 278.4 pounds, 1.9 pounds heavier than the week before and 2.9 pounds bigger than 2017.

3)

The pork cutout is forecast for support next week, as several primals have renewed interest and demand for Labor Day preparations already. Export markets are also helping to clear product at these prices and harvest levels.

3)

The pork carcass continued to tumble lower at midweek, checked by all primals except the picnic.

4)

Between extreme discounts and extremely oversold oscillators, lean hog futures may simply be close to the bottom of the barrel in terms of selling interest.

4)

The cash hog trade remains in a stage of freefall with the national base crashing another $2.16 on Wednesday.

OTHER MARKET SENSITIVE NEWS

CATTLE: (North Texas e-News) -- Randy Blach, CEO of CattleFax in Denver, Colorado, told attendees at the Texas A&M Beef Cattle Short Course in College Station that exports have become an integral part of calf prices and, following the latest trade discussions, are imperative when formulating marketing plans.

"Just look at how fast our export markets have grown since Christmas 2003 when we had BSE," Blach said. "We have the opportunity for that value to go as high $500."

Those prospects are fueled by a strong economy and consumer demand, he said.

"Consumers across the world want what you produce, which is a safe, reliable, wholesome, high-quality product," Blach said. "As we look down the road, I want you to be thinking; are you doing everything you should be doing to deliver the best product?"

To put the importance of beef export markets into perspective, Blach said the U.S. exports 17 billion pounds of beef worth $18 billion.

"That's $365 in value of the calf you are producing," he said. "We've really got to keep an eye on these trade situations."

Industry experts note consumers are wanting more protein at a record pace.

"We will have record meat consumption in 2019 in the U.S.," Blach said. "Never in our history have we consumed more red meat, pork and poultry than we are now. People are eating livestock protein."

Dr. Jason Cleere, Texas A&M AgriLife Extension Service beef cattle specialist, College Station, and Kelley Sullivan, co-owner of Santa Rosa Ranch in Navasota and Crockett, discussed China markets and their potential. Both serve on the Texas Beef Council board of directors and were part of recent visits to China and Japan to learn more about opportunities in trade and share educational programming with representatives in those countries.

"China is encouraging people to eat more red meat," Cleere said. "There are 93 people per square mile. Bejing has 22 million people. By comparison, Houston has 6.3 million people."

A dense population is creating more opportunity for U.S. beef in China as the combination of online and offline retail shopping trends continue. E-commerce continues to drive a majority of the market and with so many people, living quarters are primarily high-rise apartments with small square footage.

"They don't have an oven, they use a Hibachi type grill and like a very thin-sliced beef product," Cleere said. "We need to think about how do we tap into that market with the products we produce."

Sullivan touted the value of undesirable beef carcass parts in U.S. that are in great demand in Japan and other parts of the world.

"About $165 to $170 of the check you get from the sale of a calf comes from that export market," Sullivan said. "Where that's coming from are the parts we don't like, such as beef tongue. In the U.S. we pay $1 a pound, in Japan $6 a pound. Beef intestine, in the U.S. there's zero value, but it's $1.50 a pound in Japan. It's critical to have those export markets."

Attendees at this week's short course traveled from across Texas, the U.S. and internationally.

"What I love about the short course is we learn so many things about specific areas from cattle marketing, to ranch management, grass management, better care for our cattle and genetic improvement," said Donnell Brown of RA Brown Ranch in Throckmorton. "There are so many things. In addition, there's a great trade show with lots of different products to help us on the ranch. And best of all, you see so many good people … another record crowd this year. It's always good to be together again with cattlemen from all over the country."

Dr. Patrick Stover, vice chancellor and dean of agriculture and life sciences at Texas A&M University, welcomed attendees and stressed the importance of understanding the linkage between food and health.

"In Texas, food has a strong economic significance in our state," said Stover, also acting director of Texas A&M AgriLife Research. "Increasingly, we know food is fundamental to our health both short and long term. As we develop research that connects food and health, we also have to understand the consumer. What drives their beliefs? Thank you for what you do each and every day to nourish the state of Texas and the world."

The short course continues through Aug. 8 with demonstrations featuring fence building, cattle handling and health, tractor safety and business management.

HOGS: (Food Business News) -- Gregg Doud, chief agricultural negotiator, Office of the U.S. Trade Representative, indicated that an agreement with Mexico was near, but many challenges remained with Canada and several other trading partners. Mr. Doud's comments came at the 35th annual International Sweetener Symposium sponsored by the American Sugar Alliance held in Traverse City on Aug. 7.

"Mexico is going as well as we can possibly expect right now," Mr. Doud said, adding that focus now was on "getting the details right." He indicated an agreement with Mexico could be completed "in short order."

But the news wasn't as promising concerning Canada, the third member of the North of the North American Trade Agreement.

"Canada, oh Canada, is what you want to say," Mr. Doud said, noting that it has been "really difficult" dealing with Canada and that the market access discussion between the United States and Canada hasn't occurred yet.

He said the United States was trying to send a signal with NAFTA, that "we can start a fire and can put it out in relatively short order."

He noted the need to get NAFTA "squared away" because "uncertainty in commodity markets is always bearish."

"My preference is that there not be this much uncertainty in agriculture," he said.

Japan was at the "top of the list" after NAFTA, he said, adding that there would be an "important discussion" with Japan this week.

On other trade fronts, Mr. Doud cited several reasons why it was essential to deal with China, which he noted had become a member of the World Trade Organization in 2001. He cited theft of intellectual property, of rice and corn technology and massive subsidies that were in violation of W.T.O. rules and that were costing farmers around the world.

Based on an audience question, Mr. Doud said the United States can't tell China what to do, but "we have to help them understand what is in their best interest."

Mr. Doud also cited concerns with India, which he indicated was not reflecting its massive subsidy programs accurately to the public, with Indonesia, with which there has been a "good conversation," and the European Union, which would be an "extremely difficult discussion" that's been needed "for a long, long time" and that would include agriculture. He also said bilateral talks were needed with the United Kingdom, Vietnam, the Philippines and "some African nations."

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

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John Harrington