DTN Early Word Opening Livestock

Lean Hog Futures Seem Set to Open Moderately Higher

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

Cattle: Steady Futures: 50-100 LR Live Equiv: $139.79 + .83*

Hogs: Steady-$2 LR Futures: 50-100 HR Lean Equiv: $ 71.81 - .93**

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

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

GENERAL COMMENTS:

Activity in feedlot country will be typically limited to the distribution of new showlists. We expect ready numbers to be mixed, smaller in the North and larger in the South. Live and feeder futures should open moderately lower, checked by softer feedlot sales on Friday (I.e., $110 to $110.50 in the South; $173 in the North) and long liquidation.

Look for hog buyers to begin work this mornng with bids ranging frm steady to $2 lower. Both large supplies and weak demand continue to pressure the cash trade. On the other hand, the premium board may continue to be supported by talk of renewed talks between the U.S. and China, possibly setting the stage for a lifting of pork tariffs by the end of the year. Of course, talk is no more than talk at this point. Lean futures are likely to open moderately higher thanks to residual buying interest a possible easing in the trade war.

BULL SIDE BEAR SIDE
1)

Between higher cutouts last week (up $3 to $4 from Friday to Friday) and cheaper ready cattle (off $1 to $2 on a live basis), beef processing have surged as much as $50 per head this week. Cattle buyers should have incentive coming out of their ears.

1)

The cash cattle market eroded in the late rounds, ignoring both cutout strength and recovering futures. The softening of the late summer basis suggests waning feedlot confidence.

2)

Retailers and food managers could show one more week of decent beef demand before the Labor Day feature is entirely put to bed.

2)

Cattle slaughter jumped significantly last week, totaling as much as 660,000 head, 15,000 more than the previous week. The boxed beef trade will be hard pressed to hold the high ground this week given such large supplies.

3)

Hog futures may continue to be supported both in terms of short-covering and new spec longs) by news of favorable North American Free Trade Agreement negotiations and African swine fever affecting the herds in China.

3)

Last week's ballooning hog slaughter numbers were even more sobering. The total kill exploded to 2.459 million head, 126,000 more than the prior week and 119,000 above 2017. The wholesale pork market starts the week swimming in product.

4)

For the week ending Aug. 14, noncommercial traders decreased their short position in lean hog futures by 2,600 contracts to 24,900 net short.

4)

Friday's pork carcass closed moderately lower, mainly checked by softer demand for the belly primal (i.e., off $6.10).

OTHER MARKET SENSITIVE NEWS

CATTLE: (Parker City News) -- President '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 "."

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

"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, .

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:(Wall Street Journal) -- The U.S. and China reached a modest breakthrough in their trade dispute, saying they would hold lower-level talks later this month on the spiraling dispute.

Officials from both countries said on Thursday that a Chinese vice minister would travel to the U.S. at the invitation of the Treasury Department to discuss trade issues on Aug. 22 and 23.

"We are open to discussions on structural issues," said a White House spokeswoman. "We are looking to China to address these concerns" and to bring "concrete proposals."

The talks would be the first in more than two months. During that time, the Trump administration imposed tariffs on tens of billions of dollars of Chinese goods and Beijing responded with levies of its own. Officials on both sides have said that their counterparts seemed uninterested in concessions. The dispute has hit China's stock markets and currency while largely sparing U.S. markets.

China has pledged to retaliate against U.S. tariffs in "equal scale and equal strength." In addition to tariffs, here are three ways Beijing could hit back at Washington. Photo composite: Adele Morgan/The Wall Street Journal Now, trade analysts said, U.S. plans to move ahead in coming weeks with penalties on $200 billion more in Chinese goods are raising the stakes.

"The talks are necessary to avoid a complete rupture of China-U.S. relations, although the chance of coming to an agreement is low," said Mei Xinyu, an analyst at a think tank under China's Commerce Ministry and a frequent critic of U.S. trade policy.

The August discussions will be held at a lower level than previous efforts, which were helmed by Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He. The talks—to be led by Treasury Undersecretary David Malpass and Vice Commerce Minister Wang Shouwen —are meant to be exploratory, providing a way for both sides to save face should progress prove elusive, said people briefed on the discussions.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

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John Harrington