DTN Early Word Opening Livestock

Meat Futures Staged to Open Moderately Higher

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

Cattle: Steady Futures: 50-100 HR Live Equiv: $141.87 + .37*

Hogs: Steady Futures: 50-100 HR Lean Equiv: $ 70.00 + .81**

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

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

GENERAL COMMENTS:

Cattle trading potential will remain in slow gear Tuesday with bids and asking prices poorly defined. Cash parameters should start to take meaningful shape by midweek. We assume both sides would like to wrap up marketing chores by Thursday in order to enjoy as long a weekend holiday as possible. Live and feeder futures should open moderately higher, girded by follow-through buying and pre-holiday short-covering.

Look for cash hog sales to be basically steady Tuesday. Packers could hold country bids near unchanged if necessary. The weekly slaughter total will probably be some smaller (i.e., say 2.44 million head) thanks to late week, pre-holiday slowing in chain speed. Lean futures are likely to open moderately higher tied to spillover buying and firming carcass value.

BULL SIDE BEAR SIDE
1)

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

1)

Though new showlists vary from state to state, the overall offering of fed cattle looks somewhat larger than last week.

2)

The preliminary trade agreement between Mexico and the U.S. is very promising in terms of the strong growth of U.S. pork exports to Mexico, possibly by November.

2)

Open interest in spot August live cattle declined to 2,500 contracts on Friday while October had a minor gain to 123,900. This is down 8,000 from highs two weeks ago and down 28,000 from last year.

3)


The pork carcass value jumped nearly a buck higher Monday thanks to improving demand for loins, ribs and bellies.

3)

Meat demand prior to a major holiday like Labor Day is slow and sluggish since retailers and food managers have their boats loaded,and significant appetites are on hold until early September.

4)

A major outbreak of African swine fever in China will have "a significant impact on China's food security and trade," the USDA says. It adds the second and third outbreaks of the disease are in provinces that represent 14% of China's pork production and are bordered by four provinces that account for nearly 20% more.

4)

Despite Monday's triple-digit jump forward, short-term and long-term trends in lean hog futures remain solidly bearish. Implied market volatility increased dramatically into the 61% to 62% area in the latest reporting week, well below the year prior and is at levels not experienced since late 2016.

OTHER MARKET SENSITIVE NEWS

CATTLE: (CNBC) -- The Mexico-U.S. discussions have focused on crafting new rules for the automotive industry, which U.S. President Donald Trump has put at the heart of his drive to rework the 24-year-old pact he says has been a "disaster" for American workers.

Canada has sat out the most recent phase of the year-long discussions, and once it rejoined the talks, the three sides would need to work for at least another week, Guajardo said.

Leaving the offices of U.S. Trade Representative (USTR) Robert Lighthizer late on Sunday, Mexican Foreign Minister Luis Videgaray said Canada would return once bilateral issues were resolved. "But we haven've finished this stage yet," he said.

The two sides have been gradually nearing agreement on autos, and one source close to the negotiations said at the weekend there was now "little" separating the two.

Industry sources say they are close to agreeing on raising the regional automotive content threshold for tariff-free access under NAFTA to around 75 percent from 62.5 percent.

Still, the Trump administration has been seeking to impose a cap on Mexican car and SUV exports to the United States that could be sent duty-free or at a 2.5 percent tariff, complicating the auto talks, three people with knowledge of the matter said.

Two automakers say the United States want Mexican exports of cars and SUVs to be capped at about 2 million units, up from some 1.77 million exported in 2017, excluding pickup trucks.

Including pickups, Mexico exported more than 2.3 million vehicles to the United States last year.

Mexico's economy ministry declined to comment. A USTR representative did not respond to a request for comment.

Trump said on Saturday that Washington could reach agreement with Mexico "soon" as the chief trade negotiator of Mexico's incoming president signaled possible solutions to energy rules and a contentious U.S. "sunset clause" demand.

Since Mexico's July 1 presidential election, the bilateral talks have been complicated by divisions between the incoming and outgoing Mexican administrations over energy policy.

Jesus Seade, the incoming Mexican government's chief NAFTA negotiator, said the issue had been "ironed out" at the NAFTA talks, without going into detail. He said this week it was not a "substantive" matter and that Lopez Obrador's team had wanted to check the terms were consistent with the Mexican constitution.

If three-way talks run into September, final approval of the deal in Mexico will likely pass to Lopez Obrador, because under fast track authority, the U.S. Congress needs 90 days' notice to vote on a new NAFTA once the renegotiation is finished.

Lopez Obrador is due to take office on Dec. 1.

HOGS: (South China Morning Post) -- Analyst says reporting of outbreaks shows major gains from similar crisis more than a decade ago

Agricultural officers across China have been ordered to control the spread of African swine fever in the world's biggest pig-farming country amid fears that it could deal a heavy blow to the industry.

The Ministry of Agriculture and Rural Affairs has mobilised inspectors from Heilongjiang in the north to Guangdong in the south.

The virus, which does not affect humans but is lethal to pigs, has been detected in four provinces in China in the last month.

But one industry analyst said the detailed reporting of the spread signalled a marked improvement in disease control from an outbreak of another swine virus about a decade ago.

China confirmed the presence of African swine fever on August 3 after a number of pigs died in Shenyang, Liaoning province. It was the first time the virus, which had infected herds in Germany and Russia, had been found in China.

Three more cases of the virus were confirmed this month, with a report on Wednesday of 340 pigs killed and 430 others infected in Yueqing, Zhejiang province. Four days earlier, 88 pigs were reported killed and 615 infected with the virus in Lianyungang in neighbouring Jiangsu province.

In another case, a slaughterhouse controlled by Shuanghui Development, a subsidiary of the world's largest pork meat processor WH Group, suspended operations after the virus was detected in dead pigs from Jiamusi in Heilongjiang province.

China has sought to prevent the disease spreading by culling more than 25,000 pigs in the outbreak areas. While the culled number is minuscule compared with China's overall herd of 380 million pigs, there is unease that the virus could affect supplies of one of the country's staple foods.

The central government has also yet to publicly identify where the virus came from.

However, an analyst said the impact of the virus could be manageable thanks to better disease controls.

Feng Yonghui, chief analyst at online pig industry website Soozhu, said the relatively swift and detailed reporting of the outbreaks was not a sign for panic but cause for comfort, showing that farmers and disease control officials were on the same page.

"Pig farmers have no incentives to hide [an outbreak] because they know they can receive an 800 yuan (US$117.50) subsidy for every pig infected with the virus ... Local government officials know there's no benefits for them to cover up," Feng said. "It seems a mission impossible to check the physical condition of 400 million pigs, but it's actually feasible once everyone, especially the pig owners, are motivated to do so."

He said the situation was different from the outbreak of blue-ear disease in 2006, when there were few subsidies for affected pigs, breeders tried to under-report disease and local officials were unprepared to contain the virus.

When African swine fever was spotted in Liaoning in early August, the provincial authority started carrying out checks of all pigs in the province. By August 15, the province's animal health authority said it had inspected 355,400 pigs, taking 10,791 suspect samples for additional assessment. In all, 22 samples, all from Shenyang, tested positive for the virus, the authorities said.

In cities and provinces where no African swine fever was reported, animal health authorities are also on high alert. Guangdong held a three-day meeting and training course for 120 local officials, telling them how to prevent the virus.

At the same time, pork prices across the country have stayed relatively stable.

According to Zhujiage.com, a website tracking daily hog prices, the average hog price in China on Sunday was 13.76 yuan per kilogram, a rise of 0.02 yuan per kilogram from Saturday. On August 3 when the virus was firstly confirmed, the price was 12.85 yuan per kilogram.

A number of Chinese listed companies involved in pig farming, including Chuying Agro-Pastoral Group, Ningbo Tech-bank Food, Muyuan Foods, Guangdong Wens Foodstuff Group and Jiangxi Zhenbang Technology, have issued corporate filings in the last two weeks, saying their pig farms were not affected by the swine fever.

On Friday, state radio quoted Zhu Zengyong, a researcher with the Chinese Academy of Agricultural Sciences, a think tank affiliated with the agriculture ministry, as saying the fever would have only a limited impact on China's overall pork supply and demand.

The virus is inactive in processed meat when its heated to at least 70 degrees Celsius for 30 minutes.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

(BAS)

John Harrington