DTN Early Word Opening Livestock

Hog Paper to Open Significantly Lower

(DTN file photo)

Cattle: Steady-$1 LR Futures: Mixed Live Equiv: $135.75 +1.16*

Hogs: Steady-$1 LR Futures: 50-100 LR Lean Equiv: $ 83.15 - .40*

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

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

GENERAL COMMENTS:

The cash cattle trade should be completed through the day with southern buyers and sellers looking for compromise between $111 and $114. The Oct. 1 Cattle on Feed report will be released Friday at 2 p.m. CT. Generally speaking, USDA numbers are expected to be bearish as feedlot numbers swell compared to 2017.

The cash hog trade is expected to open with bids steady to $1.00 lower. Early fall numbers continue to be seasonally large, allowing packers abundant bargaining power. Lean hog futures are expected to open significantly lower, checked by large fed hog numbers and struggling pork demand.

BULL SIDE BEAR SIDE
1)

Beef cutouts closed higher on Thursday with box demand described as "moderate to good."

1)

The Oct. 1 Cattle on Feed report to be released Friday is expected to be 6% to 7% larger than last year.

2)

Most actively traded December live cattle is just above an area of support. Moving through that area could cause a further sell-off. At the same time, a firmer cash cattle market could well spark a strong rally into the fall.

2)

Last week's slaughter total saw a further modest pullback to 639,000 head, but this still was above year-ago levels. Going forward, weekly slaughter is expected to range from the upper 630,000-head area to over 640,000 head, which would be unseasonably strong.

3)

Seaboard Triumph Foods (STF) has started the planned second production shift on Oct. 15 in Sioux City, Iowa. STF finalized plans for this shift on June 15. The company projects that after a ramp-up period to reach full second-shift production, the new facility will employ 2,400 people. A second shift has been running on a limited basis since May, while the remaining hiring and training continue. At full two-shift capacity, the facility will process 21,000 market hogs daily.

3)

Triple-digit losses are becoming the rule of thumb in lean hog futures as bears just can't seem to find the bottom of fourth quarter fundamentals.

4)

The United States suspended imports of pork from Poland on Thursday over an outbreak of the highly contagious hog disease African swine fever in that country.

4)

The significant discount in December lean hogs compared to the cash market is reflective of trader expectations of notably lower cash markets as we head into the record pork supplies late this year.

OTHER MARKET SENSITIVE NEWS

CATTLE:(USMEF) -- U.S. Trade Representative Robert Lighthizer has notified Congress that the Trump administration intends to negotiate three separate trade agreements with Japan, the European Union and the United Kingdom. U.S. Meat Export Federation (USMEF) President and CEO Dan Halstrom issued the following statement:

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"USMEF's membership, which includes all sectors of the U.S. red meat supply chain, commends the Trump administration for its decision to move forward on trade negotiations with these key trading partners. Global demand for U.S. pork, beef and lamb is strong and exports are on the rise, but we must have a level playing field for this growth to continue. This is a critical step toward reducing tariffs and other trade barriers -- especially in Japan, which is our leading value market for red meat exports. The importance and urgency of the U.S.-Japan trade negotiations cannot be overstated. Japan is a tremendous market for U.S. beef and pork, and recently reopened to U.S. lamb. Among our primary competitors in Japan's red meat arena, Australia, Mexico and Chile are already benefiting from economic partnership agreements (EPAs) and others will soon capitalize on the Japan-EU EPA and the Comprehensive and Progressive Trans-Pacific Partnership, which will be implemented in the coming months. This makes it even more essential that the United States secures similar terms for U.S. red meat products."

HOGS: (The Wall Street Journal) -- China has the world's biggest appetite for pork. It's such a beloved staple that the written Chinese character for "home" depicts a pig inside a house. U.S. producers banked on that business being around for years.

That's changed. As a result of the Trump administration's clash with Beijing over trade, China's tariffs on U.S. pork have climbed as high as 70%, making U.S. imports more expensive. At the same time, an outbreak of African swine fever in China has increased demand for imported pork.

To fill the void, Chinese customers are increasingly looking to companies in Europe and South America to fill their orders—and those companies aim to turn that opportunity into long-term business. The shift raises the prospect of not just a short-term hiccup for American hog farmers, but a fundamental realignment in the global supply chain in one of the world's hungriest markets.

ElPozo Alimentación SA, one of Spain's largest pork companies, started getting more calls from Chinese meat processors in September. John Hickin, manager of Asian sales for ElPozo, says processors told him they feared China's domestic pork supplies could run thin as tens of thousands of hogs were being culled to stop further outbreaks of African swine fever—a disease fatal to hogs and harmless to humans.

The inquiries continued through a week-long Chinese holiday in early October, when business usually shuts down. ElPozo's Shanghai-based staff of three stayed at work that week to fill the orders.

"We are trying to be the Coca-Cola of meat," said Mr. Hickin.

ElPozo is breeding more pigs on farms near its headquarters in the southeastern Spanish region of Murcia to fulfill what executives hope will be a 40% sales boost over the next four years, thanks to rising exports to Asia and Latin America. Mr. Hickin said he and his colleagues recently hosted around 20 potential new Chinese customers at their headquarters.

In Argentina, government officials are working out an agreement to ship pork to China by the end of this year, said Guillermo Proietto, representative manager for Argen Pork, a farmer-owned cooperative. Some of its 19 farmer-owners are investing in new deboning lines and cold storage space.

Near Talca, Chile, about 150 miles south of Santiago, Pablo Alvarez rolls out of bed around 5 every morning to respond to a growing number of WeChat messages, emails and voice mails from China-based pork buyers.

Mr. Alvarez manages exports for Coexca SA, Chile's second-largest pork processing company. For most of 2018 he heard very little from his Chinese clients. China's growing domestic pork supply had forced him to cut prices on the pork bones, heads and other products to preserve the 20% to 25% of company exports that go to buyers there.

That changed after the higher tariffs on U.S. pork took effect and swine fever spread, he said. The company aims to double pork production capacity by the end of 2019. Mr. Alvarez has booked four days of back-to-back meetings with buyers from China and other countries at an October trade show in Paris.

"It will be very busy," he said. Farmers in China will rear about 708 million hogs this year, the U.S. Department of Agriculture estimates -- more than half the pigs on the planet. That won't be enough to sate China's appetite.

Chinese consumers eat 123 billion pounds of pork annually.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

(BAS)

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