DTN Early Word Opening Livestock

Hog Futures Set for Defensive Opening

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

Cattle: Steady Futures: Mixed Live Equiv: $140.98 - 1.45*

Hogs: Steady-$1 LR Futures: 50-100 LR Lean Equiv: $ 76.52 - 1.18**

* 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 hog trade continues to bleed lower, steadily drained by a combination of record pork production and insufficient product demand. Assuming Saturday's kill comes close to 250,000 head, the weekly total should easily exceed 2.6 million. Lean futures seem geared to open moderately lower, checked by residual selling and disappointing fundamentals.

Cattle traders have reached another Friday with little business on the books. That lack of business will have to change sometime between late morning and midafternoon. Look for some kind of compromise between bids of $180 in the North and $112 in the South, and asking prices of $182 to $185 in the North and $118 in the South, to ultimately trigger light to moderate trade volume. Live and feeder futures should open with uneven price action as traders jockey ahead of cash news.

BULL SIDE BEAR SIDE
1)

Beef production is reduced from the previous month on a slower expected marketing pace for fed cattle in the fourth quarter.

1)

The wholesale beef market continues to struggle, losing another round of triple-digits on Thursday. Box supplies were described as "moderate to heavy."

2)

The pork production forecast is reduced on lower-than-expected fourth-quarter hog slaughter and lighter carcass weights.

2)

December live cattle futures is about $1 below the 40-day moving average, with overhead resistance in the $117.50 to $118 area, and then again near $119. The contract high at the beginning of October was at $119.75. February will run into overhead technical resistance near $122, where the 40-day moving average is currently situated.

3)

For 2019, the total red meat and poultry forecast is reduced from the previous month on lower expected beef, pork, and turkey production. Beef production is reduced on lower-than-expected steer and heifer slaughter in the first half of 2019. Pork production is reduced on lower-than-expected first quarter hog slaughter and slightly lighter carcass weights.

3)

The pork carcass also took it on the chin Thursday with eroding demand for fresh cuts, ribs and bellies stripping away at the aggregate wholesale value.

4)

Beef import forecasts for 2018 and 2019 are reduced from the previous month on decreased shipments of processing beef from Australia. Beef export forecasts for 2018 and 2019 are raised from the previous month on continued firm global demand for U.S. beef.

4)

The large discount in December lean hogs compared to the cash market is reflective of trader's expectations of lower cash markets as the industry works through the large hog supplies late this year.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Beefmagazine) -- Throughout the years, I think in both human medicine and veterinary medicine, we've assumed that we can continue to use antibiotics as we always have and that they will always be there and always be effective for us," says Bob Smith, longtime beef veterinarian, professor and speaker.

Not so. Rather, he says, the future of effective antibiotics isn't certain for humans nor animals. Doctors and veterinarians are seeing resistance issues surface with increasing frequency. He began noticing a concerning trend beginning in the late 2000s.

"We started seeing more and more cases where the bacteria were resistant to the antibiotics that we have available. So that then brings us to where we are Friday," Smith notes. "We are now trying to learn more about antibiotic resistance, how it develops and also what we can do to use fewer antibiotics, and to use our antibiotics more wisely so we can sustain the life of the antibiotics we have available."

Smith's practice oversees health care for feedyards in nine states, with more than 1 million head of cattle. Antibiotics are an important management tool in fighting infection, he says-- and preserving them is everyone's responsibility. It begins with management.

What we need to be doing is looking for management systems that will allow us to produce beef, in our case, with less disease and less need for antibiotics," Smith says. "The responsibility really goes to our producers, our farmers and ranchers, to our veterinarians, to our educators, to our Extension people and our researchers, so we can better understand how we can reduce disease and, therefore, reduce the need for antibiotics and have animals that are healthier and happier at the same time."

For beef cattle, those management systems could include fence-line weaning, which creates less stress for calves and, therefore, less disease in the post-weaning period. Smith says proper nutrition and preconditioning are also key steps to disease prevention.

"We can vaccinate those calves while they are still on the cow to reduce the likelihood that they will get sick as they go through that stressful process of weaning and shipping and commingling. Research shows that time and time again, if we go through many of those steps then there is less chance that the calf will get sick once it leaves the farm of origin. If they don't get sick, we don't need to use the antibiotics."

In the future, Smith sees feedyards demanding more preconditioned calves that are less likely to become sick. And, with imminent pressures from consumers and national beef chains, he suggests producers may see more change in how they're able to administer antibiotics.

"Currently, we have antibiotics that are classified as over-the-counter and those classified as prescription. I would not be surprised to see regulations in the future where if you want to go down and buy a bottle of penicillin or tetracycline, that will be a prescription product rather than over the counter," Smith suggests. Antibiotic resistance is a real issue that concerns all livestock producers, he says. "We have the responsibility of judicious antibiotic usage but also we have a responsibility to treat animals when they are sick just as physicians have a responsibility to treat children and the adults when they become sick with a bacterial infection," Smith says.

"If resistance continues to develop to these antibiotics, then we could have not only costly losses in companion animals, costly losses in livestock but also we could have loss of life on the human side if we have nothing left to treat them with."

HOGS:(AgNews) -- China's exports surged anew last month on the back of resilient demand, defying many economists' expectations for a slowdown from the trade fight with the U.S.

Demand for Chinese goods grew in developed and developing markets, from the U.S. to India, according to customs data released Thursday.

"It's not just the U.S., wherever you look, especially the emerging markets, demand is solid," said Liu Yaxin, an economist at China Merchants Securities.

The performance, economists said, suggested China is getting a boost from surprisingly healthy global demand and perhaps from a weaker yuan. Many economists attributed the export boom of recent months to businesses frontloading shipments before tariffs take effect, and they had expected that trend to fade.

China's total exports rose 15.6% from a year earlier, the customs administration said, which tops the 14.5% year-over-year increase in September. Economists expected 11% growth.

Exports to India, Hong Kong and Brazil all grew by more than 20% last month from year ago, according to calculations by The Wall Street Journal based on customs data. Exports to the U.S. and the European Union also held up, rising 13% and 15% respectively.

Meanwhile, China's appetite grew for global commodities, boosting imports 21.4% in October from a year earlier, compared with a 14.3% increase the previous month. Imports of crude oil jumped 89% on year.

Imports from the U.S., however, dropped 1.8% in October from a year earlier, following a 1.2% decline in September. The trade gap with the U.S. narrowed to $31.8 billion last month from September's record monthly high of $34.1 billion.

Still, by Chinese figures, the near $260 billion surplus for the first 10 months this year is up 15% from a year earlier and puts China on track to post another record surplus with the U.S. Last year, China reported the largest-ever annual surplus of some $275.8 billion. The U.S. estimates the gap was even larger, at $375.2 billion.

The imbalance has been a sore point with the U.S. and is cited by the Trump administration as a reason for imposing tariffs. Punitive levies imposed by the U.S. and China now cover about 60% of their trade in goods. The Trump administration has said it would hike the rate on some of those goods and is considering expanding tariffs to more products. The latest round of U.S. tariffs, covering $200 billion in Chinese products, took effect in late September, making October the first full month hit by all the Trump administration's levies.

Several economists said some frontloading of export orders is still taking place.

Betty Wang, an economist at ANZ, pointed to continued strength in the exports of electrical and mechanical products as evidence of rushed shipments. These products, which account for about 60% of China's total exports and are the nation's biggest export items to the U.S., increased 15.3% globally in October, she said. Ms. Wang expects to see continued frontloading in the coming months before it tapers off.

China Merchants' Ms. Liu expects rising labor costs are also going to make exports less attractive. "It's hard to imagine that such double-digit growth in exports can last long," she said.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

(BAS)

John Harrington