DTN Early Word Opening Livestock

 
Cattle: Steady-$2 HR Futures: 50-100 HR Live Equiv: $139.43 - .35*
Hogs: Steady Futures: Mixed Lean Equiv: $ 73.94 + .65 **
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Monday's cash cattle trade is naturally set for another slow round of "show and tell" in feedlot country with buyers and sellers efforts limited to the assessment of new showlists. Late trade volume looked light to moderate, but it will be important to take a look at mandatory totals available near midday. Our guess at this point is that the early-month offering will be about steady with last week (possibly further limited by winter storms that blew through the weekend). Most live sales looked steady to $2 lower with a few deals marked as high as $118.50 in parts of Colorado. Live and feeder futures seem staged to open moderately higher thanks to cash premiums and short-covering.

Expect the early-week cash hog trade to open with generally steady bids. Most expect another round of weekly slaughter around 2.6 million head. Yet adverse weather conditions could cause chain speed to get off to a slow start. On the other hand, board premiums could encourage producers fighting red ink to dig in their heels. Lean futures should open on a mixed basis linked to a slow combination of short-covering and long liquidation.

	BULL SIDE		BEAR SIDE
1)	Late packer spending Friday (i.e., as high as $118 in both the North and South) reflect manageable fed supplies in the twilight of 2018 and decent processing margins.	1)	Although December has just started, the final marketing window of 2018 is already narrowing quickly. Livestock sellers know how tough it can be to find space on the chain between the last two holidays of the year.
2)	Early winter weather made a tough mark across much of the central Plains this week, threatening to significantly check the production potential of the beef sector in the months ahead.	2)	Attempts to move cattle futures higher last week were met with considerable resistance and prices reversed course, with the biggest losses in the distant contracts.
3)	China is loading up on U.S. pork, despite import tariffs imposed due to the trade war, as a highly contagious swine disease ravages the Chinese hog herd. The world's top hog producer and pork consumer last week placed its largest order for American pork since the trade war began, USDA data showed on Thursday.	3)	No additional shackle space is expected to come on line before the end of the year, which keeps the competition for additional hogs down and cash prices under pressure.
4)	The pork carcass value closed moderately higher on Friday, supported by improving late-week demand for by bellies, picnics and hams.	4)	While much has been made about the bullish possibilities tied to the proliferation of African swine fever, negative margins are ensured for producers in either the cash or futures markets, with limited opportunity to hit the positive territory for either scenario UNLESS African swine fever in China can truly create additional demand for world pork redistribution.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Beef Central) -- Argentina is set to regain access for its beef into the United States for the first time in almost two decades years after proving its sanitary credentials to the USDA.

Argentina lost access to the US market in 2001 following a foot and mouth disease outbreak. It says the disease has since eliminated from its livestock herd through vaccination programs, and in 2012 Argentina launched a challenge against the US ban through the World Trade Organisation.

Argentina international trade secretary, Marisa Bircher, told the Reuters news agency this week that all technical and administrative issues preventing Argentinean access to the US have now been resolved, and the USDA has deemed Argentine beef to be in line with US sanitation requirements.

She said that had paved the way for a two-way trade deal between the two nations that will allow Argentina to export up to 20,000 tonnes of beef to the United States annually (similar to the quota of fellow South American beef supplier Uruguay), and will allow the US to export beef to Argentina, with no limit on its export tonnages into the country...

The 20,000 tonne volume granted to Argentina represents a tiny percentage of the US beef market. The US imports close to one million tonnes of beef a year, and also consumes 90 percent of the almost 12 million tonnes of beef the US cattle industry produces annually (2017 figures). Of that production, 1.3 million tonnes were exported, according to USDA data.

As such, the granting of access to 20,000t per year of Argentiean beef is unlikely to have a large affect on US beef market dynamics.

However, the development represents an important step forward for Argentina's aspirations to boost its export beef sales.

Meat & Livestock Australia senior analyst Tim Ryan told Beef Central this week that, relative to the entire US beef complex, the 20,000t limit was a drop in the ocean and was not expected to have a significant impact on the market.

By comparison Australian has tariff-free access to the US for 418,214 tonnes of beef per year.

However, Argentina's regained access to the US market is likely to help its campaign to regain access to other markets.

HOGS:(Dow Jones)-- Leaders of the U.S., Mexico, and Canada took a step on Friday toward easing commercial tensions in the region, signing a new pact that overhauls and updates their quarter-century-old free-trade zone.

The early-morning event celebrating the recast North American Free Trade Agreement was held in Buenos Aires on the sidelines of a Group of 20 summit of advanced and developing economies. It came a day before Mr. Trump is scheduled to hold a high-stakes dinner there Saturday night with Chinese President Xi Jinping, as the two leaders discuss their escalating spat of tariffs and counter-tariffs.

The signing of the new Nafta -- rebranded as the U.S.-Mexico-Canada Agreement, or USMCA -- concludes a tense year-and-a-half of commercial diplomacy among the neighbors, triggered in April 2017 when President Trump was on the verge of pulling the U.S. out of the bloc. That prompted Mexico and Canada to agree to a renegotiation.

The USMCA still requires ratification in all three countries. The pact is expected to pass easily in both Canada and Mexico, but faces a more difficult path in the U.S. Congress, especially as the opposition Democrats take control of the House in January.

The process -- unusually rapid for trade talks that usually drag on for years -- was completed in time for Mexican President Enrique Pena Nieto to sign before turning over the reins Saturday to his nationalist successor Andres Manuel Lopez Obrador.

The Trump administration's goal was to "rebalance" the bloc on terms more favorable to the U.S. Mr. Trump, echoing Nafta critics, described the original 1994 pact as "a disaster" for U.S. workers and manufacturers. Critics complain in particular about the U.S. trade deficit with Mexico, which hit $71 billion in 2017, compared with a small surplus when the agreement first took effect. Nafta defenders say it has boosted the competitiveness of all three countries, by creating more efficient, continent-wide supply chains.

Mr. Trump, speaking of his counterparts in Mexico and Canada, said: "We have worked on this agreement long and hard, and we have taken a lot of barbs and a little abuse and we have gotten there and it's great for our countries." Administration officials say they have succeeded in reorienting Nafta to provide more benefits to the U.S., especially with new rules governing auto production. The USMCA requires a greater portion of cars -- 75%, up from 62.5% under Nafta -- be made in North America to qualify for tariff-free trade.

The new deal also requires that 40% to 45% of automotive content be made by workers earning at least $16 per hour, a new provision aimed at shifting production from Mexico back to the U.S. and Canada. U.S. officials say Mexican pledges in the deal to boost the power of its labor unions will have a similar effect.

The pact also weakens protections for multinationals investing in other countries, a change Trump officials say will discourage outsourcing. It sets de facto quotas on Mexican and Canadian auto exports to the U.S. It requires the countries to conduct regular reviews of the USMCA, including a prospect for termination.

It is the first trade agreement with penalties for governments seen as manipulating their currency to boost exports. It sets new rules for digital commerce that didn't exist when the original Nafta was signed.

Despite the signing ceremony, some unresolved trade issues remain. Both Mexico and Canada are seeking exemptions from global steel and aluminum tariffs President Trump imposed earlier this year in the name of national security. They argue that such duties undermine the free-trade zone just negotiated, and are exploring alternative approaches, such as export quotas, to satisfy the U.S. desire to protect metals producers.

Friday's signing starts the push to win approval from legislatures in all three countries.

The Trump administration has signaled a desire to win passage by the middle of next year, before the politics of the 2020 presidential election start complicating the equation. Ratification is seen as easier in the Senate, which is controlled by Republicans generally more favorable to free-trade pacts. The Democratic-controlled House will be more difficult. The majority of Democratic legislators have, since the original Nafta, voted against free-trade agreements, even those negotiated by Democratic presidents. But U.S. Trade Representative Robert Lighthizer has worked closely with Democrats throughout the negotiations, and is betting his strong emphasis on boosting Mexican labor rights and wages -- longstanding demands of U.S. labor unions -- will help win over liberal lawmakers.

Canada hasn't set a timetable for a vote, but passage there appears assured, as the governing Liberals hold a comfortable majority. Securing a trade deal will help burnish Prime Minister Justin Trudeau's bona fides as he seeks re-election in October of next year.

In Mexico, the deal is also expected to win easy ratification in the Senate, which is controlled by incoming President Lopez Obrador's Movement for National Regeneration party. Mr. Lopez Obrador -- a longtime opponent of Mexico's export-oriented economic model -- changed course during this year's presidential campaign and gave his backing to the Nafta overhaul.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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