GENERAL COMMENTS:
In shocking reversals of trade policy, China and several other major meat importers suddenly announced on Saturday the lifting of bans on Brazilian meat. Just early last week, as many as 20 countries moved to ban Brazilian meat after police reported cases of inspection bribery and possible meat contamination. This story seemed to spark considerable CME buying interest in cattle futures, tied to ideas that a major disruption in the global meat trade was afoot. With China's renewed acceptance of Brazilian product, such a theoretical disruption would seem to be in doubt.
The cash cattle trade will start out typically slow Monday with activity limited to the distribution of new showlists. The new offering is expected to be steady to somewhat larger. Our guess is that initial asking prices will be around $132 to $133 in the South and $215 in the North. Live and feeder futures seem likely to struggle early as traders consider the changing implications of the Brazilian meat scandal.
Look for the cash hog market to open Monday with bids ranging from steady to $1 lower. Commercial pork production is expected to remain relatively large as we continue to cut our way through the large fall pig crop. Look for another weekly kill somewhat above 2.3 million head. Lean futures are expected to open under pressure, checked by follow-through selling and long liquidation.
| BULL SIDE | BEAR SIDE | ||
| 1) | Although cattle buyers tried to "wait out" feedlot bullishness last week, they were forced to spend more money late Friday (i.e., $130 in the South, $2 higher; $210 in the North, $2 to $3 higher), once again underscoring the reality of tight fed supplies. | 1) | All of a sudden the seriousness of Brazil's meat scandal has been minimized as China and other major buyers decided over the weekend to lift their general bans on that country's exports (see story below). |
| 2) | The combination of relatively small trade volume totals last week, aggressive chain speed, still acceptable packer margins, and significant advanced sales of boxed beef through mid-April should mean that cattle buyers will remain generally supportive of the cash market. | 2) | Last week's big jump in cattle slaughter to 613,000 head (the largest kill seen since early last December) is likely to pressure wholesale prices and narrow packer margins further. |
| 3) | The pork carcass value scored a decent recovery on Friday, supported by better demand for all primals (especially the ham and belly). | 3) | Lean hog futures prices remain in a broad sideways trading range but are close to breaking out to the downside. Market trends remain neutral, but the trade is vulnerable to turning negative if prices break any further this week. |
| 4) | Oversold charts and pre-report positioning (i.e., short-covering) prior to Thursday's Hogs & Pigs inventory could lift lean hog prices through the week. | 4) | In the week ending March 21, commercial traders saw their short position in lean hog futures increase by 3,000. It now stands at 92,000 contracts |
OTHER MARKET SENSITIVE NEWS
CATTLE: (BBC) -- China has lifted a total ban on imports of Brazilian meat imposed over allegations that companies have been selling unsafe produce for years.
Brazil's Agriculture Minister Blairo Maggi says the move follows a "giant effort" by officials to explain the investigation into tainted food.
Chile and Egypt have also lifted their bans, the Brazilian government says. Brazil is the world's biggest red meat and poultry exporter, selling more than $12bn a year.
The scandal was triggered by a huge federal police operation last week that found evidence that meat-packers had been selling rotten and substandard produce for several years.
China and Chile will keep their import bans for the 21 Brazilian units under investigation by the operation, the government said.
"Lifting this suspension was the result of a giant effort by Brazil to explain that the investigation targeted the conduct of individuals and not the quality of the meat," Mr Maggi told Reuters news agency.
A two-year long police investigation unveiled serious flaws in Brazil's meat inspection procedures
In a statement, Brazil's President Michel Temer said the moves "reaffirm the trust of the international community in our sanitary control, robust and recognized around the world".
The European Union, which is the main importer of Brazilian meat after China and Hong Kong, announced on Friday that it would reject produce from the plants being investigated.
Health and Food Commissioner Vytenis Andriukaitis will visit Brazil this week to hold emergency meetings with officials and industry leaders before the EU decides on what measures it will adopt.
Brazilian investigators allege that some managers bribed health inspectors and politicians to get government certificates for their products.
The scandal caused a 22% drop in weekly average exports of pork and poultry, Reuters reports. There was no data related to beef exports.
HOGS: (National Pork Board) -- With Mexico's hunger for U.S. pork continuing to grow, members of the National Pork Board spent March 13 to 18 in Mexico City building trade relations. The delegation invested its time immersing itself in Mexico, which is one of America's most important export markets. During the visit, the group emphasized the safety and reliability of the U.S. pork supply.
"Our visit to Mexico was eye opening. As board members, we were able to witness why Mexico is such an important trading partner," said Jan Archer, National Pork Board president and a North Carolina pig farmer. "The average Mexican family spends 30 to 40 percent of its income on food, so they appreciate the ability to access safe, nutritious and affordable U.S. pork."
The delegation received a warm welcome and were encouraged and enthused about the future of trade with Mexico. Within the next five years, economists predict Mexico may become the largest market for all U.S. goods, surpassing both Canada and the European Union
During the week, board members saw firsthand the market opportunity and benefit of expanding trade with Mexico. The key objectives of the trip were to discuss and define areas of mutual interest, to extend appreciation to Mexico's trade industry for the high volume of U.S. pork purchased and to emphasize the reliability and availability of U.S. pork and the next steps needed to support expanding trade.
In 2016, Mexico was again the No. 1 importer of U.S. pork in terms of volume. Mexico imported more than 730,000 metric tons of U.S. pork last year. In terms of value, Mexico was again No. 2 at $1.4 billion. In January 2017, which is the most recent data available, Mexico became No. 1 in both volume and value. The U.S. accounts for more than 90 percent of the total pork imported to Mexico.
At a high-level, the trip agenda included opportunities for board members to:
"We saw that our investment of producer dollars in the U.S. Meat Export Federation returns great dividends as it develops relationships with importers and retailers," Archer said. "Our Mexican neighbors import fresh pork and ham, but also the products that have less value to the U.S. consumer. Pork byproducts, such as offal and pig heads, fill an important need in the Mexican marketplace."
More than 35 percent of the U.S.-produced hams are exported to Mexico and processed in Mexican facilities where they are transformed into deli meats and formed-ham products. These products are crucial for low-income diets. That is why the National Pork Board is committed to sharing information with the National Pork Producers Council as it works on trade access issues. This cooperation enables the entire U.S. pork industry to work together efficiently.
"Pork is a mainstay in Mexican culture—consumers appreciate it and know how to prepare it," said Bill Even, National Pork Board chief executive officer. "The challenge Mexico faces is getting more protein-rich food into the diets of low-income residents and children. This requires a focus on new product development and education."
The National Pork Board works directly with the U.S. Meat Export Federation to address this key issue, specifically through outreach to dietitians and other medical professionals in Mexico. USMEF also educates students on the role pork and protein play in the diet and, to Mexican consumers, provides point-of-sale promotional materials at retail stores.
Beyond these direct consumer messages, Checkoff-funded USMEF activities include work with trade representatives—importers, brokers and processors—to educate these trade groups on the benefits of U.S. pork and its quality, safety and availability.
"As a producer, I value our trade relationship with our neighbor even more after visiting this beautiful country," Archer said. "Growth in our industry is the result of a strong trade balance."
In 1989, the U.S. had very few trade agreements, but Monday has 20 in place. Free trade agreements contribute to increased exports and enhance the opportunity to distribute U.S. pork worldwide.
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