Activity in feedlot country Monday morning will be typically slow as packers limit their efforts to the distribution of new showlists. We assume that ready cattle will be priced several dollars higher based upon the impressive way the cash trade recovered on Thursday (i.e., $128 in the South, $2 higher; $200 to $207, mostly $6 to $7 higher). On the other hand, processing margins are tightening and fed numbers are scheduled to increase as we move through the spring and early summer. Live and feeder futures should open solidly higher, supported by recent cash strength and technical buying.
Expect the cash hog trade after the long holiday weekend to resume with bids steady to $1 lower. Pork production should soon start to slow somewhat, logically sparking better demand at the same time. Whether this week (or the next) is the week that shift happens, only time will tell. Lean futures are geared to begin with moderate strength, girded by light short-covering and spillover support from cattle contracts.
| BULL SIDE | BEAR SIDE | ||
| 1) | Tight-fisted feedlot managers forced short-bought packers to pay though the nose on Friday, funding more aggressive production through the early spring period in order to satisfy large advanced beef orders. | 1) | Market psychology, excellent feedlot profits, and greater feeder numbers outside of feedlots all point to building placement activity. Private guesses current anticipate that March placement totaled 5% to 7% above 2016. |
| 2) | For the week ending April 1, carcass weights crashed like concrete overshoes: all cattle, 810 pounds, down 4 lbs the prior week, 20 lbs below 2016; steers, 862 lbs, off 6 lbs from the previous week, 22 lbs short of last year; heifers, 805 lbs, 11 lbs below the week before, 24 lbs lighter than 2016. | 2) | Given the way cattle futures surged through last week, repeatedly setting new contract highs in both live and feeder markets, the board seems to be overbought and due for at least a short-term technical sell-off. |
| 3) | After skyrocketing early this year, pork belly prices are getting back to more normal levels, attractive enough that retailers will be able to put together forward packages for BLT season that could spark another sharp rally in the belly complex. | 3) | The overall wholesale pork product values appears to be generating a high level of nervousness as to where the market might head during the post-holiday period. The short and long trends are negative. |
| 4) | For the week ending April 6, net sales of pork exports totaled 24,500 metric ton, 14% from the previous week and from the prior four-week average. Increases were reported for Mexico (5,000 MT), Japan (4,700 MT), South Korea (3,200 MT), China (2,800 MT), and the Philippines (2,400 MT). | 4) | During the week ending April 4, noncommercial traders were net sellers of the lean hog futures market, reducing the net-long by 4,800 contracts to the 23,700 contract level. |
CATTLE: (Brownfield) -- The nation's largest cattle producer organization is opposed to mandatory compliance for the USDA Animal Disease Traceability program but they support the USDA's efforts to reach out to producers.
Colin Woodall is Vice President of Government Affairs for the National Cattlemen's Beef Association.
"We are against a mandatory animal identification system. But we have worked very close with [USDA] on phase one of animal disease traceability and before they move to phase two, or at least start considering moving to phase two there's a lot more information that we as an industry need to know," says Woodall.
He tells Brownfield the voluntary program has provided producers with financial premiums and has proven successful in opening up export markets.
"The Japanese market is a great example of where our source and age verification program that was put in place was based on voluntary programs. We believe that voluntary programs can help us regain access in countries like China as well," says Woodall.
The USDA began holding a series of nationwide meetings on the program this week. Woodall says NCBA will be attending all the meetings and will encourage producers to attend as well and voice their concerns.
"It's also important to maintain the conversation about disease traceability and how it fits in with international trade," says Woodall.
Several smaller livestock organizations, including R-CALF USA have voiced their opposition to the USDA meetings and any changes to the ADT program.
The meetings will be held from 8am till 3pm on the following dates:
April 20: Nashville, TN, Renaissance Nashville Hotel
May 2: Bloomington, MN, Embassy Suites Minneapolis Airport
May 4: Denver, CO, Doubletree by Hilton Denver
May 11: Rancho Cordova, CA, Sacramento Marriott Rancho Cordova
May 24: Billings, MT, Hilton Garden Inn Billings
HOGS: (USMEF) -- While a slow first half drove U.S. pork exports to South Korea lower in 2016, monthly volumes have exceeded year-ago levels since August and exports are off to an impressive start in 2017. Through February, U.S. export volume to Korea increased 29% to 30,722 metric tons while value improved 39% to $83.3 million.
Korea's domestic pork production has a significant impact on its demand for imported pork. Production increased 4% in 2016, and a further modest increase is projected for this year. But the Korean pork market has had an interesting start to 2017, due in part to early February outbreaks of foot-and-mouth disease in the nation's cattle herd. While none of the confirmed FMD cases occurred on hog farms, Korea's pork industry was definitely impacted. Most of the confirmed FMD cases were in central and southcentral Korea, but when a case was confirmed in northern Gyeonggi Province near the border with North Korea, concerns escalated about a possible nationwide outbreak. In response, South Korea's Ministry of Agriculture, Food and Rural Affairs raised its FMD control measures to their highest levels. While slaughter was not halted, FMD control measures included the closing of all livestock markets for 30 days and suspension of livestock transport in affected areas.
Despite the FMD-related restrictions, Korea's hog slaughter was up 2% in the first two months of the year. Perhaps the bigger impact on the market was from speculation about possible protein shortages, especially as avian influenza-related restrictions had already limited poultry and egg supplies and put upward pressure on prices for those products. Korea's pork imports from all suppliers jumped 18% year-over-year in February to 43,775 mt, including substantial increases from the European Union and the United States.
Korea's hog carcass prices have remained high in recent weeks, with the latest prices averaging 6% higher year-over-year in won terms, and 12% higher in U.S. dollars at $1.97 per pound. Year-to-date prices averaged 8% higher (in won terms) even as production is trending upward. Korea's imported pork market is extremely competitive with the EU, the United States, Chile, Canada and Mexico all battling for market share. Chile was the first pork supplier to have a free trade agreement with Korea, so all of its pork now enters Korea duty-free. Duties on nearly all products from the EU and the United States have also been eliminated through their free trade agreements with Korea, which entered into force in 2011 and 2012, respectively, while the Canada-Korea free trade agreement took effect at the beginning of 2015.
Mexico does not have a free trade agreement with Korea and holds only 3% of the total imported pork market — but Mexico is Korea's largest supplier of chilled pork, with chilled imports through February totaling 1,374 mt, up 124% year-over-year. Much of the chilled volume from Mexico is single-ribbed bellies. The EU remains Korea's dominant supplier of single-ribbed bellies, but only ships frozen pork to Korea.
Brazilian pork appeared ready to make its debut in Korea in 2017, as an order published in February by the Korean Ministry of Food, Agriculture, Forestry and Fisheries states that chilled and frozen pork and pork byproducts from the Brazilian state of Santa Catarina would be eligible for import, subject to farm-level traceability requirements. MIFAFF accepted public comments on the plan through March 7, and it remains to be seen whether the order will be impacted by the recent, highly publicized investigation into inspection practices at some Brazilian processing facilities. It is also important to note that while pork from Santa Catarina currently has access to Japan, Brazil's exports to Japan remain minimal.
For U.S. suppliers, raw material for further processing continues to provide the highest-volume opportunities in Korea. However, changes in Korean consumers' buying habits, along with zero-duties through the Korea-U.S. Free Trade Agreement, are creating expanded opportunities for processed U.S. pork products-- especially in venues such as convenience stores. Korea's imports of U.S. processed pork and sausages were up 5% through February, totaling 2,100 mt and solidifying the United States as the dominant supplier of processed pork to Korea. Food trucks are also rapidly gaining popularity in the Korean foodservice sector, creating new opportunities for a range of pork cuts, while home meal replacement items are soaring in popularity with retail consumers.
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