We don't expect much cash action in cattle country Tuesday with bids and asking prices remaining poorly defined. Both sides will be carefully watching the board for signs of stability or further weakness. Our guess is that significant trade volume will be delayed until at least Wednesday or Thursday. Live and feeder contracts should open on a mixed basis with both follow-through selling and short-covering.
Look for hog buyers to resume work Tuesday with bids steady to $1 higher. Pork processing margins continue to narrow with the cost of live inventory running ahead of carcass value appreciation. Expect lean futures to begin on both sides of unchanged in a narrow range with nearby probably gaining on deferred.
| BULL SIDE | BEAR SIDE | ||
| 1) | Given Monday's big jump in the choice cutout, it would appear that pre-Memorial Day beef demand remains alive and well. | 1) | Triple-digit losses dominated cattle futures on Monday, pounding charts once again with massive long liquidation. If further selling Tuesday takes out last week's lows (e.g., 121.32 basis June live), technical bearishness will gather even greater momentum. |
| 2) | Cattle feeders distributed new showlists that look no worse than mixed in size (larger in the South, in smaller in the North). Though the total offering may be somewhat larger, fed numbers remain very manageable. | 2) | Out-front boxed beef sales slumped in terms of volume once again last week (i.e., only 695 loads), underscoring the suggestion that the best of seasonal demand is probably behind us. |
| 3) |
The pork carcass value closed moderately higher Monday with all major primals contributing to the whole except the ham.
| 3) | June debut as the spot month in the lean hog trade was not exactly auspicious. Closing 70 points lower despite the ongoing charge of the cash index, the nearby caused further fed concern that struggling cattle prices this summer could clearly work to cap hog/pork market bullishness. |
| 4) | Despite Monday's slow start, the trend in lean hog futures is now solidly positive with June near even with both the July and August issues. Buying interest could really turn ripe over the next 30 to 60 days, especially if the cattle complex stabilizes. | 4) | Though market hog numbers are slowly tightening, no one can suggest that packers are in danger of pumping the well dry anytime soon. The expectation for this week's hog slaughter is 2,255,000 head, close to steady with last week but well above last year's total of 2,115,000. |
CATTLE: (NPR)-- Cooked chicken from birds grown and raised in China soon will be headed to America-- in a trade deal that's really about beef.
Commerce Secretary Wilbur Ross announced Thursday night that the U.S. was greenlighting Chinese chicken imports and getting U.S. beef producers access to China's nearly 1.4 billion consumers. But the deal is raising concerns among critics who point to China's long history of food-safety scandals.
The Chinese appetite for beef is huge and growing, but American beef producers have been locked out of that market since a case of mad cow disease cropped up in the U.S. in 2003. In response, many countries, including South Korea, Japan, Mexico and China, banned imports of U.S. beef.
China was the only one of those nations to not eventually lift its ban — and that's a big deal.
"It's a very big market; it's at least a $2.5 billion market that's being opened up for U.S. beef," Ross said in announcing the trade deal.
Many people long had seen China's refusal to lift its ban on U.S. beef imports as a negotiating tactic, a tit for tat aimed at allowing Chinese chicken imports into the United States. The negotiations that led to the new trade deal have been going back and forth for more than a decade, stalled at one point by worries in Congress over China's food-safety practices.
American beef producers are rejoicing that the process has finally resulted in allowing them to send beef to China.
"After being locked out of the world's largest market for 13 years, we strongly welcome the announcement that an agreement has been made to restore U.S. beef exports to China," Craig Uden, president of the National Cattlemen's Beef Association, said in a statement. "It's impossible to overstate how beneficial this will be for America's cattle producers, and the Trump administration deserves a lot of credit for getting this achieved."
The U.S. should be cleared to export beef to China by mid-July. That's also the deadline for the U.S. to finalize rules for the importation of cooked chicken products from China. Why cooked chicken instead of raw?
"For a country to be able to ship meat and poultry products into the U.S., they have to demonstrate that their food-safety inspection system is equivalent to the system here in the U.S.," explains Brian Ronholm, who served as deputy undersecretary for food safety at the U.S. Department of Agriculture under the Obama administration.
"The equivalency determination process for China as it relates to processed [cooked] chicken products had been underway, and this deal expedites this process," he says. "China also is seeking equivalency for their inspection system for slaughter facilities, but that will be a longer process."
Given the many outbreaks of avian flu China has experienced, there are also worries that if raw Chinese poultry were processed in the U.S., it could potentially contaminate American plants or somehow spread to birds here in the States.
Tony Corbo, a senior lobbyist for the food campaign at Food & Water Watch, an environmental advocacy group, has been raising concerns about efforts to open the U.S. market to Chinese chicken imports for years. He questions the Chinese government's ability to enforce food-safety standards, given its poor track record.
That record includes rat meat being sold as lamb, oil recovered from drainage ditches in gutters being sold as cooking oil, and baby formula contaminated with melamine that sickened hundreds of thousands of babies and killed six. In 2014, a Shanghai food-processing factory that supplied international restaurant brands including McDonald's and KFC was caught selling stale meat, repackaged with new expiration dates.
Corbo points out that last December, China's own Food and Drug Administration reported it had uncovered as many as a half-million cases of food-safety violations just in the first three quarters of 2016.
That said, the USDA has gone to China to inspect plants that would process the chicken to be shipped to America. But Corbo finds little comfort in that. "You don't know from moment to moment how China is enforcing food-safety standards," Corbo says.
In recent months, a team from the USDA's Food Safety and Inspection Service has traveled to China to train Chinese officials in meat safety.
One thing Thursday's trade deal did not address: U.S. poultry exports to China. The U.S. used to send a lot of chicken feet over to China, where they are a delicacy. But China banned U.S. chicken imports in 2015, after an outbreak of avian flu in the Midwest.
China "was a $750 million market just a few years ago, and now it's essentially zero. It was one of our most important markets," says Jim Sumner, president of the USA Poultry and Egg Export Council.
But Sumner isn't worried about the new competition from Chinese chicken in the U.S. In fact, he welcomes it as an important step in reopening the Chinese market to U.S. poultry producers.
"Trade is a two-way street," he says.
It's not clear how soon after mid-July we can expect to see cooked chicken products from China in U.S. supermarkets. Sumner says he doesn't expect the product to overwhelm store shelves, because the economics of raising chickens in China and then shipping them to America still favors U.S. producers.
HOGS: (Worthington Daily Globe)-- A little more than two weeks of the opening of Prime Pork in Windom, the plant has already delivered an economic boost to the community.
A year after the 2015 closure of PM Beef, Glen Taylor-- majority owner of the Minnesota Timberwolves, as well as owner of the Minnesota Lynx and the Star Tribune newspaper-- purchased the facility with additional investors to transform it into a pork processing plant. After months of improvements and more than $20 million invested in the facility, Prime Pork started operating April 26.
The plant has not only brought back the 260 jobs that were lost after PM Beef shutdown, but will keep hiring until it reaches its maximum capacity of 350 employees. Prime Pork Chief Operating Officer Wayne Kies said the company is going to be hiring 60 employees per week.
Kies noted that the plant is progressively increasing the number of hogs that arrive at the plan each week and aims to reach its production goals by mid-July. The plant is currently operating five days a week, with a day and a night shift.
"We are starting fairly slow ...we started the first day with 20 heads and we worked our way up to 500 heads last week," Kies said. "We will continue to move that up to be at our maximum capacity at 6,000 a day."
Kies explained Prime's Pork three main hog producers are two of the company's owners, which includes Taylor and another private industry. This allows them to control the hogs' diet.
Windom City Administrator Steve Nasby said the city is eager to start a business relationship with Prime Pork.
"Opening a plant and having people employed is wonderful news for the community," Nasby said. "People coming to work everyday certainly helps the local economy ... folks are buying groceries and gas. From the city side of it, it's going to be good because we lost a significant revenue stream from our wastewater plant when PM Beef closed."
Kies said the Prime Pork plant was originally supposed to open in the fall 2016 , but that turned out to not be feasible due to the high volume of renovations that were needed. The incorporation of advanced technological machinery also delayed the process, he added.
"We remodeled the entire facility, and the outside walls are probably the only thing that is really left of what was in the facility," he said. "Another part of the delay was to make sure that our automation equipment could get built and get here in a timely manner."
According to Kies, Prime Pork is one of the most technologically advanced pork processing plants in the country. He explained that the facility provides equipment that's able to do some of the most physically demanding jobs. Automation, he said, not only provides a safer environment for employees, but also better-quality products.
"Machines, once they are set, perform better as far as quality, and it's safer for our team members to have the machines doing it versus having manual labor," Kies said. "We don't want people picking up 20 pounds of ham or 15 pounds of bellies and putting them on a scale. That's all being done with machines."
Kies said he thinks a key element in ensuring Prime Pork's success is treating its employees as an asset and performing the individual work, but also collaborating as a team.
"Taylor's thought process and my thought process are similar in how we manage people," Kies said. "We believe that there is nobody that is more important here, whether you are a production worker on the floor or myself sitting in the corner officer."
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