Light cattle trade surfaced in parts of the North at midweek with live and dressed deals marked $110 to $111 and $175 to $177, respectively (i.e., off $4 to $5 and $7 to $9). We expect more of the same in the North Thursday with southern business at least getting off the ground. Look for opening bids around $110 in the South and $175 to $177 in the North. Asking prices should start around $113 plus in the South and $180 to $182 in the North. Live and feeder futures should open at least moderately lower, pressured by follow-through selling and lackluster signs of beef demand.
Midweek hog buyers were quite successful in moving big numbers with moderately lower bids. At the same time, the pork trade turned extremely defensive with the carcass value stripped by crashing bacon demand. Saturday kill plans close to 125,000 head. Lean hog contracts are set to open under significant selling pressure thanks to increasingly defensive fundamentals.
| BULL SIDE | BEAR SIDE | ||
| 1) | Long liquidation in live cattle futures is slowing with some indication that a new lateral range is being established. Furthermore, the board's structure has become less bearish with October at a modest discount to spot August, while December is at a modest premium to August. | 1) | Rudely exposing Tuesday's rally as just another dead cat bounce with absolutely no technical significance, live and feeder futures collapsed back lower Wednesday. |
| 2) | Thanks to decent pasture conditions across most of the central Plains through late summer, fall placement activity could surface relatively late. | 2) | Beef cutouts closed significantly lower on Wednesday with box supplies described as "heavy." |
| 3) | As the renegotiation of NAFTA gets underway, many seem optimistic that eventual changes will not negatively impact U.S. beef and pork exports to Canada and Mexico or significantly increase imports from the same. | 3) | It looks like BLT demand is going south big time. The pork carcass value crashed $2.30 Wednesday thanks to the belly primal imploding by $13.59. |
| 4) | With fourth quarter lean hog futures currently $15 to $20 under the late summer cash index, a worst case scenario in terms of late-year fundamentals may already be dialed in. | 4) | For the week ending Aug. 12, U.S. hatcheries set 224 million broiler eggs, up 3% from a year ago. At the same time, chicks placed 184 million chicks, up 3% from 2016. |
CATTLE: (Mediacorp Press Ltd.) -- JBS SA will proceed with plans to list a U.S.-based unit when market conditions allow, as the world's No. 1 meatpacker wrestles with a shareholder revolt over the role of the controlling Batista family in a massive graft scandal.
In a Tuesday conference call to discuss second-quarter results, Chief Executive Officer Wesley Batista said JBS Foods International Inc could be listed by the end of next year, once parent JBS finalizes 6 billion reais ($1.9 billion) in asset sales to cut debt and restore investor confidence.
His remarks came after Brazil's development bank BNDES, whose investment arm is JBS' No. 2 shareholder, said earlier in the day that it would endorse a civil lawsuit against management and the billionaire Batista family. The lawsuit alleges that their role in a corruption scheme led to heavy losses in the value of JBS shares.
"It is not a matter of if but when," he said of the unit's IPO plan. JBS Foods includes beef brand Swift and Pilgrim's Pride, among other subsidiaries.
BNDES Participaçoes SA, which has about a 21 stake in JBS, will seek Batista's ouster at a Sept. 1 shareholder meeting. The lawsuit also targets his brother Joesley Batista, who is also a board member, former executives and J&F Investimentos SA, which oversees the family's 42 percent stake in JBS.
In May, the Batista brothers signed a plea deal with Brazilian prosecutors after admitting to bribing 1,900 politicians over the course of a decade. Since then the brothers have personally negotiated the short-term refinancing of 21 billion reais in JBS debt and the sale of several assets.
Following the plea deal, JBS' board created a compliance division and hired a former U.S. Department of Agriculture official to bolster transparency.
Shares rallied in afternoon trading, as the succession of probes and scandals had a smaller-than-expected impact on second-quarter operational trends. The stock added 2.4 percent to 8.81 reais.
Late on Monday, JBS reported quarterly net income that was about half the amount forecast by analysts as net financial expenses jumped to their highest in five quarters on currency variations and adjustments in the fair value of derivatives.
Still, earnings before interest, tax, depreciation and amortization, or EBITDA, rose 30 percent from a year earlier to 3.7 billion reais, beating an average estimate of 3.4 billion reais.
According to Thiago Duarte, an analyst with Banco BTG Pactual, results reflected a strong performance of the U.S. beef business is booming as the outlook for Brazil-based units remain weak. Batista expects margins to return to historical double-digit levels.
JBS is on track to reduce debt faster than investors anticipated, he said. Net debt could drop to 3.5 times annual EBITDA by December, Batista said, noting that those debt levels had not been expected until the end of 2018.
The company is also in advanced talks to sell Moy Park Ltd in Europe and U.S. unit JBS Five Rivers Cattle Feeding LLC, following the sales of Argentine assets and a stake in dairy producer Vigor Alimentos SA, Batista said.
JBS has also hired lawyers to deal with a potential U.S. criminal investigation of its corporate practices, he said, adding that "none of our U.S. subsidiaries or executives committed any wrongdoing."
HOGS: (NPPC) -- With negotiations set to begin Friday, the National Pork Producers Council Thursday repeated its request that a "modernized" North American Free Trade Agreement (NAFTA) maintain the zero-tariff rate on pork traded in North America.
President Trump has made updating the 23-year-old trade deal between the United States, Canada and Mexico a priority since before taking office and even considered withdrawing from the agreement. The initial NAFTA renegotiation talks start here Friday.
NPPC has been one of the leading agricultural voices in support of the agreement, issuing a white paper and twice testifying before congressional committees on the benefits of the pact.
"Canada and Mexico are top markets for our pork, so, obviously, we don't want any disruptions in our exports to those countries; we need to keep pork trade flowing," said NPPC President Ken Maschhoff, a pork producer from Carlyle, Ill. "We want to reiterate to the Trump administration that NAFTA has been a boon to the U.S. pork industry and to all of American agriculture."
Since NAFTA went into effect Jan. 1, 1994, U.S. trade north and south of the borders has more than tripled, growing more rapidly than U.S. trade with the rest of the world. Canada is the No. 2 market for U.S. agricultural products; Mexico is No. 3. In 2016, America's farmers exported more than $38 billion of products to the two nations, or 28 percent of all U.S. agricultural exports. Those exports generated more than $48 billion in additional economic activity and supported nearly 287,000 U.S. agricultural jobs.
For the U.S. pork industry, Canada is the No. 4 market, and Mexico is No. 2. Last year, the industry shipped almost $799 million of pork to Canada and nearly $1.4 billion to Mexico. Those exports help support more than 16,000 U.S. jobs.
"U.S. pork trade with Canada and Mexico has been very robust, and we need to maintain and even improve that trade," Maschhoff said. "We will continue to work with the administration to make sure that happens in a modernized NAFTA."
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