Wednesday Morning Livestock Summary - Hog Futures Staged for Moderate Strength on Opening

GENERAL COMMENTS:

Cattle bids and asking prices could begin to slowly develop at midweek, but significant trade volume may be delayed until Thursday or Friday. Asking prices are likely to start out around $107-plus in the South and $168-170 in the North. Live and feeder should open on a mixed basis thanks to a slow combination of long liquidation and short covering.

The cash hog trade on Tuesday was quite suggestive, both in terms of price and volume (especially the latter). The closing national report put the weighted average dressed price at $61.89, 0.22 higher (the first higher quote in weeks). More impressively, negotiated receipts surged over 22,000 head. We assuming a part of this big total is linked to the debut of the new plants. Yet it's tough to tell at this point, and will simply require more monitoring. Lean futures are staged to open moderately higher, jacked by follow-through buying and cash premiums.

	BULL SIDE		BEAR SIDE
1)	Preliminary signs of beef clearance over the Labor Day weekend are encouraging. The choice box jumped more than a buck higher on Tuesday on decent early-week volume.	1)	Although ready cattle numbers vary from state to state this week, the aggregate showlists appear to be larger than last week. Specifically, the Texas offering seems significantly bigger than late August.
2)	Lower beef cut-outs continue to stimulate longer-term demand. Last week's comprehensive boxed beef report documented enormous advanced sales (i.e., 22-day plus delivery) volume. That category surged to 1,490 loads, the largest total seen since mid July 2007.	2)	Live and feed futures tried to bounce higher in the early going yesterday, but nervous sellers quickly regrouped, forcing most contracts to settle 100-200 below session highs. The working market meme here continues to be "rallies are for selling."
3)	Lean hog futures jumped sharply higher yesterday, perhaps signaling potential for an extended early fall recovery (i.e., not unusual in years that witness a particularly severe August sell-off).	3)	With Seaboard and Clement Foods spreading new processing wings in the months ahead, weekly hog slaughter could be exceeding 2.6 million head by early November. While enthusiastic talk of export demand is cheap, no one really knows how successful (i.e., how low wholesale prices will have to get) the U.S. market will be in selling so much pork (having never done it before).
4)	The pork carcass value move moderately higher on Tuesday with all primals reflecting better demand except the picnic.	4)	For the week ending August 29, noncommercial traders were net sellers in lean hog futures, reducing their net long position by 9,600 contracts to 43,900.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Xinhua News Agency) -- Shanghai Entry-Exit Inspection and Quarantine Bureau said Tuesday the first shipment of U.S. beef by sea entered China on Sept. 1, signifying the normalization of the large-scale import of the product.

The shipment of frozen beef weighed 15.1 tonnes and was valued more than 300,000 U.S. dollars, according to the bureau, which opened a green channel for a faster approval procedure.

China started the import of U.S. beef in June after a 14-year absence. However, imports were limited to air freight in June and July, which pushed up the costs while failing to meet market demand.

Data from Shanghai Customs showed the city's beef imports reached 144,000 tonnes from January to July, mainly from Brazil, Australia, Uruguay and New Zealand.

China's beef imports reached around 2.5 billion U.S. dollars in 2016. However, per capita consumption is still low compared with the United States and Australia.

The reopening of the Chinese market to U.S. beef, one of the first results from the China-United States 100-day action plan reached in May, ends a ban initially triggered by concerns over mad cow disease in 2003, and may well start a new chapter in bilateral economic and trade cooperation.

HOGS: (National Hog Farmer) -- Live hog prices could fall by $4.71 per animal if KORUS — the U.S.-Korea Free Trade Agreement — is terminated by President Donald Trump. Over the weekend, reports surfaced that the administration may issue as early as Tuesday a notice of intent to withdraw the United States from its free trade agreement with South Korea.

An analysis by Iowa State University economist Dermot Hayes found that if KORUS is terminated, the United States likely will lose the South Korean pork market to the European Union, Chile and other countries that have preferential trade access to the Asian nation. That would cause live hog prices to fall by 3.8%, or $4.71 per animal, an amount that would all but eliminate U.S. pork producers' expected gross margin per hog in 2017.

South Korea is a valuable trade partner for U.S. pork, making it the No. 5 export market. For the 12-month period ending May 2017, the country imported 1.9% of total U.S. pork production — $444 million.

KORUS is the second largest U.S. free trade agreement, eliminating tariffs on 95% of consumer and industrial products. The United States and the Republic of Korea signed KORUS on June 30, 2007, and entered into force on March 15, 2012.

As its fifth largest export market, agriculture groups — including the National Pork Producers Council — are urging the Trump administration not to invoke the 180-day notice of termination in KORUS.

In August, the United States and South Korea held a special session of the KORUS Joint Committee to discuss updating the trade deal. However, South Korea walked away from the negotiation table, citing it needed further investigation.