Cattle buying interest should start to improve this morning with starter bids around $118-119 in the South and $190 in the North. Yet advancing futures have clearly stiffen the backbone of feedlot managers. Barring a major break in the board, we expect them to dig in their heels with higher asking prices (i.e., $122-123 in the South; $195-197 in the North). If beef producers stand tall in this regard, significant trade volume could easily be delayed until Friday. Live and feeder futures should open on a firm basis, supported by follow-through buying and stronger cash expectations.
The cash hog trade seems likely to open with steady/firm bids. Despite decent processing margins, Saturday kill plans sound no larger than 145,000 head (this strikes us on the small side given slow chain speed seem Monday). This may just be more confirming evidence regarding tighter supplies coming off of the fourth quarter surge. Lean futures seem slated to open with mixed prices tied to a combination of residual selling and short covering.
| BULL SIDE | BEAR SIDE | ||
| 1) | Live and feeder futures exploded with triple digit gains on Wednesday, scoring significant technical progress at the same time (e.g., April live settled above its 40-day moving average for the first time since January 4). | 1) | Although the softening of beef cut-outs slowed yesterday, consumer spending typically slows in late January and early February as the family budget is strained to pay down credit cards aggressively used over the holiday. |
| 2) | As the board moves closer to recent feedlot sales, the weaker basis should lend cattle sellers more resolve and leverage. | 2) | With some live cattle contracts teetering on the brink of major technical resistance, the jury remains out regarding further prices progress. |
| 3) | For the week ending January 13, Iowa barrows and gilts averaged 284.8 pounds. 0.7 pounds lighter than the previous week and 2.9 pounds heavier than 2017. | 3) | For the week ending January 13, U.S. hatcheries set 225 million eggs in incubators, up 3 percent from a year ago. At the same time, chicks placed in the United States totaled 183 million chicks, also 3 percent greater than 2017. |
| 4) | Yesterday's sell-off an lean hog futures did little to compromise bullish chart formations. Most months remain with striking distance of new contract highs. | 4) | While the hog basis has converged this month, pretty much all the work has been done by the cash index. The board's inability to react to cash strength may suggest that nearby contracts are essential played out. |
HOGS: (fortune.com) -- Bacon, that glorious food that so many people crave for breakfast, lunch, and dinner, could be the lynchpin in a proposed future U.S.-U.K. trade deal.
The Soil Association, a food safety group in the U.K., has issued a report listing U.S. bacon with additives as one of the top safety risks posed by the proposed free-trade agreement. Chicken and beef are also being cited as risks.
Specifically, it's the pork additive ractopamine—a perfectly legal additive in America, but one that has been banned throughout the European Union since 1996. Ractopamine adds weight to pigs prior to slaughter, but has been found to cripple the animals. That's not slowing demand in the U.S., though, where Americans are eating so much bacon that reserves are at a 50-year low.
The group also warned about the practice of washing chicken in chlorine and the growth hormones fed to cows.
"Some of the key differences between U.K. and U.S. production—hormone-treated beef, GM crops, and chlorinated chicken—are becoming increasingly understood by British consumers," the report says. But there are "other areas where products imported from the U.S. could be produced under significantly different standards to our own."
Some U.K. officials are eager to sign a trade deal with U.S. farmers with the upcoming withdrawal from the EU, but U.S. Commerce Secretary Wilbur Ross has hinted the agreement will hinge on substantial rule changes, such as allowing the chlorination wash for chicken.
The Soil Association warns this could have negative consequences for U.K. consumers.
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