While we could see a few preliminary starter bids in feedlot country Wednesday, significant trade volume will probably be delayed until Thursday or Friday. Our guess is that asking prices will start out around $126 to $127 in the South and $200 plus in the North. Look for live and feeder futures to open some higher, supported by residual buying interest and encouraging technical signs.
Hog buyers should resume work at midweek with steady/weak bids. Chain speed improved on Tuesday, and the pace of slaughter was still checked somewhat by the winter storm. Yet processing margins seem to be improving, and we expect Saturday's kill to be larger than last week. Lean futures seemed staged to open on a mixed basis thanks to follow-through selling on one hand and short-covering on the other.
| BULL SIDE | BEAR SIDE | ||
| 1) | Another round of impressive price progress was scored on Tuesday with spot February posting its best finish since Nov. 30. As the basis weakens, feedlot leverage and resolve should theoretically strengthen. | 1) | The spread between February and April live cattle is unusually flat with April carrying virtually no premium. This suggests ideas of an early cash top and a lack of confidence in spring beef demand. |
| 2) | Beef cutouts closed significantly higher Tuesday with box demand described as "moderate to good." | 2) | Barring a major surprise, the USDA is expected to confirm the Jan. 1 on feed total to be nearly 8% above the previous year, the largest early-year feedlot population since 2012. |
| 3) |
Perhaps responding to smaller levels of production in recent weeks, the pork carcass value seems to be reflecting better demand. The pork cutout closed as high as $83.03 on Tuesday (supported by decent strength in all primals except the belly), its best close since Dec. 8.
| 3) | Late-month hog harvest levels, down for nearly three weeks on holidays and weather delays, may give greater leverage advantage to packers since the pig crop report would suggest ample supplies of hogs should be available. |
| 4) | With pessimistic articles about the extension of NAFTA exceeding optimistic counterparts at least 3 to 1, you have to be impressed how lean hog futures remain so positive. Right or wrong, the board remains very confident about the health of pork demand in the year ahead. | 4) | Mexico is currently the largest export market for U.S. white meat with exports in the most recent year of 50,101 metric ton at a value of $57 million. If the U.S. pulls out of NAFTA, Mexico could slap a 75% tariff on U.S. chicken and turkey under its commitments to World Trade Organization rules. That could mean the domestic market suddenly becomes flooded with cheap poultry. |
CATTLE: (bloomberg.com) -- The 11 members of a Pacific trade pact abandoned by U.S. President Donald Trump have reached a deal on a revised agreement, with the nations expecting to sign a final deal by early March.
Canadian Prime Minister Justin Trudeau said Tuesday negotiations had concluded on what is now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The deal was reached after two days of talks in Tokyo, and came just hours after Trump imposed tariffs on imported solar panels and washing machines-- his first major move to level what he says is a global playing field tilted against U.S. companies.
"The agreement reached in Tokyo Wednesday is the right deal," Trudeau said at the World Economic Forum in Davos, Switzerland. "Our government stood up for Canadian interests and this agreement meets our objectives of creating and sustaining growth, prosperity and well-paying middle-class jobs Wednesday and for generations to come."
Senior officials resolved outstanding issues, finalized the list of suspended provisions and completed the legal verification of the agreement. The whole agreement looked like it might collapse after contentious negotiations in November, when Canada's participation was thrown into doubt.
The agreement comes at a pivotal time for Canada, the second-largest economy in the pact after Trump quit. The country is in the midst of talks to update the North American Free Trade Agreement, the trilateral accord with the U.S. and Mexico that Trump is also threatening to abandon. Part of the Canadian response to U.S. Nafta threats has been to push to expand trade ties elsewhere, including Asia.
Trudeau said he was pleased Canada could make the revised TPP "more progressive and stronger" for workers on intellectual property, culture and the automotive industry. "Trade helps strengthen the middle class, but for it to work we must ensure that the benefits are shared with all our citizens, not just the few," he said.
Canada has made waves recently in talks with major partners by insisting trade agreements include "progressive" elements such as guarantees for labor, gender, indigenous people and the environment. Trudeau's position was seen as partly responsible for scuppering the launch of free trade talks with China in December. U.S. officials are opposed to the measures being added to Nafta, which is in the sixth round of negotiations this week in Montreal.
The original Trans Pacific Partnership, which would have covered 40 percent of the global economy, was seen as a guarantee of U.S. involvement in Asia and a counterweight to Chinese clout-- an idea thrown into disarray when Trump withdrew in one of his first acts as president. Japan has led a scramble to keep the deal alive, with the hope of enticing the U.S. to return at a later date.
Of the four remaining issues from the November talks in Vietnam, the sections Brunei and Malaysia had a problem with will be frozen, Japan's Economy Minister Toshimitsu Motegi said. Matters involving Vietnam's labor rights and Canada's cultural goods will be dealt with in side letters, which each country agreed to sign separately to the CPTPP deal, he said.
Canada achieved "a significant outcome on culture and an improved arrangement on autos with Japan along with the suspension of many IP provisions of interest to Canadian stakeholders," Joe Pickerill, director of communications for Canadian Trade Minister Francois-Philippe Champagne, said Tuesday in an email, referring to intellectual property provisions.
The following countries make up the agreement: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
HOGS: (porkbusiness.com) -- 2018 couldn't have started much better for U.S. pork producers, and by most accounts U.S. exports will remain strong as global income rises throughout the year.
As we launch into 2018, the signs of the times point to an exceptional outcome for U.S. pork producers. We live in an age characterized by random shocks, so the future is always filled with contingencies, but if you could (reasonably) tee up the coming year any better, I am not sure how. Let's look at the foundations for 2018, starting with demand. Within limits, the politics and hand-wringing associated with trade deals will come and go, but U.S. exports will remain strong because global income is expected to continue to rise throughout 2018.
More income, not more people, means more pork demand.
U.S. producers are a proven, dependable supplier of large quantities of high quality pork, provisioned to final user demand and supplied at reasonable cost. Almost 25% of the carcass now travels to another country for consumption.
In addition, even though the U.S. is certainly not bulletproof to export-halting diseases, the combination of a dynamic, multidisciplinary veterinary consulting network, the availability of several state-of-the-art diagnostic labs, multipronged USDA support including customs and border protection, and a country focused on preparedness and education, all means the level of resilience to problems has never been higher, though we hope it is not tested.
Domestic demand is quite possibly stronger than it has ever been, largely fueled by the never-ending uses of the primal belly.
The U.S. industry is gradually moving toward a producer-planned and controlled chain. The locus of control is shifting toward highly coordinated and/or integrated production and processing, because the sizeable value capture from the transparency created between that interface is compelling.
This is not to say large-scale, coordinated production is the only way to go. Neither is it easy, by any stretch, to comprehensively manage and extract its inherent value proposition. However, the emergence of big data technologies will facilitate a strong and improved value capture by those innovators who create the systems and culture to make it happen.
The U.S. industry added two large-scale packing plants in 2017 and some additional midsize plants, and the two largest were in this emerging model. The plant (and associated production) expansions were carried out in an orderly fashion, minimizing destructive competitive warfare. Existing plants that were predicted to lose hogs planned early and arranged a new dedicated supply in time to minimize disruption. It seems the marketing of the pork was planned before the building of the plants, which is the way it's supposed to be.
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