We don't expect to be very busy monitoring the
cash cattle trade Friday. Besides a few clean-up deals here and there,
most of the week's business has already come and gone. It will be
interesting to see if April live moves somewhat closer to the cash
market before calling it a week. Should April come into next week with a
$3 discount or greater, feedlot managers could find it difficult to ask
for and score more money. Live and feeder futures are likely to open on
a mixed basis thanks to a slow combination of residual selling and
late-week short-covering.
Look for the cash hog market to open Friday with
generally steady bids. Thursday's country run seemed to moderate just
as the wholesale pork finally found a degree of stability. Assuming the
Saturday kill totals are close to 130,000 head, the weekly kill is
expected to total right at 2.4 million head. Lean futures should also
open with uneven price action tied to follow-through selling and
short-covering.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Net beef export sales last week
totaled 21,895 metric tons (mt), up nearly two and a half times from the
previous week and up 38% from the prior four-week average.
|
1) | Although selling interest in cattle futures cooled a bit on Thursday, the inability of spot April live to even mount a dead cat bounce speaks poorly of late-winter psychology. |
| 2) |
For the week ending Feb. 17, carcass
weights accelerated their seasonal descent: all cattle averaged 823
pounds (lbs) , 4 lbs. smaller than the previous week and; steers
averaged 881 lbs., 8 lbs. below the prior week and even with last year;
heifers averaged 828 lbs., 5 lbs. lighter than the week before and 4
lbs. heavier than 2017.
|
2) | Cattle buyers may be less taxed early next week as they pull first of the month contracts to help cover early March slaughter needs. |
| 3) | Easter comes early this year (i.e., April l), positive news for red meat demand since consumer spending typically improves after the religious holiday. | 3) | Net pork export sales last week fell to 21,900 mt, down 46% from the previous week and 14% from the prior four-week average. At the same time, actual pork shipments totaled 22,900 mt, down 13% from the previous week and 7% from the prior four-week average. |
| 4) | After spending weeks in the woodshed, lean hog futures are beginning to look oversold, both technically and fundamentally. | 4) |
The Trump Administration's plans to
place tariffs on steel and aluminum could cause economic growth to slow,
inflation to rise, and trigger a larger trade war with China (perhaps
particularly undermining U.S. ag exports).
|
CATTLE:(thecattlesite.com) -- The majority of
federal inspected steer and heifer slaughter comes from commercial
feedlots with capacities of 1,000 head or greater, which is reported by
USDA-National Agricultural Statistical Service (NASS) on a monthly
basis, according to Steiner Consulting Group, DLR Division, Inc.
Last Friday, NASS reported that marketings of
steers and heifers from these larger commercial feedlots were up 6 per
cent in January from a year earlier. A day earlier, NASS estimated that
January steer and heifer slaughter (federal inspected) was also up 6 per
cent.
Marketings of cattle from these feedlots
accounted for 87 per cent of all steer and heifer slaughter. This is
just a small fraction of a per cent greater than share of steer and
heifer slaughter coming from feedlots in 2017. The percentage share of
steer and heifer slaughter coming from 1,000 head capacity feedlots has
stayed within the 86-87 per cent range since 2012.
The 13 per cent of the steer and heifer
slaughter not accounted for by marketings of cattle from larger feedlots
comes from farms primarily focused on grain production using cattle as
an alternative to selling corn in the cash grain market, cattle
producers marketing "grass fed" animals, and imports of slaughter cattle
from Canada. The latter category accounted for 1.4 per cent of
slaughter last year, the highest percentage in the last three years, but
less than half of what it was ten years ago.
January steer and heifer slaughter exclusive of
1,000 head capacity feedlots was 272,000 head. Monthly cattle import
data for January is not available until next week, but just considering
total slaughter less feedlot marketings, the 272,000 head tally is a 6
per cent increase from the prior January, similar to the large feedlot
marketing increase. One more week-day in January 2018 versus a year ago
probably accounts for at least half the gain in both output measures.
Slaughter cattle imports in 2017 were down 10
per cent from the prior year, approaching the lowest level in at least
ten years that was seen in 2015. At these levels, slaughter cattle
imports are down almost 50 per cent from ten years earlier. Exclusive of
slaughter cattle imports and 1,000 head capacity feedlot marketings,
steer and heifer slaughter last year increased by about 160,000 head, or
10,000-20,000 head per month, year over year.
Penciling in a preliminary estimate of slaughter
cattle imports for January close to the December 2017 volume leads to
steer and heifer slaughter outside of large feedlot marketings that is
about 20,000 head more than in January 2017.
In some ways, it is surprising that this volume
would be maintained given the big placements of cattle into large
feedlots in the last half of 2017 (relative to the number of feeder
cattle available from recent calf crops). It also may be an impressive
statement about the stability of new marketing programs for cattle
outside of the conventional feedlot marketing process.
HOGS: (Dow Jones) -- President Trump is spoiling
for a fight with China on steel and aluminum. But in China, it's
looking like a good year to pick a fight with U.S. farmers. The trick?
Picking winners from losers in an agricultural trade war.
Trade tensions between Washington and Beijing
are rising. The Trump administration slapped tariffs on solar panel and
washing machine imports in January, and is poised to further restrict
imports of steel and aluminum--markets in which China is a dominant
player. U.S. metals executives were summoned to the White House on
Thursday and told new curbs could be announced as early as that day,
according to people familiar with the matter.
How might China respond? One possibility is
soybeans. The country imported $12.4 billion of American soybeans last
year to feed its pigs. China relies on these imports to keep feed prices
low, which in turn keeps low the politically-sensitive price of pork.
The meat is China's staple protein, and a sizable component in household
budgets.
But China is arguably now in a better position
to handle disruption from American soy. Food price inflation has been
running negative for over a year thanks to agricultural reforms,
rebounding pork supply and a worldwide grain glut. The strengthening
Chinese yuan is also weighing on the price of imported foodstuffs.
What little inflation there is in China --
consumer prices rose 1.5% in January -- has been more down to services.
Housing, medical care, education and entertainment accounted for nearly
80% of the rise in China's headline price index that month.
U.S. farmers' leverage with China, meanwhile, is
exceptionally weak. Farm is debt high and incomes are falling. Global
soybean prices remain mired at barely half their 2012 peak. And Brazil,
America's main competitor for the Chinese soy market, is growing another
bumper crop.
Brazil's 2017-18 soybean harvest is expected to
clock in at 112 million metric tons, the second highest ever, according
to Reuters' February survey -- surpassed only by last year's record of
114 million.
Investors in American agricultural giants like
Bunge and Archer Daniels Midland could take a hit if drooping Chinese
demand harms American soy prices: China sucks up more than half of U.S.
soybean exports.
One company that could benefit if soy tariffs
lead to higher Chinese pork prices: Hong Kong-listed WH Group, which
owns U.S. pork processor Smithfield Foods Inc. and is both a major
importer of pork to China and a domestic pork producer.
China won't be able to wean itself entirely off
U.S. soy: It still needs to import a reasonable volume to tide it over
during the Brazilian winter growing season.
But low food prices at home, a strong currency,
and a world awash in South American soybeans gives it plenty of room to
toy with soy.
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