Cattle buyers and sellers will limit their efforts Monday to showlist distribution and supply assessment. Last week's trade volume totals look decent in most areas, so our guess is that the new offering will be steady to somewhat smaller. Live and feeder futures seem likely to start out moderately higher, supported by further short-covering and the reality of cash premiums.
Pork processors watched margins narrow last week as carcass value fell at a faster rate than the cost of live inventory. Therefore, we expect hog buyers to resume work Monday with bids steady to $1 lower. Lean futures are technically oversold and should, at some point, be supported by at least a short-term correction. Nevertheless, the board seemed staged Monday to open no better than mixed in slow volume as both sides work to get a better hand on fundamental potential through the end of March.
| BULL SIDE | BEAR SIDE | ||
| 1) | Between successfully moving carcass values higher (i.e., from Friday to Friday, the choice and select cutouts gained $5.77 and $4.44) and are pretty much holding the line on the cost of live inventory. Beef packers are doing a great job of building margins supportive to both feedlot cash and chain speed. | 1) |
Spot April live will start out on Monday nearly $4 below the feedlot cash market. The persistence of such a strong basis will make it difficult for either hedgers or cash players to hold for higher asking prices.
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| 2) |
U.S. beef exports totaled 105,486 metric tons (mt)in January, up 9% year-over-year, while export value surged 21% to $624.4 million. U.S. beef continued to gain momentum in the Japanese market, with January exports increasing 7% from a year ago in volume (23,968 mt) and 19% in value ($148.6 million).
| 2) |
For the week ending March 6, a sharp drop in the longs held by noncommercials resulted in a decline in their net-long positions of live cattle futures by 8,500, reduced to a total of 96,200 contracts.
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| 3) | The February jobs report suggested a very strong economy with 313,000 jobs added, the most since July 2016 and the 89th straight month of gains, a record. Economists had anticipated a gain of about 200,000. | 3) |
At the same time, noncommercial traders reduced their net-long position in lean hogs by 2,600 contracts, currently totaling 15,200.
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| 4) |
January pork exports totaled 203,488 mt, steady with last year's strong volume, while export value increased 7% to $545.6 million. Building on a record 2017 performance, January pork exports to Mexico increased 1% from a year ago in volume (72,997 mt) and 4% in value ($133.5 million). Pork exports to leading value-market Japan totaled 35,048 mt (up 11%) valued at $146.4 million (up 17%).
| 4) |
Hogs still have to make it through the entire month of March and the start of April when supplies over last year are looking to have the upper hand over demand for the short term.
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CATTLE: (capitalpress.com) -- U.S. cattle markets are showing positive momentum in the first quarter of 2018, following their second-most profitable year on the books. But the year ahead could slow the roll on favorable markets.
Cattle prices for the year to date have been holding at, or above, expected levels, supported by a continuation of solid demand by both domestic and export markets, analysts at Rabobank stated in their most recent beef quarterly report.
The slower-than-expected expansion in the U.S. cattle inventory in 2017 and the heavy front-end load of cattle on feed due to drought creates a tighter than expected supply and brighter outlook for the second half of 2018, they said.
But "while market tone has started the year with solid footing and continuation of profitability in all sectors, there are a number of potential headwinds that could become driving issues as the year unfolds," the analysts said.
Those headwinds revolve around drought, increased production and trade.
The foremost concern is drought, with 27 states showing some level of drought stress. Those states represent 76 percent of the cow population, Don Close, senior analysts with RaboResearch, told Capital Press on Thursday.
Conditions have improved in many areas in the last couple of weeks. But with that much of the cow population in areas at risk of drought liquidation, it's really an issue that needs to be monitored, he said.
Cattle on feed numbers are up 8 percent from year-ago levels, with aggressive placements of calves due to lack of winter wheat pasture. That's not a show-stopper in itself because of the number of light cattle on feed that will be well distributed throughout the year, he said.
"But if we start to build weight, total (beef) production will be a big concern," he said.
With good availability of feed grains at very attractive prices, it will be critical to avoid excess carcass weights in order to keep total beef production at manageable levels, the analysts said.
The other uncertainty in the market is U.S. trade policy. North American Free Trade Agreement negotiations are progressing slowly, and there is still discussion of reopening the U.S. trade agreement with South Korea.
President Donald Trump's intention to impose tariffs on steel and aluminum imports adds the concern of counter duties on U.S. agricultural exports, Close said.
In addition, the 11-member version of the Trans-Pacific Partnership was signed this week -- without the U.S. While the U.S. continues to deal with tariff issues with Japan, the agreement is expected to bring gains for other beef exports through reduced tariffs into Japan -- a key global beef importer, the analysts said.
There continues to be chatter that Trump would be interested in trade talks with those countries, but any trade deal would take a long time to accomplish, Close said.
But U.S. beef exports seem to be holding, and the U.S. is positioned very well as a global supplier of high-value product, he said.
"Without trade conflicts, I think exports will continue to grow," he said.
HOGS:(Bloomberg Finance) -- President Donald Trump threw his Nafta partners a bone while continuing to reframe trade talks with Canada and Mexico as a stark choice between lofty U.S. demands or steep tariffs on steel and aluminum.
In announcing a 25 percent tariff on steel and 10 percent levy on aluminum Thursday, the U.S. president exempted Canada and Mexico "at least at this time" and cited close ties between the three nations. Trump struck an unusually optimistic tone on the fate of the North American Free Trade Agreement, but repeated his threat to quit the pact if the talks fall short.
"I have a feeling we're going to make a deal on Nafta," Trump said at the White House alongside a group of steelworkers, citing the "unique nature of our relationship with Canada and Mexico." But if no deal is reached in negotiations among the three countries that began in August, "then we're going to terminate Nafta and we'll start all over again or we'll just do it a different way," Trump added.
The tariffs are being applied on the grounds of national security, which the president said was a "very important aspect" of the Nafta accord that came into force in 1994.
The Mexican peso led gains among the world's major currencies and the Canadian dollar erased its decline after Trump announced the exemptions for the two countries.
"Monday is a step forward," Chrystia Freeland, Canada's foreign minister, told reporters in Toronto Thursday. She said Canada would push "until the prospect of these duties is fully and permanently lifted," and said it would be inconceivable to apply tariffs to a close military ally like Canada on national security grounds.
She also downplayed a link made by Trump between Nafta and the metals tariffs, saying they were separate issues. "In terms of the Nafta negotiation, that is a completely separate issue," Freeland said. "Our negotiating positions are absolutely unchanged."
Trump's proclamations on steel and aluminum called on Mexico and Canada to "take action to prevent transshipment" of steel and aluminum through their countries and into the U.S.
Mexico recognizes the problem of global steel oversupply and will keep seeking solutions, but Nafta talks shouldn't be subject to other domestic U.S. policies, the country's Economy Ministry said in a statement.
The developments Thursday cap a week of frenzied lobbying by Canada, and come after the seventh round of Nafta talks, which concluded Monday. U.S. Trade Representative Robert Lighthizer struck a relatively upbeat tone at a closing press conference in Mexico City, warning talks needed to move more quickly but saying he was open to "compromise" on U.S. proposals in hopes of getting an updated deal through the current Congress. Freeland said there was "good, solid progress" made in the recent round and that "a win-win-win deal is within reach.
The threat of tariffs hung over the negotiations in Mexico City, and Lighthizer said it was an incentive for Canada and Mexico to get a deal -- a sentiment echoed by Commerce Secretary Wilbur Ross after Trump's announcement.
"I think there's no question that the action the president took Monday is a further motivation to both Canada and Mexico to make a fair arrangement with the United States," Ross said in an interview on CNBC.
The tariffs aren't being imposed just as a "negotiation ploy" for updating Nafta, Ross said. "We are deadly serious" about solving what the U.S. sees as unfair trade in steel and aluminum.
Trump praised his top trade representative during his remarks Thursday, and said Lighthizer would be responsible for negotiating with countries seeking additional exemptions from the aluminum and steel levies.
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