If the cattle basis was considerably weaker (i.e., closer to the historical average), we'd say that the development of trade volume as early as Tuesday would be quite remote. However, we've seen a good deal of Tuesday action this week exactly because of strong basis realities and it could happen again. Indeed, the board may have to stage some kind of recovery Tuesday in order to strengthen the selling hands of feedlot managers. Accordingly, both sides will be closely monitoring futures. Live and feeder futures seem staged to open moderately lower, pressured by residual selling and technical concerns.
Look for the cash hog market to open with bids steady to $1 lower. The late March period generally lacks cheerleaders. The majority of analysts believe market hog supplies will stay large for at least two more weeks, just as they believe that pork demand will continue to struggle over the same period. Lean futures should open moderately lower, checked by spillover selling and struggling fundamentals.
| BULL SIDE | BEAR SIDE | ||
| 1) | The cash cattle market has had no problem ignoring discounted futures all month. There's no reason to think cash premiums can't continue to survive. Additionally, this reality continues to support feedlot currentness and minimized carcass weights. | 1) | Cattle bears wasted no time on Monday swinging sledge hammers and aggressively working further demolition at the CME. While spot April slumping nearly $8 below last week's cash, it may be virtually impossible for feedlot managers to hold country sales steady. |
| 2) | Even though many expect a bearish Cattle on Feed report on Friday, huge summer discounts in live futures may mean that such extreme negativity is already built into the board. In other words, Friday's report could easily be perceived as friendly since a worst case scenario has already been traded. | 2) |
New showlists in cattle country distributed Monday look generally larger than last week with only Texas offering a few less steers and heifers.
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| 3) |
Both cattle and hog futures are significantly oversold with oscillators, suggesting that the entire meat complex is due for a significant correction.
| 3) | The pork carcass values closed moderately lower on Monday, pressured by softer demand for loins, hams and bellies. |
| 4) | Now that spot April lean has fallen nearly $2 below the cash index, the board should have more trouble attracting new sellers. Risk/reward bets should soon be more attractive on the long side. | 4) | Triple-digit losses dominated lean hog futures on Monday, suggesting that most producers and traders think we remain two to four weeks away from any meaningful improvement in either supply or demand fundamentals. |
CATTLE: (The Financial Times Limited) -- Brazil's JBS, the world's largest meatpacker that has been engulfed by corruption investigations, announced on Friday it has finalized the sale of Five Rivers Cattle Feeding's feedlot in the US.
Colorado-based Five Rivers is the largest cattle feeding operation in the world and was sold to affiliates of Pinnacle Asset Management for about $200m.
Following a scandal last year JBS, announced it would offload assets in Argentina, Paraguay, and Uruguay, Canada, US, and Brazil to reduce its debt burden.
The company said in a brief statement on Friday that with the sale of Five Rivers US, "JBS concludes a successful implementation of its Divestment Program, which helped to significantly deleverage and improve the Company's liquidity."
JBS already sold the Northern Ireland-based Moy Park to Pilgrim's Pride for an enterprise value of $1.4bn; its 19 per cent stake in dairy company Vigor for an enterprise value of $335m, and beef operations in Argentina, Paraguay, and Uruguay for $300.
The Brazilian company said in January that its leverage ratio had shrunk "significantly" to 3.42 times earnings before interest, tax, depreciation and amortisation at the end of 3Q17 from 4.16 times in 2Q17.
Former JBS chairman Joesley Batista and his brother Wesley, the company's CEO, signed plea bargains last year admitting to massive corruption, including bribing more than 1,800 politicians over several years. The brothers nearly brought down President Michel Temer in May 2018 after Joesley submitted a tape to prosecutors in which he allegedly discussed bribes with the Brazilian leader.
HOGS:(Globe Gazette) -- USDA figures show pork exports were up a record 7.5 percent from a year ago, using a carcass weight equivalent basis. It was the largest annual increase since 2011 and bests the record set in 2012.
Nearly half of that increase can be attributed to a huge jump in exports to Mexico, according to an analysis from the Livestock Marketing Information Center.
"Shipments of pork to Mexico during 2017 were up by 23 percent from 2016, with exports increasing every year for the last 10 years," the LMIC says. "Pork exports to Mexico are up over 300 percent since 2007."
Export numbers were also up significantly to South Korea in 2017, climbing 29 percent from a year ago.
"There was a notable contrast in pork product preferences by South Korea versus Mexico," the LMIC says in its analysis. "Where Mexico's interest was moving towards fresh processed hams and pork meat at the expense of frozen unprocessed hams, South Korea's focus shifted towards frozen pork product and bacon.
"In the midst of record high pork belly and bacon prices in the U.S. last year, shipments of U.S. bacon to South Korea jumped up 46 percent year-over-year."
USDA is projecting pork exports to increase another 268 million pounds in 2018.
"Duplicating the year-over-year sales gains of 2017 to Mexico and South Korea looks plausible, although saber-rattling on trade agreements between those two countries and the U.S. creates uncertainty," the LMIC says. "A lower U.S. dollar and pork prices that are projected to be stable and slightly below last year's would assist in reaching that positive export forecast."
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