The cash cattle trade should start to take on better definition Thursday as short-bought and well-margined packers begin to kick tires more aggressively. Asking prices should be around $185 plus in the South and $115 plus in the South. If futures continue to work higher, feedlot resolve should naturally firm. In that case, significant trade volume could easily be postponed until sometime Friday. The cattle board will open Thursday with expanded limits of 450 points. Live and feeder futures could open substantially higher thanks to residual buying, technical considerations and cash premiums.
Hog buyers are expected to resume work Thursday with firm bids. While ready numbers have slowly tightened through May, the decline in chain speed next month should accelerate. Currently, Saturday's kill is estimated to total as much as 236,000 as processors move to make up for the week's slow start. Lean futures are staged to open moderately higher, supported by follow-through buying and optimism concerning seasonal fundamentals.
| BULL SIDE | BEAR SIDE | ||
| 1) | Live cattle futures exploded with a strong rebound on Wednesday, led by June and August increasing by the 300-point limit. This will allow for the limit to be expanded to $4.50 for Thursday's trading session. | 1) | Although actively traded August live cattle is challenging technical highs set in early May, significant overhead resistance remains in the $106 to 106.50 area. |
| 2) |
Beef movement over the holiday weekend may have been better than originally thought. Cutouts closed solidly higher on Wednesday with box movement described as "moderate to fairly good."
| 2) | Fed cattle chain speed is expected to remain aggressive throughout the week ahead with June kills in the upper 640,000s to the mid-650,000s. |
| 3) | The lean hog market structure is clearly positive with spot June trading nearly 800-points premium to the cash index. Furthermore, July and August contracts are premium to June, reflective of bullish expectations that cash will rally into the summer period. | 3) | The index for June lean hogs as the contract moves into expiration month normally works a bit lower. |
| 4) | For the week ending May 26, Iowa barrows and gilts averaged 282.4 pounds, 1.5 pounds less than the prior year and 1.6 pounds more than 2017. | 4) | The pork carcass value drifted lower at midweek as softer demand for fresh cuts overshadowed belly strength. |
OTHER MARKET SENSITIVE NEWS:
CATTLE: (Oklahoma Farm Report) -- "The Jan. 1, 2018, beef cow herd inventory of 31.723 million head was very close to the 2009 herd size of 31.794 million head a decade earlier. However, the industry has been through quite a bit since then and some short and long term changes are evident in the current situation among major beef cow states.
"For more than half of the last decade, the U.S. beef cow herd continued a nearly uninterrupted liquidation that began in 1996 and continued until 2014. The only exception was a short-lived expansion attempt in 2005-2006, that added a minimal 171 thousand head to the herd size before resuming liquidation in 2007. From 2009 to 2014, the U.S. beef cow herd dropped by 2.708 million head, with the final two million head the result of severe drought in the Southern Plains from 2011 through 2013. Overdue herd expansion began in 2014 with a total recovery of 2.638 million head by 2018. However, some interesting short and long run trends are evident among major beef cattle states in the last decade.
"Texas, the largest beef cow state, had a beef cow inventory of 5.17 million head at the beginning of the decade in 2009. By 2014, the Texas beef cow inventory was down 24.4 percent to 3.91 million head, the lowest state beef cow inventory since 1958. Since 2014, the Texas beef cow herd has added 675 thousand head, recovering 54 percent of the 1.26 million head decrease from 2009-2014. The current state inventory is 4.585 million head of beef cows. Texas has recovered proportionately less than any major beef cow state since the drought of 2011-2013.
"From year to year, Missouri and Oklahoma vie to be the number two beef cow state. On Jan. 1, 2018, Missouri had an inventory of 2.166 million head, slightly more than Oklahoma, at 2.131 million head. Over the past decade, Oklahoma ranks number 2 with a slightly higher average inventory of 1.938 million head, compared to 1.916 million head for Missouri. Both states suffered drought reduced inventories in 2010-2013; more pronounced in Oklahoma where the beef cow inventory dropped by 18 percent before recovering by 26 percent from 2013-2018. The 2018 Oklahoma beef cow inventory is at the highest level since 1983 while Missouri is currently at a level equal to the herd size in 2006.
"Nebraska is the number four beef cow state with a 2018 herd inventory of 1.910 million head; quite stable over the last decade. Number five South Dakota has shown recent growth in the beef cow herd with a 2018 inventory of 1.801 million head, well above the decade average of 1.656 million head. The current South Dakota beef cow herd is the largest since 2002.
"Kansas is the number six beef cow state with a current beef cow inventory of 1.501 million head, down year over year from 2017. The Kansas beef cow herd has been more variable over the last decade with a drought low of 1.328 million head in 2013. The decade average beef cow herd in Kansas is 1.465 million head. Number seven Montana has a 2018 beef cow inventory of 1.497 million head. Montana has maintained a very stable beef cow herd size, averaging 1.481 million over the last decade. Kentucky is the number eight beef cow state with a current beef cow inventory of 1.033 million head, very near the decade average of 1.029 million head.
"Florida ranked number nine over the past decade but recent decreases in the beef cow inventory have pushed Florida out of the top ten in 2018. The current Florida beef cow herd of 886,000 head is the smallest since 1964. North Dakota moved into the number nine spot in 2018 with a beef cow inventory of 984,500 head. This is the highest North Dakota beef cow inventory since 2002. Iowa ranks number ten in 2018, and has for the last decade among major beef cow states, with a current inventory of 970,000 head. Other states with a beef cow inventory over 900 thousand head include Arkansas (924,000) and Tennessee (910,000)."
HOGS:(Wisconsin State Farmer) -- In a typical year, the majority of U.S. pork exports to China occur within the first seven months, with peak exports occurring in April through June. But as everyone is aware, 2018 has been anything but typical on the trade front.
On April 2, U.S. pork, fruits, nuts, wine and ginseng found themselves on the receiving end of China's irritation about recently imposed U.S. steel and aluminum tariffs. The irritation came in the form of an additional 25 percent tariff on U.S. pork and an additional 10 percent tariff on the rest of the targeted agricultural products. While there have been ad hoc reports of declining sales and suspiciously thorough port inspections for the non-pork products on the list, complete data has been hard to come by. But for U.S. pork, the significant impact these tariffs are having on U.S. export volumes is more apparent because of mandatory export reporting. The data is clear -- U.S. pork exporters are squealing, but with dismay, not delight.
Very quickly, a reminder of a few relevant dates: March 1, U.S. tariffs on steel and aluminum imports were announced; March 23, the new tariffs went into effect; April 2, China countered with tariffs aimed at more than 120 U.S. products.
Note that the volume of U.S exports of pork to China has varied considerably over the last three years. In 2016, the 362,000-plus metric tons of U.S. pork and pork products exported to China set new records. The next year, pork exports were down nearly 15 percent, yet China solidly remained the third-largest market for U.S. pork, as it has been since 2011. In 2017, China represented 13 percent of U.S. pork exports.
For those who follow trade with China, the next question that comes to mind is "what is happening in Hong Kong and Vietnam?"
When actions that impact trade between the U.S. and China, Hong Kong or Vietnam occur, we often observe an increase in trade between the U.S. and one or both of the other two markets.
In fact, because of the gray market that exists between China, Hong Kong and Vietnam, these three markets are often referred to as a single market. In 2017, nearly half a million pounds of U.S. pork and pork products, or 1 of every 5 pounds of exported U.S. pork was destined for China, Hong Kong and Vietnam.
However, 2018 combined weekly exports of U.S. pork to these three markets do not suggest any sizable diversion is occurring, at least not yet. So far, the additional 25 percent tariff China has applied to U.S. pork seems to be having the intended effect - a reduction in U.S. pork exports to China. Eliminating punitive tariffs and improving access to China by eliminating or reducing tariffs on frozen and chilled pork would result in an explosion of pork exports, contributing significantly to U.S. economic growth and reduction of the trade deficit."
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