Cattle buyers were successful in generating light to moderate trade volume in Kansas and Nebraska by using sharply lower bids (i.e., $116 to $117). To be sure, many feedlots resisted such a severe price break. But packers may have purchased enough stock to at least put a cap on price potential for the week. Time will tell, but it may take both higher cutouts and a meaningful board recovery for feedlot managers to win greater cash stability Wednesday or later this week. Live and feeder futures should open moderately lower, pressured by follow-through selling and negative cash potential.
Look for the cash hog trade to open Wednesday with stout bids that range $1 to $2 higher. Despite fairly aggressive packer spending on Tuesday, negotiated trade volume was not much better than moderate (e.g., about 11,000 head tied to the national dressed base). Along with higher cash sales, carcass value is appreciating at a tolerable rate, decent enough to maintain solid processing margins. Saturday's kill is currently estimated right at 80,000 head. Lean futures should open moderately higher, supported by short-covering and the impressive unfolding of seasonal fundamentals.
| BULL SIDE | BEAR SIDE | ||
| 1) | Beef-processing margins have moved from good to better to great. Outstanding profit potential will encourage packers to maintain top chain speed, thereby chewing up second quarter fed supplies as soon as possible. | 1) | Light to moderate cash business developed in parts of feedlot country Tuesday (i.e., Kansas and Nebraska) with steers and heifers marked as low as $117, $5 lower than last week. Deepening board discounts seem to be taking a toll on feedlot psychology. |
| 2) | Even though feedlot sales have now fallen $10 from late-winter highs, the June live contract is still trading at a $14 discount. At some point soon, specs and commercials, assessing the risk/reward ratio, should find the short side of the board too dead to skin. | 2) | This week's cattle slaughter is expected to follow the previous two weeks, holding in the mid- to upper 640,000-head area, with 650,000-head harvests expected by early June. |
| 3) | The pork cutout pushed moderately higher on Tuesday, supported by better demand for fresh cuts, processing items and ribs. | 3) | Lean hog futures quickly surrendered Monday's rally Tuesday. Summer contracts closed sharply lower with June and August falling back below 40-day moving averages. Many fear that the most bullish cash scenario has already been dialed into the board (maybe even over-dialed). |
| 4) | The appreciation of the cash hog market does seem to be accelerating (e.g., the national dressed base surged $1.56 Tuesday), and it's only mid-May. As long as bulls continue to be aggressively fed like this, they won't give up on summer lean futures without a fight. | 4) | Are NAFTA negotiators running out of time? Unresolved issues seem incredibly complicated (see article below). These dark clouds could hover over lean hog futures for weeks to come. |
OTHER MARKET SENSITIVE NEWS
CATTLE: (Bloomberg) -- Restaurant chains are tempting diners with that perennial black sheep of American meat: lamb.
Arby's, the king of roast beef, will soon start peddling lamb gyros year round. Sandwich seller Potbelly Corp. is offering a gyro flatbread; Darden Restaurants Inc.'s Yard House brewery, a lamb burger topped with feta cream cheese; and Romacorp Inc., lamb ribs at more of its Tony Roma's restaurants.
Meanwhile, fast-growing Mediterranean-style eateries such as Zoe's Kitchen Inc. and Taziki's, looking to their heritage, are featuring lamb meatballs and chargrilled lamb, along with hummus and pita.
As younger diners start showing more adventurous tastes, lamb is now on 20 percent of all U.S. restaurant menus, up from 17 percent a decade ago, according to food researcher Datassential.
"With the influence of media, as well as things like the Food Network, you see an increase of just having lamb in front of people," said Bob Gallagher, Romacorp's senior vice president of food and beverage. "People are more open to it."
Maybe not. Lamb is the oldest domesticated meat, but it's never quite tickled the American palate. It has long been relegated to the occasional splurge at steakhouses or as kebabs at Greek diners. Only half of the population has even tried it; 13 percent flat-out hate it, according to Claire Conaghan, Datassential group manager, who says it is often perceived as dry and even "gamy." There's also the sad child factor: Lamb is a sheep, under 14 months old.
Since the 1960s, consumption has tumbled from nearly 5 pounds per person to less than 1 pound last year, compared with 55 for beef, 50 for pork and 108 for poultry, according to the USDA. (Veal is the only meat less popular, at one-fifth of a pound.)
Still, Arby's Restaurant Group Inc. says it sold 6.5 million gyros in April, up from 6.1 million during the same month last year, when it was first offered. Yard House's lamb burger is one of its top-selling non-beef varieties, alongside turkey, pork and vegan versions.
Black Angus Steakhouse is trying to draw in younger diners by pitching their New Zealand lamb as free range, said David Bolosan, the 44-store chain's senior director of product innovation and procurement.
"It definitely resonates with millennials," he said.
In Orlando, Florida, Matthew Imholte is sold. Last month, Imholte, 32, chowed down on a Yard House lamb burger and was pleasantly surprised. "I didn't realize lamb was going to taste so good," he said.
On a recent weekend, for the first time, Imholte grilled medium-rare lamb loins for his family. Lamb T-bones now stock his freezer.
Imholte, a fitness coach and motivational speaker, says lamb seems wholesome to him. He might not want to look too closely, though. It's red meat, which the Cleveland Clinic and other health authorities recommend limiting because it is high in saturated fat.
Consider the fine print on the Arby's menu. One third of the 360-calorie "classic roast beef" sandwich is fat. Its lamb gyro? It's one-half fat. The calorie count: 710.
HOGS: (Dow Jones) -- Efforts to secure a comprehensive deal this week to overhaul the North American Free Trade Agreement are facing significant hurdles, although Mexico, Canada and the U.S. continue to inch ahead on new trade rules for auto manufacturing, according to people close to the talks.
While Canada's Foreign Minister Chrystia Freeland and Mexico's Economy Minister Ildefonso Guajardo returned home from Washington after ministerial meetings that concluded last week, negotiating teams remain in the U.S. focusing on Nafta's auto chapter.
But even if the U.S. and Mexico reach an accord on auto rules, key outstanding issues are far from being resolved, including dispute-settlement and arbitration systems that are popular with businesses but that U.S. Trade Representative Robert Lighthizer wants to scrap. The Trump administration also wants to impose restrictions on seasonal produce and introduce a five-year sunset provision that triggers a periodic review for Nafta.
These issues, described by the Mexican side as "philosophical differences," show much less promise for being resolved by May 17, the date Rep. Paul Ryan said is the deadline to have time to consider the deal in the U.S. House of Representatives this year, these people said.
"It's a philosophy that breaks totally with the idea of an integrated North American market," said one person close to the talks. "There has not been a lot of flexibility on the part of Ambassador Lighthizer" on these topics.
On Monday, President Donald Trump discussed with Canadian Prime Minister Justin Trudeau "the possibility of bringing the negotiations to a prompt conclusion," but the offices of both leaders didn't disclose details on how soon a deal could be completed.
A major overhaul of Nafta would require a vote by the U.S. Congress and a new Nafta must be approved by Congress and by Mexico's Senate, both of which could change significantly in composition after elections later this year. Canada's legislature would also likely have to approve the deal.
Mr. Trump has threatened to pull the U.S. out of Nafta unless Canada and Mexico agree to renegotiate the deal in ways that benefit American workers.
U.S. Commerce Secretary Wilbur Ross said Monday that topics such as the sunset clause, dispute resolution, and labor "are still a work in progress, and those are very complex issues, particularly rules of origin."
People familiar with the talks said that a deal on autos hinges on the U.S. and Mexico coming to terms on several technical issues surrounding rules of origin, which dictate how much of a vehicle must originate in North America to qualify for tariff-free trade.
The U.S. had proposed a rule of origin for autos requiring 75% of the content in vehicles made under Nafta rules to originate in the U.S., Canada or Mexico, and that 40% of cars and 45% of pickup trucks be manufactured in zones where workers are paid at least $16 per hour.
Mexico's auto industry publicly rejected that proposal, saying that it was an attempt to discourage investment and auto production in Mexico.
Mexican negotiators presented a counteroffer last week that proposes that only 20% of some auto parts be made in high-wage zones, and that would give auto makers more time to adapt to the rules, according to people briefed on the proposal.
The new auto rule under discussion is actually "five rules bundled into one," according to one of these people, with complex requirements for the origins of the steel, aluminum and key components including chassis, transmission and engines used in vehicles. Under the current regime, 62.5% of the value of the content in a vehicle must originate in one of the three Nafta countries to qualify for tariff-free importation.
One possible outcome is that the negotiating teams reach a deal on auto rules, but leave the other, more contentious issues for later, keeping the talks alive in the hope that a wide-ranging deal could be reached during lame-duck legislative sessions in the U.S. and Mexico. Trade negotiators from the three countries have completed or are close to reaching a final agreement on some 16 updated Nafta chapters.
Resolving issues surrounding auto rules of origin "shouldn't be that big a problem," said another person familiar with the talks. "But the other issues are more difficult because there is limited flexibility for an agreement that requires a political decision."
Even on a limited auto deal, there are questions about what Mexico stands to gain by agreeing to provisions mandating higher wages, according to another person briefed on the talks.
"Why agree to do this when there is no framework for compromise on broader issues?" this person added.
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