Cattle buyers and sellers seem to making a
strong case for the one-day workweek this summer. It's beginning to
appear that cash cattle merchants only need a few hours on Friday to
take care of all their marketing chores. At any rate, feedlot managers
and packers have once again arrived at the tailend of the week with
pretty much nothing done in terms of tradng cattle. Look for that to
change over the next several hours. Openinng bids should be quickly
restated around $110 live and $174 dressed, still miles below asking
prices of $115 live and $182-184 dressed. Live and feeder futures are
expected to open on a mixed basis as specs and commercials jockey ahead
of cash news.
Pork producers will be glad this brutal week is
close to being done. Cash buyers will take one more swing at the
vulnerable cash markets with bids $1-2 lower. Packer margins have
certainly improved this week, by substantial erosion in carcass value
has made the restoration of processing profits a slow development. On
the other hand, finishing floor profits have worsened around evry
corner. Lean futures should open moderately lower, pressured by
follow-through seling and increasing negative fundamentals.
| BULL SIDE | BEAR SIDE | ||
| 1) |
The ability of feedlot managers to
dig in this late in the week with higher asking prices, essentially
ignoring the depressing implications of discounted live cattle futures
as well as the bearish talk of stubborn tariffs and record total meat
production through the balance of the 2018, speaks highly of country
confidence and bullish judgments of beef demand strength.
|
1) | For the week ending July 23, cattle carcass weights climbed higher: all cattle averaged 810 pounds, 3 pounds bigger than the prior week and even with 2017; steers averaged 872 pounds, 5 pounds greater than the week for and 4 pounds heftier than last year; heifers averaged 805 pounds, 2 pounds heavier than the previous week and 10 pounds above a year ago. |
| 2) | Net beef export sales last week improved to 16,200 MT for 2018 were up noticeably from the previous week and up 36 percent from the prior four-week average. At the same time, actual exports totaled 18,800 MT, up 5 percent from the previous and from the prior four-week average. | 2) | More promising beef demand moving toward Labor Day remains very slow to develop. Spot beef sales have been relatively lackluster, with the five-day rolling average falling into the mid-70 load area, far below the 90-to-100-load average of the past five years. |
| 3) | Net pork export sales last week exploded to 35,700 MT, up 69 percent from the previous week and up noticeably from the prior four-week average. For the same period of time, actual pork exports jumped to 21,200 MT, up 17 percent from the previous week and 12 percent from the prior four-week average. | 3) |
The pork carcass value closed moderately lower on Thursday, checked by softer demand for butts, ribs, and picnics.
|
| 4) | Pork exports remain very large. (e.g., representing nearly 80 percent of last week's huge increase in sales. While most U.S. pork shipped to Mexico through the third quarter will fit into the duty-free quota system, many believe that volume will not be impacted that much even after Mexico's 20 percent tariff is fully applied late in the fourth quarter. U.S. pork may be difficult to replace for Mexico Even if Canada and the E.U. were to contribute more heavily, they can only raise their production or shift their commitments so much. In addition, the pork coming from those two countries would likely be frozen, whereas our shipments to Mexico are largely chilled. | 4) | Despite the fact that the cash hog trade is collapsing like a straw house in the middle of a tornado, nearby lean futures are clearly not reluctant to lead future pricing lower and lower. Note that all 2018 issues (i.e., August through December set new contracts lows on Thursday. |
OTHER MARKET SENSITIVE NEWS
CATTLE: (AP) — While the U.S. beef industry is
well positioned to capitalize on a growing global middle class and an
improving economy, trade uncertainty could hamper the U.S.'s ability to
capture market share in the coming years, according to a new report from
CoBank's Knowledge Exchange Division.
The U.S. beef herd is expanding, bolstered by
low input costs, and so is the demand for beef around the world.
However, approximately 80 percent of beef exports are sold to countries
that could be affected by ongoing trade pact negotiations. Trade deals
being negotiated or recently approved include the Trans Pacific
Partnership, the North American Free Trade Agreement and the United
States-Korea Free Trade Agreement, and are either being renegotiated or
the U.S. has dropped out of the agreement altogether.
"Beef production in the U.S. is on the rise, and
export outlets have never been more important," said Trevor Amen,
industry analyst with CoBank's Knowledge Exchange Division. "However,
the U.S. is threatening to retreat from key trade deals and the U.S.'s
beef exporting competitors are forging their own deals with major global
beef importers."
Japan, South Korea, Mexico, Canada and Hong Kong
top the list of countries importing beef from the U.S., representing 83
percent of all U.S. beef exports. Of these trade partners, only Hong
Kong will be unaffected by current trade pact negotiations.
Competing exporters that are part of TPP will
gain preferential access to Japan, exports to Mexico and Canada are at
risk with NAFTA, and beef trade with South Korea could decline if KORUS
is renegotiated. New Zealand, Australia, Brazil and Argentina are all
hoping to take of advantage of a trade reshuffle.
Meanwhile, U.S. beef exporters eye China as a
key long-term opportunity; however, current trade requirements are
cost-inhibitive for most U.S. exporters, and recently imposed U.S.
tariffs on other Chinese goods could aggravate trade progress in the
near-term.
While U.S. beef production is increasing, so is production in Brazil, Argentina and Australia.
Brazil and Argentina are hampered by higher
transportation costs to the major importers of beef, and the U.S. still
has an advantage in product quality over all three countries.
But, as U.S. trade agreements are at risk, and
new ones that exclude the U.S. are forged, Brazil, Argentina and
Australia will look to capitalize on improved market access. A video
synopsis of the report, "U.S. Beef Exports Are Growing, but so Are Trade
Risks" is available here and the full report is available at
CoBank.com.
HOGS: (South China Morning Post) -- As the man
who is responsible for feeding about 800,000 pigs in China's biggest
pork-producing province, Li Xueya and his team have been vacillating for
months about when to place their major orders.
"The trade war has disrupted our expectations
and we don't know when is good time to buy," said Li, head of the
purchasing department of Xinda Muye, a farming company in the central
province of Henan.
Li estimated that the average pig farming
business in China is facing an increase of up to 36 yuan (US$5.30) for
raising one hog, which usually takes five to six months. That translates
to a total of 28.8 million yuan (US$4.8 million) for a firm like his.
Brazil swoops on US soybean as China trade war punctures prices
The increase is the result of China's decision
earlier this month to levy a 25 per cent tariff on imports of US
soybeans, which are used for pig feed, as part of the escalating trade
war between the world's top two economies.
The tariffs on US soybeans will hit Chinese
farmers as well as their American suppliers. But pig farmers and
analysts said they have alternatives to offset the impact.
Li says the impact can be minimised by changing
the animals' diets and looking for alternatives to soybean meal, a
commonly used source of protein which normally accounts for about 20 per
cent of hog feed.
"We won't die…but our profits will be somewhat affected," he said.
China is the world's largest producer of pork
and more than 80 per cent of its soybeans come from overseas -- with a
third of this from the US last year.
But by using countermeasures such as Li's, as
well as increasing imports from other countries, encouraging domestic
planting of the crop and other administrative interventions, China might
help its farmers absorb the shock, analysts said.
Ma Wenfeng, an analyst from Beijing Orient
Agribusiness Consultant, said China had been importing far more soybeans
than it really needed and could do without US imports in the short run.
Ignore Beijing: Washington, Taipei 'should agree fair trade deal'.
Ma said farmers had been using more soybean meal than was needed in pig feed because there was so much available at low prices.
China imported a total of over 95 million tonnes of soybeans last year, while the demand was 63 million tonnes, he noted.
The "surplus" 32 million tonnes -- which Ma
defined as beans that were unnecessarily consumed -- was close to the
amount of imports from the US.
He said the use of excess soybean meal had meant
farmers were using less corn meal and as a result the state reserves
have plenty of corn meal that farmers could use to feed their animals.
In addition, Brazil is replacing the US as the
top soybean supplier for China, while imports from Canada and Russia
rose quickly between 2012 and 2017, according to official data.
"We can ensure normal consumption of soybeans
even if we completely stop importing soybeans from the US amid the trade
dispute," Ma said.
"To use soybeans as a tool to fight back against the US' tariffs will not lead to irreparable losses to domestic farmers."
Apart from diversifying its imports, Beijing is also encouraging its farmers to grow more soybeans.
In early April, when trade tensions started
rising, the central government announced it would continue subsidising
soybean and corn growers in major producing provinces, emphasising that
subsidies for soybean growers would be higher than the latter.
For instance, in Heilongjiang, one of China's
most important agricultural provinces, the subsidy for growing soybeans
is double that for corn.
But a more immediately effective way was to
change formula of the feed, said Feng Yonghui, chief analyst from pig
farming industry website Soozhu.com.
"We have plenty of replacements for soybean meal
as a source of protein, such as peanut meal, cotton meal and rapeseed
meal," Feng said.
Lorne Tannas, technical director of Canadian pig
breeding company Genesus, wrote in a China report last month that
canola meal had also become of interest to producers as it was a good
source of protein and could reduce farmers' dependency on soybeans.
"It will be interesting as this idea plays out over the next few years," he said.
Another option is to use lysine, an amino acid used in the biosynthesis of proteins, to replace soybean meal.
"It is a good option ... we have enough of it. China produces half of the world's lysine," Feng said.
I'm ready to put tariffs on every import from China, Trump warns
But this does not mean China will simply stop
any importing any soybeans from the US, and the higher costs will
inevitably increase the price of pork.
Some exporters might send US soybeans to China
via a South American port to avoid the tariffs, which would increase
transport costs by about 10 per cent, Feng said -- a cheaper option than
paying the tariffs.
Li, the purchasing manager, said pig farmers were already feeling the effects of the trade war.
Hog prices, which had been pushed down by an
oversupply last year, have started rising again and stand at an average
of 1,300 yuan (US$191) per pig.
"We expected to see a rebound next year, but actually it's happening now," he said.
But when it comes to consumers for pork, the impact will be smaller.
"Even if there's a surge in pork prices, the government, as usual, will release reserves to cool down the market," he said.
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