While it's possible that the first suggestions of cash cattle trade could start to take shape sometime Wednesday, meaningful trade volume seems more likely to be delayed until Thursday or Friday. Look for a few opening bids to surface around $180 dressed in the North and $114 live in the South. Asking prices seem scattered around $182 to $185 in the North and $118 in the South. Live and feeder futures are expected to open on a mixed basis as traders patiently assess late-week cash developments.
The cash hog trade seems set to open Wednesday with bids ranging from steady to $1 lower. Lean futures should reflect plenty of selling pressure again Wednesday, checked by spillover bearishness and technical defensiveness.
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Beef cutouts closed moderately higher on Tuesday with particularly strength noted in the select product. Box movement was described as "moderate to good."
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Nearby December live cattle remains below the trading range that had developed since the jump in the market in mid-September.
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Basis was weak and the premiums in the late fall and winter live cattle contracts are wider than "average" for the start of November, which will embolden producers to resist lower bids from the packers and press for higher cattle prices.
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For the second week in a row, there was a sharp decline in boxed beef sales volume last week, down by 723 loads to 6,336 loads and 3% smaller than last year. Almost all of the sales categories were down from previous week.
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This week is forecast to set a new record for harvest levels, exceeding 2.6 million hogs and may accomplish that on a reduced Saturday harvest level than is usually traditional this time of year. Look for harvest levels the next six weeks to hover around the 2.6-million-hog level.
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The pork carcass value continues to struggle, pressured on Tuesday by softer demand for bellies, butts and picnics.
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Despite all the flashy headlines linked to African swine fever over the last six months or so, potential pork production loss that might be blamed on the disease has not yet come close to curtailing record pork tonnage expected across the U.S. and several other centers of global production.
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Lean hog futures imploded with triple-digit losses Tuesday. The large discount in December compared to the cash market is reflective of trader's expectations of lower cash markets as the industry digests the huge hog supplies later this year.
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CATTLE: (USCA) -- Following Brazil's recent presidential election, news of a possible bilateral trade agreement between the United States and Brazil have begun to emerge. President Donald J. Trump and newly-elected President Jair Bolsonaro spoke on an October 29th phone call, with President Trump soon after stating that he sees a U.S-Brazil free trade agreement "happening".
United States Cattlemen's Association (USCA) President Kenny Graner issued the following statement on this recent development:
"USCA is concerned with statements made by President Trump that detail a U.S. willingness to engage in bilateral trade talks with Brazil. The country is, historically, a bad actor when it comes to following through on trade commitments."
"In 2016 and 2017, USCA called on the U.S. Department of Agriculture to halt importation of Brazilian beef upon finding that the country was attempting to ship tainted beef to the United States. A system of corruption was later exposed throughout the Brazilian production chain, as multiple meat inspectors were prosecuted for accepting bribes in exchange for allowing tainted meat through inspection checks."
"We encourage the Administration to reach out to its industry partners and other stakeholders if and when the conversation turns to establishing a U.S.-Brazil free trade agreement."
HOGS: (USMEF)-- While September pork exports were down just 2% from a year ago to 179,423 metric tons, the president and CEO of the U.S. Meat Export Federation says the real issue at heart is on the value side.
"While the volume hung in there very well, the value is lower, primarily into Mexico and the Hong Kong, China region, and those of course are duty related," Dan Halstrom says.
According to data released by the USDA and compiled by USMEF, global pork export value fell 7% to $470.2 million. Pork muscle cuts were 2% higher than a year ago at 146,542 mt, but value still declined 3% to $397.6 million. September variety meat exports dropped significantly in both volume (32,881 mt, down 18%) and value ($72.6 million, down 21%). For January through September, combined pork and pork variety meat exports were 1% above last year's record pace at 1.81 million mt and 2% higher in value at $4.79 billion. For pork muscle cuts only, exports increased 6% from a year ago in volume (1.46 million mt), valued at just under $4 billion (up 3%).
Meanwhile, U.S. beef exports cooled from the record results posted in August but were still significantly higher year-over-year. September beef exports totaled 110,160 mt, up 6% from a year ago, valued at $687.1 million -- up 11%. For January through September, beef exports were just over 1 million mt, up 9% from a year ago, while value surged 18% to $6.2 billion. For beef muscle cuts only, the year-over-year increases were even more impressive, jumping 13% in volume (777,740 mt) and 20% in value ($5.54 billion).
September exports accounted for 24.8% of total pork production, up from 23.6% a year ago. For muscle cuts only, the percentage exported was 21.8% -- up two full percentage points from last September. For January through September, pork exports accounted for 26.1% of total production, down from 26.5% last year, but the percentage of muscle cuts exported increased from 22.1 to 22.7%. Export value per head slaughtered was down 1% from a year ago in September ($48.72) and for January through September ($52.46). Mexico and China.
One of the most urgent takeaways from the September report Halstrom says is making sure the United States is on an equal playing field for market access. "I do believe that we continue to have opportunities in making sure that we work with our government to stay on equal footing, an equal playing field in terms of market access," says Halstrom. "We have some obvious issues here that need to be dealt with, the first one being Mexico." While NAFTA 2.0 was an important step forward, Halstrom says it's only the first step. The U.S. pork industry is still dealing with 20% retaliatory duties for product going into Mexico.
Despite a fourth straight month in which shipments were below last year's level, exports to leading volume market Mexico remained 1% ahead of last year's record pace at 589,235 mt. Export value, however, has felt intense pressure from Mexico's retaliatory duties, dropping 8% to $1.01 billion. Canada's January-September exports to Mexico were up 20% to 93,346 mt (valued at $126.5 million, up 25%). EU exports also surged to Mexico in July (1,809 mt, up 747% and August (2,343 mt, up 733%) and are expected to continue gaining momentum as Spain, Denmark and Germany take advantage of Mexico's recently implemented duty-free pork quota.
In terms of China, the decline in pork imports was what was expected from the beginning of the year because of their imperious production, says Joel Haggard, USMEF senior vice president, Asia Pacific.
Exports to China/Hong Kong declined 26% from a year ago to 277,779 mt, with value dropping 14% to $667.9 million. This region is the largest destination for U.S. pork variety meat exports, which were down 27% in volume (177,747 mt) and 13% in value ($466.2 millio. "From an accounting angle, the pork side was pretty flat, but basically that is the result of our exports to China and Hong Kong dropping by roughly 100,000 tons and that getting picked up in terms of increased buying by Korea, Columbia, Australia, Philippines, Vietnam, Taiwan, all adding up to more or less compensate for that huge decrease in China pork imports," Haggard says. China also looks to get more interesting because of their African swine fever outbreaks, Haggard says. As of Monday morning, the country had 54 cases. Transport restrictions are also causing some market dislocations and some panic selling in some provinces.
"There's a degree of normalcy in the market so far. National prices are still above break-even but seem to be kind of see-sawing back and forth and the market itself is trying to find a direction," Haggard says. "Overall it would look like they are going to have a production contraction because of this disease."
Japan Now with the Trans Pacific Partnership going into effect at the end of the year, Halstrom says urgency also needs to placed on the U.S.-Japan agreement, as U.S. competitors' duties will start to drop even further.
Exports to Japan increased 2% year-over-year in both volume (295,346 mt) and value ($1.22 billion). This included a 2% decrease in chilled pork volume (155,395 mt) while value held steady at $750 million. U.S. share of Japan's total imports has held relatively steady this year at 35%, but with CPTPP set to enter into force Dec. 30 and with the Japan-EU Economic Partnership Agreement also on track to be implemented in the coming months, U.S. pork will soon face significant tariff disadvantages in its leading value market.
"The longer we sit here without an agreement, the less competitive we are going to be," Halstrom says.
Halstrom says the September report underscores the need for both U.S. meats to diversify markets.
"Our mainstay markets continue to be very, very important -- Japan, Mexico, Korea, Hong Kong, China -- but we are starting to see developing regions emerge more and more every month," says Halstrom.
Markets such as Columbia, Peru, Guatemala, South Africa and Angola are just to name a few examples where there may be opportunities for both U.S. pork and beef. Halstrom says these regions are all exhibiting an increasing per capita consumption and a rising middle class.
Africa is another market that has been on USMEF's radar since 2013. "We've been very active in the region, especially West Africa and South Africa," says Halstrom. "You have a billion plus people on the continent and the youngest demographic in the world, so I don't think there is any doubt that this region will continue to emerge each year as we go."
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