Welcome to the last Friday of 2018. Such last-minute delays in the cash cattle trade has produced positive dividends for much of the fourth quarter. Is there one more round of Friday strength left in the feedlot trade? Time will tell. The answer should be evident at least by mid to late afternoon. Opening packer bids should be around $118 to $119 on a live basis, well below asking prices around $121 to $122. Look for opening dressed bids close to $190 in the face of asking prices near $195. Live and feeder futures seem geared to open mixed thanks to follow-through buying on one hand and profit-taking on the other.
Cash hog buyers are expected to conclude the week's procurement chores with bids steady to $1 lower. Most private sources believe the Saturday kill schedule will total close to 422,000 head. Lean futures should open with mixed prices thanks to a slow combination of short-covering and long liquidation.
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Thursday's intense ice and snow storm across much of the Central Plains and beef production country sparked new contract highs in nearby live cattle futures. This kind of production-negative weather could easily be bullish longer term.
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It seems unlikely that cattle buyers will find themselves short-bought enough on the last Friday of the calendar year to be forced to spend more money in feedlot country.
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Last week's total boxed beef sales were slightly larger than the previous week and 4% above last year. Declines in spot sales and formula sales were offset by gains in forward sales. Export sales jumped significantly to the largest level since August, entirely due to sales for overseas destinations.
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The wholesale beef trade closed on a sloppy basis with cutouts quoted moderately lower. Box demand was called light on "heavy" offerings.
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Any demand for hogs has been corrected off last week's quarterly inventory report, with the bullishness on June, July, and August contracts still pricing in fears of African swine fever adding to demand for U.S. pork.
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The pork carcass value closed moderately lower with belly and rib weakness overshadowing substantial picnic primal demand.
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The structure of the lean hog futures market is bullish with large premiums remaining in the spring and summer contracts relative to the February contract.
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Given icy roads Thursday, complicating the movement of market hog and workers, chain speed dropped to 45,500 head. The slowdown could extent into Friday, leading into the disruptive kill schedule surrounding the New Year's holiday. It's possible that early January could struggle with a few too many backed up numbers.
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CATTLE:(Drovers Journal) -- Heifer and beef cow slaughter levels have surged over the last year. USDA-NASS Livestock Slaughter report places total heifer slaughter under federal inspection up 7.3% above last year in data through October 2018. Beef cow slaughter under Federal Inspection (FI) in that same report is estimated to be up 10.7% above last year's. Taking a cursory look those large slaughter figures, it may seem difficult to believe that the U.S. beef cow herd could show another year-over-year gain on January 1, 2019. But, by our estimates, that is what we are expecting.
The number of beef cows that have calved has grown over the last four years adding 2.6 million head since 2014. This incredible growth pattern has led to larger calf crops, and the economics has supported retaining a large number of heifers in recent years to continue adding to that beef cow number. Over the last 30 years, the proportion of Federally Inspected (FI) slaughter of beef cows and heifers in the previous year leading up to the January 1 inventory has been about 40%. In recent years, as the cow herd has gained momentum that proportion has fallen to 35%. This year, the number of heifers and cows that have been slaughtered as a percent of the January 1, 2018, has risen back up to 38%. That suggests a return to more normal cull rates in 2018 and a slowdown in beef cow herd growth. In years of herd contraction, that proportion climbs over 40% and is closer to 42% or 43%.
There are still two more months of slaughter data left for this year, but based on our current estimates we see the January 1, 2019, beef cow herd count will be over 31.8 million head, and will likely show very modest growth at 100.2-100.4% of a year ago.
HOGS: (Dow Jones) -- When President Trump signed his new Nafta accord last month with the leaders of Mexico and Canada, Prime Minister Justin Trudeau almost didn't show up. The reason: Mr. Trump still hasn't lifted the steel and aluminum tariffs as he promised he'd do if America's two neighbors signed a revised trade deal.
A month later they're still waiting. The delay is damaging the U.S. economy and America's credibility as a trading partner. Though Mr. Trump likes to use tariff threats as a negotiating tactic, his Administration also promised relief from the levies he imposed under Section 232 of U.S. trade law. Commerce Secretary Wilbur Ross told Congress in June that the "objective" of the metals tariffs "is to have a revitalized Nafta, a Nafta that helps America and, as part of that, the 232s would logically go away, both as it relates to Canada and as to Mexico."
In July U.S. Trade Representative Robert Lighthizer told a Senate hearing that "resolving the NAFTA issue -- we would expect, or hope, that we would resolve the steel and the aluminum issues with both Mexico and Canada." Last March no less than the President himself tweeted that "tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed." Yet U.S. officials now say signing new Nafta isn't enough. They also want Canada and Mexico to agree to new quotas on their metals exports to the U.S. before the U.S. will lift the Section 232 tariffs. This is politically managed trade that responds to lobbying in Washington, not free trade that responds to market supply and demand.
Canada is the largest foreign supplier of steel to the U.S., with a 20% import share, so the goal of quotas would be to limit steel supply to keep prices in the U.S. high. Canada and Mexico are understandably resisting since they thought a new Nafta would mean the end of arbitrary tariffs imposed in Washington. Meanwhile, American steel consumers continue to suffer from the tariffs. One loser is the American beer industry, which says the tariffs amount to a $347 million tax on U.S. brewers. Beer Institute President Jim McGreevy says U.S. brewers used more than 36 billion aluminum bottles and cans last year and the tariffs "could cost the beer industry more than 20,000 jobs."
Hundreds of American metal fabricators are also finding it difficult to acquire the steel to compete with foreign producers. Riverdale Mills Corp., in Northbridge, Mass., makes "aquamesh," a marine wire-mesh used in 85% of lobster traps made in North America. The company is the largest global supplier for lobster fishermen and makes 95% of the wire mesh used for oyster cultivation. It exports 45% of what it makes.
Riverdale needs specialty steel, which CEO James Knott says the company would like to buy in the U.S. But suppliers often can't make the high-quality grade he needs and his steel prices have doubled since January. He's losing market share at home and abroad.
"My foreign competitors are buying steel at half the price I'm paying, and some of them face no tariffs when [exporting] to the U.S," he says. The company has received some exclusions, but they account for less than 3% of their steel purchases. Mr. Knott says he's cut his workforce to 150 from 200.
New Nafta opens a slightly larger share of the Canadian dairy market to U.S. producers. But Mexico is the largest destination for U.S. dairy exports, and American dairy farmers are getting hammered by the 25% tariff that Mexico imposed on U.S. dairy products in retaliation for the steel and aluminum tariffs. The marginal gain in Canada may not make up for the export losses to Mexico. "We're not ready to celebrate," CEO David Ahlem of Hilmar Cheese Co., based in Hilmar, Calif., said when new Nafta was announced in October. "As long as 232 retaliatory tariffs are still in place . . . we can't enjoy the benefits of having a modernized NAFTA and be back to where we were."
Mr. Trump's broken Nafta promise will make it harder to negotiate new trade deals with Europe and Asia. Other countries worry that even if they sign a new deal, Mr. Trump or some future U.S. President will roll out 232 tariffs any time there's domestic political pressure. Congress intended 232 to be used for "national security" emergencies, not as an all-purpose trade weapon. Mr. Trump's tariff trickery with Mexico and Canada is one more reason Congress should restrict his 232 license.
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