Thursday Morning Livestock Market Update - Lean Hog Futures Set for Mixed Opening

GENERAL COMMENTS:

Cattle buyers could certainly become more active Thursday, but it will no doubt take higher bids than we saw Wednesday (i.e., $113 dressed in the North; $112 to $114 live in the South) in order to generate significant selling interest. In other words, firm asking prices of $119 in the North and $120 to $122 in the South are likely to stand tall until sometime Friday, which of course would mean yet another round of late-week cash business. Live and feeder futures seem set to open moderately higher thanks to residual buying interest and recent cash premiums.

Given a large country run of market hogs at midweek, buyers successfully leaned into the cost of live inventory. Our guess is that packers will have further success in that regard Thursday. Indeed, most would likely be willing to support bids if necessary given attractive processing margins. Most analysts are now expecting Saturday's hog kill to total close to 185,000 head. Lean futures seem staged to open on a mixed basis tied to lower cash sales on one hand and carcass strength on the other.

	BULL SIDE		BEAR SIDE
1)	Wintry weather expected to impact the southern Midwest and northern Texas in the latter half of the week is expected to push futures up, possibly standing as the latest example of a tough, anti-production winter set to limit beef country tonnage. Specifically, average cattle production and cattle weight could decline in the short term if it snows in the area.	1)	While weather bulls in the cattle market definitely have had extreme temperatures and several storms to cite as evident, many argue that the possible reality of an ugly, production-robbing winter is already built into the market in terms of large deferred live cattle futures.
2)	Beef cutouts scored solid gains at midweek, further encouraging cattle buyers to match last week's spending and nearby futures to rise toward feedlot premiums.	2)	When P. T. Barnum said 'There's no such thing as bad publicity' he probably wasn't thinking of JBS's recent recall of tainted beef. The USDA now says an additional 5.1 million-plus pounds has been recalled beyond the 6.9 million pounds recalled two months ago for risk of contamination with salmonella newport, a strain of the bacteria that is a common cause of food poisoning. Although we don't think this unfortunate event will have much market impact in terms of consumer demand, such news clearly doesn't help.
3)	The pork carcass value jumped significantly higher on Wednesday with all primal reflecting good late-week demand except the loin and ham.	3)	For the week ending Dec. 1, Iowa barrows and gilts averaged 284.5 pounds, .6 pounds heavier than the prior week and 2.4 pounds lighter than 2017.
4)	Talk of China's impending return to purchasing soybeans drove optimism that China may also restart purchasing U.S. pork.	4)	Thanks to contrary statements of the Trump administration and Chinese government officials, the real progress in trade reform and tariff modification simply remain unclear and very much up in the air.

OTHER MARKET SENSITIVE NEWS

CATTLE:(USMEF) -- On Nov. 28, the U.S. Meat Export Federation (USMEF) launched U.S. lamb's return to the Japanese market with an educational seminar and tasting event that drew more than 200 chefs, importers, purveyors, trade media and other key food industry professionals to The Strings hotel in Tokyo. Following the detection of bovine spongiform encephalopathy (BSE) in the United States in December 2003, Japan was closed to U.S. lamb for nearly 15 years before reopening in July of this year. The USMEF event was designed to showcase the unique flavor profile and other positive attributes of U.S. lamb, introduce menu concepts featuring a variety of lamb cuts and connect suppliers with prospective customers.

"The turnout at the seminar was extremely impressive, and the enthusiasm was even more so," said Greg Ahart, vice president of sales for Superior Farms. Ahart also serves on the American Lamb Board and the USMEF Executive Committee.

"After a 15-year absence from the marketplace, seeing the amount of excitement and interest that was present in the room -- both from the educational side, as well as when we proceeded to the presentation of products and the tasting -- this event was truly something to be part of. I was completely blown away by the volume and genuineness of the interest expressed."

USMEF President and CEO Dan Halstrom said U.S. lamb now has a long-awaited opportunity to capitalize on Japan's strong demand for high-quality red meat products.

"The seminar and tasting confirmed that there is a lot of enthusiasm for the reentry of U.S. lamb into Japan," Halstrom said. "We are in the midst of a 'niku boom' (meat boom) in Japan and there are many developing and emerging concepts, especially in the foodservice sector, for which high-quality U.S. lamb is a natural option."

Ahart noted that the strong reputation and following U.S. pork and beef have established in Japan will provide positive momentum for U.S. lamb.

"The credibility that U.S. pork and beef have in this marketplace is very beneficial as we look at reintroducing lamb," he explained. "Some of the more senior buyers in Japan have experience with U.S. lamb from before the market closure. But for the younger crowd at this event, which doesn't have that historical knowledge, the reputation of the other two high-quality proteins really helps generate interest in American lamb."

USMEF-Japan Director Takemichi Yamashoji also emphasized the need to attract younger customers, who will be a major focus of future USMEF tastings and promotions.

"There is an entire generation of Japanese consumers who have not tasted U.S. lamb," he said. "USMEF wants to reach younger Japanese consumers and make them regular customers, so that U.S. lamb will be top-of-mind when they go out for fine dining."

In addition to dishes that will be featured at high-end hotels and restaurants, Ahart added that the seminar was also an excellent venue for showcasing other lamb cuts that could gain traction in Japan.

"Lamb shanks and Denver ribs, which are comparable to short ribs, are examples of items that will have some applicability and interest in Japan as we build on the enthusiasm from the seminar," Ahart said.

Japan's imports of lamb and sheep meat are trending higher. Through October, imports in 2018 totaled 21,151 metric tons (up 11 percent from a year ago) valued at $171.2 million (up 20 percent and already a full-year record). Australian lamb currently holds about 60 percent market share, with New Zealand lamb capturing nearly 40 percent. Lamb and sheep meat enter Japan at zero duty.

HOGS: (Dow Jones)--Investors welcomed the trade truce between the U.S. and China, but caution remains over whether the world's two largest economies can reach longer-term agreements.

"This is the best possible outcome from the meeting," wrote analysts at Everbright Sun Hung Kai & Co. "It temporarily halts further escalations and arranges a deal whereby U.S. trade concerns and China's procurement interests are somewhat addressed."

Yet there is still plenty of trepidation about what lies ahead. "The cease-fire between the world's largest trading nations is positive because the signals coming from the preceding negotiations were rather pessimistic," says Raoul Leering, head of international trade analysis at ING. "But there is a long way to go before there is a real deal."

Here's what else analysts, investors and market movements say about this truce.

Improving trade relations reduce one of the biggest drags on equity markets in mainland China and Hong Kong, which have been among the world's worst performers this year. Stock indexes across Asia rose on Monday, as did U.S. stock futures.

"We see an ongoing dialogue between the two sides to be an important catalyst for Asian markets to recover lost ground this year, alongside steady global growth and a weaker U.S. dollar," said Tai Hui, chief market strategist for Asia Pacific at J.P. Morgan Asset Management.

Economists at Morgan Stanley said the deal would support world growth, particularly in emerging markets. "We had viewed trade tensions as the most immediate risk to the global growth outlook," the team wrote in a note. "As trade tensions ease, this will support China's growth and momentum in global trade, both of which will be beneficial to emerging markets."

Others are less optimistic about China. "The trade deal [will] not stop the slowdown for the Chinese economy next year," says Larry Hu, China economist at Macquarie.

If an eventual deal helps shore up global growth, that should be good for currencies of emerging markets and resource-producing nations. Improved sentiment would also tend to boost other currencies against the dollar, which rallies in times of risk aversion.

On Monday, the U.S. dollar fell against several peers, with the ICE U.S. Dollar Index down 0.3%. 

The index measures the dollar's performance against six developed counterparts, chiefly the euro. The Chinese yuan recently rose 0.4% offshore to 6.9216 to the dollar.

Khoon Goh, head of Asia research at ANZ in Singapore, said the trade thaw is unlikely to herald a sustained surge in the yuan since the two sides still have plenty to work out.

A settlement between Beijing and Washington could lead to China's buying more American meat and animal feed.

Soybeans, a crucial crop for American farmers, have been among the hardest-hit commodities this year. On Monday, the most-watched soybean futures contracts in Chicago traded up 3.2% at$9.236 a bushel, the highest since August.

Hong Kong-listed shares of pork producer and processor WH Group Ltd. leapt 14% as negotiations open the door for China to cut its tariffs on U.S. pork imports, which run as high as 70%. The U.S. has a glut of pork, while supply in China is restricted by an outbreak of African swine fever.

Oil prices, which have tumbled in recent weeks, recovered some ground. Over the weekend, Russian President Vladimir Putin said Russia and Saudi Arabia had agreed to extend efforts by the Organization of the Petroleum Exporting Countries to stabilize oil markets. Brent crude, the global benchmark, rose 5% to $62.43 a barrel.

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