Trade volume in cattle country was uneven on
Thursday with decent movement in the South (i.e., $125 live, steady) and
generally slow in the North. While we could always be surprised by
Mandatory's final reporting, we expected Northern business to improve
Friday. Scattered clean-up action is also possible in parts of the
South. Some asking prices will be restated around $126 plus in the South
and $200 in the North. Live and feeder futures should open on a mixed
basis with trading ideas torn between feedlot premium sales and
late-week profit-taking.
Cash hog buyers should resume work Friday
morning with steady/firm bids. There's still plenty of debate between
supply bears and demand bulls. Which side will prove to be the superior
force in the months ahead? Or will supply and demand prove to be equally
matched? Lean futures seem staged to open mixed with nearbys probably
attracting more buying interest than deferreds.
| BULL SIDE | BEAR SIDE | ||
| 1) |
In slipping $1 to $2 below feedlot
cash, spot February live futures look vulnerable with absolutely no
weather premiums as we move toward the heart of the winter.
|
1) |
Beef cutouts closed significantly
lower on Thursday, especially in terms of select boxes. Furthermore,
wholesale offerings were described as "moderate to heavy."
|
| 2) |
Following the strong harvest levels
in the weeks preceding Christmas, weekly cattle slaughter is expected to
fall toward 620,000 head or so through January, with further declines
toward 600,000 head on average for February.
|
2) |
Beef rib prices are now falling
sharply lower on a seasonal basis and will likely have more downside
before reaching winter lows. Tenderloins are also expected to be under
pressure in the coming weeks. Some of the carcass damage will be offset
by strengthening end cuts into at least mid-January, before starting to
show some weakening late in the month and on into February.
|
| 3) |
China reported an outbreak of deadly
African swine fever on a huge pig farm part-owned by a Danish
investment fund, showing the spread of the virus to modern industrial
farms expected to have the best levels of disease prevention. The
outbreak occurred on a farm in Suihua city with 73,000 pigs in
northeastern Heilongjiang province, owned by the Heilongjiang
Asia-Europe Animal Husbandry Co. Ltd, a company established in 2016.
|
3) |
Implied market volatility remains
high to start off the year, and one must note that the seasonal tendency
is for hog futures to trend lower into expiration of the February
contract.
|
| 4) |
Cash hog strength Thursday suggested
what well-margined pork processes are still stretching for live
inventory in order to stoke a Saturday kill as large as 420,000 (if not
larger).
|
4) |
This time of year, the February lean
contract normally takes its cues from the cash market and with tariffs
from Mexico and China likely to remain in place through much of the
first quarter and domestic demand lackluster at best during early 2019,
overall pork demand will likely struggle.
|
OTHER MARKET SENSITIVE NEWS
CATTLE: (MacauHub) -- China is expected to have
imported about 44% of all beef exported by Brazil in 2018, the Brazilian
Association of Meat Exporters (ABIEC) announced.
The association expects Brazil's total beef exports to reach 1.626 million tonnes in 2018.
Abiec president Antônio Camardelli said that
Brazil is prepared to export 1.8 million tonnes in 2019, which should
generate revenues of US$7.26 billion. Camardelli also said he believes
that in 2019 beef exports to China will increase following a visit to
Brazil in late 2018 by a Chinese delegation to determine conditions at
six units that intends to start exports to China .
At present, 16 Brazilian units are authorised to export meat to China.
HOGS:(Penton Business Media)-- 2018 didn't turn
out well for pork producers, as estimated losses were about $12 per head
for farrow-to-finish operations. These are the largest losses since
2012, when high feed prices prevented positive returns. Pork production
was up 3% in 2018. That was record high production, as the industry has
been in expansion since 2014.
Prospects look somewhat better for 2019.
Producers are expected to continue to provide record supplies with
another increase of 3%. However, demand continues to look favorable for
2019, with a continuation of U.S. and world economic growth but at a
slowing growth rate. Low unemployment in the U.S. and rising wage rates
will be supportive to domestic demand for meat. Global demand for 2019
has turned more optimistic for multiple reasons.
First, total pork exports to all destinations in
2018 were up 6%. While China did buy less in 2018, this was more than
offset by other countries buying more. USDA estimates that U.S. pork
exports will grow again by a strong 8% in 2019.
Second, the signing of the U.S.-Mexico-Canada Agreement helped calm trade conflicts with Mexico and Canada.
Third, there may be progress toward resolving
trade conflicts with China. If there is a grand bargain for China to buy
more U.S. goods, then pork will be one of those named ag goods.
Fourth, African swine fever in China is not
under control, and China may import more pork and other meat products to
compensate for lost hogs due to the disease. China produces 97% of the
pork it consumes and imports only 3%. A loss of just 1% of its hogs due
to the disease could result in one-third more pork imports for that
country.
Carcass prices in 2018 averaged about $62 per
cwt. Current prospects are for prices to average near $65 in 2019.
Winter prices are expected to be in the higher $50s, and then to move to
the low $70s for averages in the second and third quarters. Prices will
likely drop seasonally back toward the very high $50s in the final
quarter of the year.
Feed prices have been low and steady in recent
years. This has helped stabilize costs of pork production around my
estimated total costs of $67 per carcass cwt. For 2019, corn prices are
expected to be about 20 cents per bushel higher, while soybean meal may
be around $20 per ton lower.
Pork producers can expect slightly higher total
costs of production due to higher costs for corn, labor, interest and
building costs. With current prospects for hog prices to average near
$65, this means 2019 would be a year near breakeven for farrow-to-finish
producers. Losses would be the norm in the first and the fourth
quarters, with profits in the second and third quarters roughly
offsetting those losses. The bottom line is that the U.S. pork industry
will be producing record pork supplies in 2019. It will need more open
export markets and strong demand support. If not, another year of losses
might result.
 |
| #ccc |
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