Tuesday Morning Livestock Market Update

GENERAL COMMENTS:

We look for a typically quiet Tuesday in the cattle market with both bids and asking prices remaining poorly defined. Given the Monday CME crash, board discounts seems to be asserting themselves. Yet it remains to be seen if feedlot psychology will sour enough for feedlot managers to accept sharply lower bids. For the most part, feedlot managers have enjoyed remarkable leverage throughout the second quarter. Is that about to change? Such a question may not be seriously addressed until Wednesday or Thursday. Cattle complex futures will probably open moderately lower, pressured by spillover selling and cash market caution.

The cash hog trade is expected to open with bids steady to $1 higher. Despite higher bids seen in the country on Monday, negotiated trade volume turned out to be rather light. Profit-minded packers are not likely to back off this chase. Monday's kill totaled only 411,000 head thanks to mechanical problems at one major plant, but most expect production to get back in the groove Tuesday. Assuming that Saturday's kill should total around 50,0000 head, weekly slaughter seems staged to be very close to last week (i.e., around 2.19 million head. Lean futures are expected to open on a mixed basis with nearby holding up better than deferred.

	BULL SIDE		BEAR SIDE
1)	Beef cutouts closed sharply higher on Monday with early-week box demand described as "moderate to fairly good." Two beef-friendly holidays are still snorting in the wings.	1)	New showlists distributed in feedlot country on Monday were generally larger than last week, especially in the South.
2)	For the week ending June 6, bullish specs had not yet given up on the long side of live cattle, increasing their net-long position to 135,000 contracts, 4,100 more than the prior week.	2)	Cattle futures have bearishly stumbled into the week, collapsing Monday with triple-digit losses. Spot June closed under 130 for the first time since June 1. Given the high level of open interest, the momentum of long liquidation could be extended for weeks.
3)	The pork carcass value moved solidly higher Monday, powered by better demand for all primals except the butt. With the cutout $12.50 plus over the latest cash hog index, processing margins remain excellent.	3)	Falling back toward 80 on Monday, summer lean hog contracts may be running out of time to set new highs and are beginning to look "toppy."
4)	During the week ending June 6, noncommercial traders were net buyers of 2,700 contracts, increasing their net-long position to 53,300 contracts.	4)	The pork cutout could be only weeks away from its seasonal highs, expected by some to be only slightly higher, with hog prices perhaps moving no little more than slightly higher over the same time period.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Beef Magazine) -- U.S. beef exports enter Mexico and Canada duty-free under NAFTA and face very few non-tariff barriers. These favorable access conditions have been a major factor in Mexico and Canada emerging as leading destinations for U.S. beef.

The Trump administration recently notified Congress of its intent to renegotiate the North American Free Trade Agreement (NAFTA). While some U.S. agricultural sectors face market access barriers in Mexico and Canada that they hope to overcome through these negotiations, this is not the case for the U.S. beef industry. Beef exports enter Mexico and Canada duty-free under NAFTA and face very few non-tariff barriers -- most of which were eliminated through NAFTA or as a result of bilateral consultations since NAFTA was implemented.

These favorable access conditions have been a major factor in Mexico and Canada emerging as leading destinations for U.S. beef. Last year, even with rapid export growth to Japan, South Korea and several other Asian and Latin American markets, Mexico and Canada still accounted for 30% of all U.S. beef exports. Mexico ranks second to Japan in U.S. beef export volume, and third behind Japan and Korea in export value. Canada ranks fourth in both volume and value. In comments it is preparing to submit in the NAFTA proceeding, the U.S. Meat Export Federation (USMEF) emphasizes that it is absolutely essential for U.S. negotiators to protect the benefits that NAFTA has delivered for U.S. beef exports and the importance of maintaining duty-free, quota-free and safeguard-free access for exports to Mexico and Canada.

"This is especially true given the price-sensitive nature of the Mexican beef market and the difficult exchange rate situation, which has the effect of making U.S. beef more expensive for consumers," explains USMEF Economist Erin Borror. "Beef faces intense competition in Mexico from lower-priced proteins, so the challenge of maintaining beef consumption becomes even more difficult if U.S. beef is subject to tariffs."

Canada is no different, Borror says. "Over the past couple of years, the persistent weakness of the Canadian dollar has been tough to overcome, and it will be even more difficult if we're also facing tariffs."

Borror notes that Mexico is an especially important market for U.S. shoulder clods and rounds, and is the leading destination for U.S. beef variety meat. Mexico is the largest market for U.S. tripe, and the second-largest market for both livers (behind Egypt) and tongues (behind Japan).

"U.S. beef and beef variety meat exports to Mexico peaked in 2008 at $1.4 billion, but then the peso was hit especially hard by the global financial crisis," she says. "Last year, exports totaled $975 million and should get back over the $1 billion mark in 2017."

Canada imports a wide range of beef products from the United States -- including high-quality middle meats and processed meats. Exports to Canada reached a high of $1.18 billion in 2012 but were just $758 million last year -- the lowest since 2010.

This year, exports to Canada have regained momentum, with first-quarter value up nearly 20% to $191 million. Because the U.S. and Canadian industries have a lot in common, trade depends on a number of factors, including regional demand, exchange rates and seasonality of cut prices. U.S. imports of Canadian cattle are impacted by the relative cattle feeding advantages, pasture conditions and available slaughter capacity on both sides of the border. It is important that these market-based factors continue to determine the flow of trade.

Thad Lively, USMEF senior vice president for trade access, notes that the one area of NAFTA affecting beef exports that could use improvement is its chapter on sanitary and phytosanitary (SPS) measures. He says a stronger SPS chapter was included in the Trans-Pacific Partnership (TPP), a 12-nation regional trade agreement that was to include the U.S., Canada and Mexico, but the U.S. withdrew from TPP earlier this year.

"TPP would have provided remedies for addressing SPS-related trade barriers that are superior to those included in NAFTA or any of our current trade agreements," Lively explains. "It's the one area of NAFTA that we feel could be substantially improved, and USMEF will include this suggestion in its comments. "But the top priority for beef exporters will be to preserve the favorable North American trade environment that NAFTA helped create, which allows red meat products to move unencumbered by tariffs, quotas, safeguards or other barriers that often inhibit trade."

HOGS: (DesMoines Register) -- An executive at the new $300 million Seaboard Triumph pork processing plant near Sioux City says filling about 2,000 jobs over the next 18 months could be tough because unemployment is so low. Seaboard Triumph Foods plans to recruit workers from 30 miles away from the western Iowa city and potentially look to refugees and immigrants to fill part of the workforce.

"One of the first questions I get is: 'How many people are you going to hire, and where are you going to get them?'" said Mark Porter, chief operating officer at the Seaboard Triumph plant Thursday at the World Pork Expo.

"It's potentially a challenge," said Porter, who expects the 925,000-square-foot plant to open in September, initially with a few hundred workers and quickly ramping up to 1,100.

The plant, a partnership between Seaboard and Triumph foods, plans to add 1,000 workers by next summer with a second shift.

Sioux City, with a 2.9 percent unemployment rate, only had about 2,700 workers looking for jobs in April.

Terry Holton, CEO of Seaboard Foods, said the population base grows from about 90,000 in Sioux City to around 130,000 within 30 miles.

It doesn't take the company's reach to Storm Lake, where competitor Tyson Foods operates a hog processing facility.

But it does stretch across the state line to Dakota City, Neb., where Tyson has a beef processing plant, and to Le Mars, where Wells Dairy makes Blue Bunny ice cream.

"It will get interesting," said Holton, who expects most of the company's workers will come from the Sioux City area.

"We think if we create the right working environment for people and offer fair benefits and wages, we think we can attract them," he said.

Porter hedged about the exact pay workers will receive, saying it would be more than $15 an hour.

In addition to recruiting regionally, Porter said the company has talked with staffing agencies and a law firm about supplying workers through a federal visa program.

In addition to recruiting regionally, Porter said the company has talked with staffing agencies and a law firm about supplying workers through a federal visa program.

He also said the company was working with the state to make Sioux City a primary refugee resettlement location from a secondary location.

Holton said foreign workers likely would provide a small percentage of workers at the plant.

Mark Campbell, CEO of Missouri-based Triumph Foods, said the plant will be a high-tech manufacturing facility, with a capacity to process 21,000 hogs a day. Triumph and Seaboard will each provide about one-third of the animals. The remaining third will come from independent producers.

Another pork processing plant is under construction in north Iowa. North Carolina-based Prestage Foods is building a $240 million pork processing plant that's expected to open in 2019. The plant is expected to initially employ about 920 workers.