Cash cattle traders are about to run out of time
for meaningless posturing. Look for light to moderate trade volume to
surface today sometime between late morning and mid afternoon. Opening
bids should be renewed around $102-103 in the South and $163 in the
North. Asking prices are around $107-108 in the South and $168-170 in
the North. Live and feeder futures seem set to open on a mixed basis
thanks to residual buying interest and long liquidation.
Look for hog buyers to start out this morning
with bids steady to $1 lower. Given plans for a large Saturday kill
(around 380,000 head) to compensate for Monday's downtime, we assume
that some packers could still have some late needs. Nevertheless,
generous country offerings should preclude the need for buyers to work
very hard. Lean futures seem staged to open moderately lower, checked by
follow-through selling and negative fundamentals.
| BULL SIDE | BEAR SIDE | ||
| 1) | By scoring triple-digit gains on Thursday, nearby live futures increased the board's premium over feedlot cash, softened the basis accordingly, and thereby steeled country psychology in terms of demanding higher packer bids. | 1) | For the week ending August 26, cattle carcass weights continued to climb with the season: all cattle averaged 821 pounds, 1 pound greater than the previous week and 10 pounds lighter than 2016; steers averaged 887 pounds, 3 pounds bigger than the week before and 9 pounds smaller than last year; heifers averaged 807 pounds, 1 pound heavier than the previous week, and 4 pounds lighter than 2016. |
| 2) | July beef exports totaled 104,488 metric tons, up 5 percent year-over-year, while export value reached $623.7 million, up 18 percent from a year ago and the highest since December 2014. | 2) | For the week ending September 2, U.S. hatcheries set 221 million eggs in incubators, up 3 percent from a year ago. At the same time, U.S. broiler growers placed 182 million chicks, up 2 percent from 2016. |
| 3) | The U.S. Dollar Index dropped to a new 52-week low yesterday at $91.50. In this way, U.S. meat export keep getting cheaper to foreign buyers. | 3) | Pork exports totaled 173,675 metric tons in July, down 4 percent year-over-year, valued at $488.9 million, down 0.6 percent |
| 4) | With some traders counting on continued good export and domestic pork demand through the second half of 2017, as well as accelerating chain speed, the argument can be made that the discounted board already reflects a worst case scenario for the fourth quarter. | 4) | Pork carcass value was pressured further on Thursday, closing at its lowest level (i.e., $82.91, off 0.86) since May 11. |
OTHER MARKET SENSITIVE NEWS
CATTLE: (Bloomberg) — Brazilian markets jumped
on the news that the plea deal that sparked a political crisis earlier
this year could be scrapped, clearing the path for President Michel
Temer government's to push ahead with efforts to shore up the economy.
The benchmark stock gauge rose as much as 1.5
percent, putting it among the top global performers, and the currency
climbed 0.6 percent toward a level it hasn't breached since May.
Investors say the decision to review the plea bargain weakens the
position of the prosecutor general, who had indicated he planned to
present new charges against Temer this month.
His office said Monday that it may revoke
benefits granted to three executives from J&F Investimentos SA, the
holding company that controls assets of the billionaire Batista family
including meat giant JBS SA, because of possible omissions from their
testimony. Prosecutor General Rodrigo Janot told journalists that new
audio of conversation between Joesley Batista and another executive had
surfaced Thursday and required clarification.
The tape, which appeared to have been recorded
accidentally, suggested "illicit acts" may have been carried out at the
chief prosecutor's office and the Supreme Court, Janot said, while
declining to provide further details. J&F issued a statement saying
that the new audio will be "swiftly clarified" and will show the "good
faith" of the executives.
"The new chapter of the JBS soap opera is a
twist, and the market is reacting positively," said Cristiano Oliveira,
the chief economist at Banco Fibra. He also said markets are responding
to economic news including better-than-forecast industrial production
figures as well as estimates for faster growth.
The Ibovespa equity gauge added 0.8 percent as
of 10:30 a.m. in New York, with the real gaining 0.7 percent to 3.1189
per dollar.
The investigations into the plea deal, which
drew public ire due to the lenient terms granted to the executives in
exchange for testimony in which they say they gave bribes to more than
1,800 politicians including Temer, will likely hinder Janot's plans to
formally charge the president a second time.
Any charges would have weakened his political
capital, needed to push the government's ambitious reform agenda, which
was thrown into disarray in May by the JBS plea deal. The plans include
reining in a huge budget deficit, privatizing dozens of state-run
enterprises and overhauling Brazil's pension system.
With the plea bargain being questioned by
prosecutors themselves, the political cost for Temer is significantly
reduced, XP Investimentos's political analyst Richard Back said in an
interview. Eurasia's Christopher Garman said the scenario in which the
government is held hostage by the charges and Congress stalls is less
likely now.
sJBS assets, meanwhile, slumped. Bonds due 2024
fell 1.8 cents to 98.8 cents on the dollar, while shares plunged 5.5
percent to 8.11 reais. Itau BBA slashed its target price for the shares
to 6 reais from 16 reais, saying a cancellation of the plea bargain
would jeopardize the company's moves to stabilize debt and normalize
operations since May.
HOGS: (National Hog Farmer) — The White House
recently announced that the United States and Argentina have reached an
agreement that will allow U.S. pork to be exported to Argentina for the
first time since 1992. Though no exact timeline has been established,
the market is expected to open once Argentine officials have completed
an audit of the U.S. meat inspection system. The USDA Food Safety and
Inspection Service must also outline export requirements for U.S. pork
destined for Argentina.
Brazil is currently Argentina's primary supplier
of imported pork, and will likely export about 32,000 metric tons of
pork to Argentina this year, valued at about $95 million. Argentina is
more than 90% self-sufficient in pork production but based on past
experience the Argentine pork market has room for further import growth,
as imports were as high as 47,000 mt in 2011. After importing very low
volumes from 2012 through 2015, imports rebounded last year to nearly
27,000 mt. Brazil captured more than 90% of the market, with the
remainder provided by European suppliers (mainly frozen pork from
Denmark and cured products from Spain and Italy).
This upward trend in imports continued in the
first half of 2017, as Argentina's imports through June were up 79%
year-over-year in volume (18,191 mt) and more than doubled in value ($58
million, up 104%). "U.S. pork will be competing primarily with
Brazilian and domestic product," says U.S. Meat Export Federation
Economist Erin Borror. "Brazil is well-positioned to remain Argentina's
primary supplier of imported pork because of tariff preferences,
geographic proximity and established supply relationships, but the U.S.
has an opportunity to capture a portion of the market and to capitalize
on Argentina's growing appetite for pork." Argentina's per capita pork
consumption has expanded rapidly over the past several years, increasing
57% since 2011 to an estimated 13.5 kilograms this year (carcass weight
equivalent), based on USDA estimates. This compares to beef consumption
of 56.7 kilograms and poultry at 43.9 kilograms, but beef consumption
is well off its highs of the early 2000s and poultry consumption has
increased only 18% since 2011.
USMEF anticipates most of the demand for U.S.
pork will be for raw material — including hams, picnics and trimmings —
for further processing, but there are also potential opportunities for
U.S.-produced processed products. Because the United States and
Argentina do not have a free trade agreement, U.S. pork will be subject
to a 10% import duty and 16% for processed products, compared to zero
tariffs on Brazilian pork products. Argentina's reopening comes at a
time when U.S. pork exports to South America are on a record-breaking
pace. Colombia is the region's largest destination for U.S. pork, with
2017 exports through June totaling 30,426 mt valued at $70.1 million —
up 86% and 96%, respectively, compared to the first half of 2016.
Exports to Chile have also thrived this year, with first-half totals
more than tripling in volume (14,416 mt up 202%) and increasing 179% in
value ($40.7 million) from a year ago. First-half exports to Peru
doubled in volume to 2,680 mt and nearly doubled in value ($6.2 million,
up 97%). Other South American markets open to U.S. pork are Ecuador and
Uruguay, which combined to account for 459 mt valued at $1.6 million in
the first half of this year. "Argentina will be a positive addition to
the U.S. export portfolio, providing another option for U.S. exporters
serving the region," says Jessica Julca, USMEF South America
representative.
"USMEF is still exploring specific opportunities
in the market, but we know that Argentines have a strong preference for
high-quality red meat. U.S. pork can certainly contribute to
Argentina's growing pork consumption, with plenty of product options for
the grill."
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