If Wednesday's reversal in cattle futures shows
some staying power Thursday, feedlot managers may feel more comfortable
in pricing cattle on a stronger basis (e.g., $120 in the South; $190 to
$192 in the North). On the other hand, if Wednesday's pop proves to be a
one-trick pony, sellers could be forced to deal with soft packer bids.
Either way, light-to-moderate volume should develop sometime Thursday
and/or Friday. Live and feeder contracts should at least open higher
thanks to follow-through buying and short-covering.
The cash hog trade should open Thursday with
steady to $1 lower bids. At this time, Saturday kill plans should total
close to 158,000 head. Lean hog contracts should open with at least
moderate gains.
| BULL SIDE | BEAR SIDE | ||
| 1) | Seasonally, April live cattle futures tend to decline into midmonth, and then rally into expiration. | 1) |
Beef cutouts closed sharply lower at midweek with box supplies still described as "moderate to heavy."
|
| 2) | After opening sharply lower on proposed Chinese tariffs on beef, live and feeder contracts reversed to close significantly higher. Could this represent a major spike bottom? | 2) | For the week ending March 31, U.S. hatcheries set 227 million eggs in incubators; up 2% from a year ago. At the same time, chicks placed totaled 183 million chicks; up 1% from 2017. |
| 3) | Similarly, lean hog futures managed to end Wednesday's session on the positive side after opening sharply higher. Before reversing, several months posted new contract lows in the early going. | 3) | For the week ending March 31, Iowa barrows and gilts averaged 286.5 pounds, .2pounds bigger than prior week and 3.2pounds heavier than 2017. Seasonally, weights should be dropping. |
| 4) | Spot April lean now stands at a 250-point plus discount to the most recent CME two-day settlement index value with only seven trading days left to expiration. If the cash market starts to stabilize, April may be forced to surge higher. | 4) | The pork carcass lost more than a dollar on Wednesday, pressured by all primals (especially fresh cuts) except the picnic. |
OTHER MARKET SENSITIVE NEWS
CATTLE: (USMEF) -- On April 4, the Chinese
government announced a proposal to levy retaliatory tariffs of 25
percent on China's imports of agricultural and food products from the
United States, including U.S. beef.
Statement from U.S. Meat Export Federation (USMEF) President and CEO Dan Halstrom:
China is a promising market for U.S. beef, and,
since the June 2017 reopening, the U.S. industry has made an exceptional
effort to provide customers with high-quality beef at an affordable
price. This is not an easy task, due to our 13-year absence from the
market and China's beef import requirements.
Over the past nine months, interest in U.S. beef
has steadily gained momentum in China and our customer base has grown.
But if an additional import tariff is imposed on U.S. beef, these
constructive business relationships, and opportunities for further
growth, will be put at risk. USMEF is hopeful that this trade dispute
can be resolved without China introducing additional obstacles for U.S.
beef. In the second half of 2017, following the market reopening, U.S.
beef exports to China totaled 3,020 metric tons valued at $31 million.
In January 2018, exports reached the highest monthly volume to date at
819 metric tons, valued at $7.5 million.
HOGS: (fortune.com) -- As a trade war between
the U.S. and China escalates, tariffs imposed by the two nations have
business owners in industries ranging from cars to wine feeling nervous.
But one sector that's likely to be hardest will directly affect your
breakfast table.
Pork, one of the 128 U.S. exports that China
slapped with tariffs of up to 25%, represents a major part of the $100
billion American livestock industry. Since China was the world's
second-largest buyer of U.S. pork by volume between 2008 and 2017,
behind only Mexico, that has major implications for pork producers. In a
statement, National Pork Producers Council CEO Neil Dierks said the
organization is "disappointed" in the tariff, and is "hopeful" that it
"will be short lived."
That's because, "We send about 60% of our pork
variety meats" -- things like pig feet and hocks -- "to China
currently," explains Dr. Scott Brown, an assistant extension professor
of agriculture and applied economics at the University of Missouri.
"That's some of where the biggest impact's going to be."
If U.S. pork products are levied with a 25% tax,
Chinese customers will be less likely to buy them, resulting in lower
profits for U.S. farmers. That loss would force farmers to either look
for new markets or produce less pork, Brown explains. While some meats
could be sold to other countries, Brown says it's unlikely that they'd
entirely make up for what is presently sold to China, which is
ultimately bad news for both pork producers and U.S. consumers (a.k.a.
bacon fans). "We're pushing very large supplies of pork onto the
marketplace Thursday," Brown says. "We're already talking about lower
prices [for farmers] occurring just because of the large supplies of
pork we're bringing to the marketplace," so losing business abroad could
further put the squeeze on pig farmers.
That, in turn, could at some point lead to
"marginally higher" prices on pork products commonly sold stateside,
such as ham and bacon.
"Those will remain steady in the short term,"
Brown says. "Then we could, long-term, see a little higher pork prices
here in the U.S., as U.S. producers adjust down production in response
to those lower variety [meat] prices."
Wendong Zhang, an assistant professor of
economics at Iowa State University, estimates that pig farmers stand to
lose $4 or more per animal as a result of the tariffs. That's a burden,
to be sure, but he says it pales in comparison to the results of
proposed steep tariffs on soybeans, given that one out of every four
bushels of soybeans grown in the U.S. currently goes to China.
"This will have negative impacts, but this could be way worse for soybeans," Zhang says.
Soybean tariffs could, however, actually offer a silver lining to pig farmers, who feed their livestock soybeans, Brown says.
"If we see our U.S. soybeans facing a larger
tariff going to China, which is a large market for us, we're probably
going to have to crush more domestic soybeans here in the U.S., which
means we're going to get more soybean meal and soybean oil than
otherwise," Brown explains. "More soybean meal will help U.S. pork
producers. Trying to decide the net effect of all those things is very
difficult right now."
Zhang agrees that such a benefit is possible for
hog producers, but notes that the effect of soybean tariffs could still
be catastrophic for the larger agricultural industry, given the size of
the Chinese soybean market.
"The livestock industry actually benefited a lot
from corn prices dropping in late 2013, early 2014," Zhang agrees. "But
we are talking about a gigantic portion of oversupply [of soybeans],
potentially, through the trade actions, and it is hard to derive an
optimistic view based on the hog production."
It's too soon to say exactly how, or if, a
soybean tariff will be implemented, as China has given the U.S. time to
agree to a settlement. (China is also reliant on the soybeans it buys
from the U.S., Zhang explains, so straining that relationship could
actually be mutually destructive.) If and when it is applied, both
experts say, we'll have a much clearer picture of the impact on
consumers and farmers alike. "Everyone is waiting to see when the shoes
actually drop," Zhang says. "It's hard to say how that eventually will
translate into food prices.
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