Tuesday, April 3, 2018

Tuesday Morning Livestock Market Summary - Hog Paper Likely to Remain on the Defensive Tuesday

GENERAL COMMENTS:

While we typically don't expect significant trade volume in cattle country to develop as early as Tuesday, it's certainly possible if attractive basis opportunities develop (e.g., short-bought packers bidding well above April's deep discount). Needless to say, it's tough to price cattle when the board keeps falling like a lead anchor. If the board can stabilize, our guess is that initial asking prices will be around $122 live and $184 dressed. Live and feeder futures should open moderately lower, checked by residual selling and further technical selling.

Hog buyers should return to work Tuesday with bids steady to $1 higher. Slaughter is expected to get back in the groove Tuesday, totaling close to 465,000 head. We expect that level to be maintained through Thursday, fall back some on Friday, and then close to 150,000 on Saturday. It will no doubt take some time to sort out the exact price impact of the new Chinese tariffs on U.S. pork. Accordingly, lean futures will probably remain under pressure on the opening Tuesday.

BULL SIDE BEAR SIDE
1) New showlists distributed in cattle-feeding country look generally smaller than last week. We may be entering the bubble where yearling supplies tighten and the first wave of calf-feds are not yet ready for market. 1) Spot April live futures lost another 135 points Monday, closing at the lowest level since the end of August last year. June live had the largest loss of 162 points, falling to levels not seen since early April of 2017. Evidence that nearby live futures still has energy to dig for better discounts does not bode well for cash stability.
2) First of the month paychecks typically move red meat items toward the top of the family list. 2) During the week ending March 27, another combination of reduced longs and increased shorts resulted in a very sharp decline in the net-long position in live cattle futures held by noncommercials (i.e., by 16,900 to 57,400 positions, the lowest since late 2016).
3) The pork carcass value was moderately higher on Monday, supported by better demand for all primals except the loin and picnic. 3) The current supply of hogs is negative to price at least for the near-term and until more clarity can be determined regarding the effect of China's announcement.
4) Isowean (i.e., piglets under 10 pounds) turned red hot toward the end of the December-February quarter (i.e., trading as high as $80 for several weeks, possibly suggesting that the winter old-crop was not as large as suggested by the March 1 inventory (e.g., perhaps tied to disease and death loss).
4) During the week ending March 27, noncommercial traders were net sellers of lean hog futures, decreasing their net-long position by 1,000 contracts to the 7,400 contract level.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Times Newspapers Limited 2018) -- Australia is preparing to demand that Britain accepts hormone-treated beef as the price of a symbolic early Brexit trade deal.

Liam Fox has identified a deal with Australia as an early "win" and informal discussions have been taking place for the past 18 months. But in return, Britain will be told to scrap a European Union ban on the sale of meat from cattle treated with growth hormones.

The practice can increase their weight gain by more than 10 per cent a day, cutting the time it takes to fatten the animals for market. The EU claims that at least one of the hormones used is carcinogenic and their use has been banned since 1981. The Australians have long disputed this scientific analysis. They see the ban as a form of protectionism to shelter European farmers from competition alongside tariffs of 12.8 per cent.

Sources close to the talks say lifting the ban is a key issue for the Australian side. Mr Fox, the international trade secretary, is understood to be sympathetic, arguing that it would reduce meat prices for consumers. Significantly, while the government has ruled out allowing the import of chlorine-washed chicken on animal welfare grounds, it has made no public comment on hormone-treated beef. Behind the scenes, Australian ministers are understood to be arguing that the EU ban -- which is based on a precautionary approach -- violates World Trade Organisation rules requiring member states to present scientific evidence to support any plant or animal health regulations that have a negative effect on trade. Their stance is being backed by the Australian meat industry, which is keen to get access to UK markets that were lost when Britain joined the common market. In a briefing paper for ministers, the Australian meat industry warned that if Britain imposed the hormone regulations after leaving the EU, "Australian producers will struggle to materially increase supply to the UK market".

Another of the main meat exporters, JBS Australia, said: "In our view, the guiding principles for the Australian negotiators must be expanding access for Australian red meat through reducing technical and tariff barriers. When dealing with these trade barriers, this must be science based and consistent with WTO obligations. [This] is critical to... establishing separate arrangements for the UK."
Environmental groups and farmers reacted with concern. "Ministers promised that UK standards on animal welfare and the environment wouldn't be slashed post-Brexit, so caving in on hormone-treated beef would be a complete betrayal," said Kierra Box, of Friends of the Earth.

John Royle, chief livestock adviser at the National Farmers' Union, said: "Future trade negotiations should ensure a level playing field for British farmers in order for them to be competitive, profitable and productive in the future. We do not believe the British public would want our own farmers to be put at a competitive disadvantage by allowing the import of food produced to different standards and using methods which are not allowed in Britain."

A spokesman for the Department for International Trade said: "This government has been very clear that the UK will maintain its own high animal welfare and environmental standards in future free trade agreements. To say anything else is untrue."• The EU has similar characteristics to the Soviet Union and will suffer a similar fate within a generation, a Brexit-supporting academic says. Gwythian Prins, an emeritus professor at the London School of Economics, says its "mounting complexity and declining legitimacy" have sowed the seeds of its demise and Brexit is merely the start. He argues that EU leaders had long ago stopped considering the interests of its citizens. The paper was written for a group called Briefings for Brexit, which claims the support of 50 academics.

HOGS: (Fox News) -- The U.S. meat and fruit industries asked President Donald Trump to resolve trade tensions after China rolled out tariffs on their products in retaliation to U.S. duties on steel and aluminum imports.

"These retaliatory tariffs will disproportionately affect hard-working American pork packers and producers, who will bear the main burden of these measures in the form of lost revenue and restricted market access, particularly as U.S. pork production is slated to rise this year," Barry Carpenter, president and CEO of the North American Meat Institute, told FOX Business.

China's tariffs, which began on Monday, include a 25% increase on pork products and scrap aluminum as well as a 15% levy on 120 other U.S. commodities, from almonds to apples and berries. White House spokeswoman Lindsay Walters said Monday in a statement that China's subsidies and overcapacity are the root causes of the trade tensions. "Instead of targeting fairly traded U.S. exports, China needs to stop its unfair trading practices, which are harming U.S. national security and distorting global markets," she said.

Carpenter said the move by China comes at a time when it is already expanding its hog production, which is already pushing domestic pork prices down. In 2017, China was the second-largest market in volume and the third-largest market in value for U.S. pork exports, totaling more than $1.1 billion.
"It's clear the future growth of the U.S. meat sector, and agricultural economy depends upon a robust trade relationship with China," Carpenter said, adding that "we once again urge the Trump administration to pursue constructive negotiations with the Chinese government to prevent further escalation of a trade war that will undoubtedly harm U.S. businesses and consumers."

The fruit industry had similar concerns, saying the trade dispute with China may erase all of the work it has done to build a good relationship with the Asian country.

"The U.S. has made important gains in the Chinese market for a number of fresh produce products," Robert Guenther, senior vice president of public policy at the United Fresh Produce Association, told FOX Business. "The current proposal by the Chinese government targeting fresh fruit with retaliatory tariffs hurts farmers and businesses and is counterproductive to the growth of our export efforts." 
Guenther said the organization plans to work with U.S. negotiators and trade representatives to focus energies on additional export markets for fresh produce including new and emerging markets.


"In the meantime, we ask that both countries continue to resolve their differences and ensure a strong marketplace for our products in China," Guenther said.

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