Monday Morning Dairy Market Update - China Renews Suspended Export Licenses for US Beef Plants

GENERAL COMMENTS:

Cash cattle traded substantially higher for the week, with Northern dressed cattle $7.00 to $12.00 higher, while Southern live cattle were $3.00 to $5.00 higher. The past two weeks have shown incredible gains in the cash market. This moves packers' margins further in the red. Boxed beef prices on Friday showed choice up $1.80 and select up $0.25. Packers are having a difficult time finding sufficient cattle for slaughter and to purchase for deferred delivery. China renewed export licenses for 425 U.S. beef plants that had been suspended for more than a year and added another new 77 plants last Thursday, but they were suspended again over the following 12 hours, creating confusion. However, that is being reversed again, and indeed the renewed licenses are granted. Ironically, beef supplies in the U.S. are very tight, yet more opportunities are opening up for beef exports. How much will be exported when supplies are tight and prices are high? The Commitment of Traders report showed fund traders as net sellers of 9,064 live cattle futures, reducing their long positions to 128,954. They were net sellers of 2,612 futures in feeder cattle, reducing their long positions to 17,909.

Hog futures closed lower on Friday, with contracts slightly above or below the close of the previous week. There was substantial volatility during the week, but bullish traders could not find traction. At least futures did not fall below support, which could open the way for further losses. Positive fundamentals remain elusive as both cash and cutouts continue to chop up and down. The National Daily Direct Afternoon Hog report showed cash down $1.80 with a weighted average price of $91.52. Pork cutout values increased by $1.01. The Commitment of Traders report showed the funds continued to reduce their long positions, being net sellers of 9,476 futures contracts to a net long of 29,211.

	BULL SIDE		BEAR SIDE
1)	Very strong cash cattle prices indicate demand remains strong and packers are short bought.	1)	If export quotas and tariffs are eliminated for beef imports, it could put pressure on domestic beef prices.
2)	China is granting beef export licenses to U.S. plants that have been suspended, allowing for greater export business in an already tight domestic market.	2)	Live cattle futures have been unable to move above resistance and make new highs, even though cash has been very strong.
3)	Hog futures held support last week, and the longer they remain that way, stronger support may be developing.	3)	Hog futures tried to rally a few times last week, only to be met with selling. Traders are focused on day trading to scalp the market rather than establishing long-term positions.
4)	Increased pork demand is possible through the summer as beef prices continue to escalate.	4)	The fund traders continue to reduce their long position, seeing little reason for prices to trend higher anytime soon.