Even with the full cash team finally back in town, activity in feedlot country will be limited to the distribution of new showlists. Assuming that last week's slow activity resulted in a certain number of unsold steers and heifers carried over, the late month offering could be somewhat larger than the prior week. Yet at the same time a good case can be made that cattle buyers will start out this morning closer to the knife than we've seen in several weeks. Live and feeder futures should open moderately higher, supported by short covering and cash premiums.
Look for the cash hog trade to open with generally steady bids. Pork processing margins are decent, it recent wholesale sign suggest that late year demand in hanging in there quite well. The product market should be tested very soon this week given Saturday's large kill. The big question between now and mid December is whether or not weekly chain speed will need to be significantly jacked in order to handle ready numbers. Some believe we will see record kill surface this week and possibly next. Lean futures are geared to open moderately higher, supported by follow-through buying and stronger carcass value.
| BULL SIDE | | BEAR SIDE |
| 1) | Red meat demand typically gets a big shot in the arm following Thanksgiving; middle meat demand especially tied to holiday parties should be a late-month/late-year boost. | 1) | Net beef export sales for the week ending November 16 totaled no more than 9,276 MT, unchanged from the previous week, but down 38 percent from the prior four-week average. |
| 2) | For the week ending November 16, actual beef exports jumped to 17,408 MT, up 10 percent from the previous week and 11 percent from the prior 4-week average. | 2) | For the week ending November 11, cattle carcass weights generally grew heavier: all cattle averaged 830 pounds, 1 pound larger than the prior week and 13 pounds lighter than 2016; heifers averaged 834 pounds, 1 pound heavier than the 1 previous week and 10 pounds smaller than last year. Steer averaged unchanged from the prior week (i.e., 902 pounds) and 16 pounds lighter than 2016). |
| 3) | For the week ending November 16, net pork export sales totaled 16,300 MT, up 24 percent from the previous week and 1 percent from the prior 4-week average. At the same time, actual exports totaled 24,500 MT up 2 percent from the previous week and 4 percent from the prior four-week average. | 3) | More times than not, the several slaughter weeks following Thanksgiving represent the largest rounds of hog kills and pork production seen throughout the year. |
| 4) | A good number of analysts who have closely studied the shortfall in market hogs documented since Labor Day (vis-à-vis the September 1 inventory) believe that the market has already seen extreme slaughter peaks for the fourth quarter come and go. | 4) | Though live hog weights basis Iowa fractionally declined during the week ending November 18, scale tickets are now 4 pounds above the late fall of 2016 and could stay that way through mid December. |
CATTLE: (Texas Monthly) -- If you enjoy eating or smoking Prime grade beef, prepare for a dip in the national supply. A new carcass camera-grading technology, likely due to inaccuracy, provided elevated marbling scores to USDA graders from February through mid-October. The Gigabit Ethernet, or "Gig E," is used to determine the grade of half the nation's beef, and a recent correction in the calibration has sent the supply of Prime and Choice beef tumbling down.
The USDA's primary job is to ensure the safety of the meat you consume. Their inspectors are sent to slaughterhouses across the country, at taxpayer expense, to make sure filthy carcasses don't enter the food supply. But there's another arm of the USDA that inspects for meat quality. They show up to the packing plants on the packers' dimes and determine beef grades: Prime being the best, followed by Choice, Select, and the rest.
It used to be that these inspectors put their eye on every carcass. They'd stare at the face of the ribeye cut between the twelfth and thirteenth rib and check for marbling within the meat, the thickness of the outer fat, and the ossification of the cartilage. In 2009, the USDA allowed the use of cameras to assist in determining the marbling score. At the time, the technology was billed as more accurate than the human eye—especially given the ever-increasing speed at which the carcasses came down the line—and came into wide use.
The USDA's current upper limit on what is known as "line speed" is nearly 400 cattle per hour, or one steer every nine seconds. Dan Hale, a meat science professor at Texas A&M, described the problem in a 2010 article. "A grader must assess carcass maturity, marbling score, ribeye area, fat thickness, the amount of fat in the kidney, pelvic and heart regions, and yield and quality grades," all within that tight timeframe. And so the USDA welcomed the help of a camera to provide a marbling score. Dr. Jeff Savell, also of Texas A&M, says the school—which is involved in the National Beef Quality Audit every five years—found no accuracy problems with the technology in 2011 or 2016. But Savell says they haven't had the chance to use, let alone audit, one of the new Gig E (no relation to Gig 'Em) cameras that came into use this year.
It's unclear what triggered the recalibration a few weeks ago. Looking at 2016 data, the national average of Prime and Choice beef has seen little variation year over last, that is until the cameras were corrected. The amount of Prime beef coming out of Kansas and Nebraska packing plants has taken a downward trend, while the numbers out of Texas have been largely unchanged (which may be due to fewer Texas plants using the technology). Savell guesses that it was just a hiccup in the process of bringing Gig E into use.
Savell likens the camera-generated grades to computer-generated strike zones in baseball. The umpire behind the plate introduces a human factor that with meat comes in the form of USDA graders. Before the first cameras were put into use, there was an effort to dial in its grading pattern to better mimic the grader's judgment, and that's what is likely happening with the Gig E now. But in baseball, the ump pays close attention to each and every pitch.
The speculation about how the calibration might affect Prime beef supplies has moved prices up. The hiccup here with the Gig E brings up another question about the automation of what used to be done solely by graders. This automation's purpose is to help cope with fast-paced line speeds. The Gig E is supposed to provide a speedy and accurate marbling score in response, but there are plenty of other scores where there isn't yet an automated camera to do the job. The DEXA X-ray is currently being tested to assess beef yield grades, and who knows what's next? Let's just hope they work out any calibration issues before these new systems go into full operation. These cameras shouldn't be adding any fat.
HOGS: (feedstuff.com) -- The 11 remaining members of the Trans-Pacific Partnership (TPP) recently announced plans to move forward with a modified trade agreement. U.S. Meat Exporter Federation (USMEF) economist Erin Borror explained that if the agreement -- now known as the Comprehensive & Progressive Agreement for Trans-Pacific Partnership (CPTPP) -- is implemented without the U.S. as a participant, it will create significant tariff rate advantages for competitors of U.S. beef and pork.
"U.S. beef had the most to gain and the most at stake," Borror explained, adding that Australia, Mexico and Chile are already benefiting from lower tariffs into Japan and will receive additional lowering of tariffs under the new agreement. CPTPP would provide even more tariff relief for beef imported from these countries and would lower tariff rates on Japan's imports of Canadian and New Zealand beef.
The U.S. has free trade agreements in place with several CPTPP countries, but the major exceptions are Japan and Vietnam. Japan's beef import safeguards, which are administered on a quarterly basis for countries that do not have trade agreements with Japan, would shift to annual safeguards for beef imports from CPTPP countries, making them less likely to be triggered. Under Japan's frozen beef safeguard, the tariff rate on U.S., Canadian and New Zealand beef was recently increased from 38.5% to 50%, where it will remain through March 31, 2018.
CPTPP would provide tariff relief for Canadian pork -- the U.S.'s largest competitor in Japan's imported chilled pork market. Pork from Mexico and Chile would also gain market access beyond their current economic partnership agreements with Japan.
Perhaps the largest breakthrough in the CPTPP pork provisions is Japan's gradual elimination of tariffs on processed pork products -- something Japan has never previously included in a trade agreement. Borror noted that while the European Union is not included in CPTPP, the EU and Japan are expected to finalize an economic partnership agreement in the next few months that includes similar terms.
Borror explained that this would leave the U.S. as the only major pork supplier to Japan without a trade agreement in place.
