U.S. livestock: CME cattle, hogs relatively steady on trade deal hopes

CME February 2020 live cattle with Bollinger (20,2) bands. (Barchart)

Chicago | Reuters — U.S. cattle futures remained relatively steady on Monday but funds continued to hold their long positions in anticipation of a surge of demand for U.S. meat after the U.S.-China “Phase 1” trade agreement is finalized, traders said.

U.S. lean hog futures inched upward, rising for a third session on the same export hopes, traders said.

The trade agreement, announced by Washington and Beijing on Friday, is expected to stimulate Chinese purchases of U.S. pork — which in turn, traders said, could create domestic and export demand for U.S. beef as pork supplies are drawn down.

China is the world’s largest hog producer and pork consumer, but its domestic pork prices have soared as an outbreak of African swine fever has decimated the country’s hog herd. China stepped up purchases of U.S. pork this year, but the trade war has acted as a brake.

But on Monday, some traders warned that this market narrative may not pan out, given uncertainty over what China will ultimately buy.

Beijing has committed to buying $32 billion more in farm products over the next two years, or about $16 billion a year, on top of a baseline of $24 billion in Chinese purchases in 2017 (all figures US$).

U.S. trade officials said on Friday there would be specific targets for purchases of specific products but that those would not be made public to avoid distorting markets.

“The market still firmly believes this is the story: that the trade deal will create this vacuum of (U.S.) pork, and beef will benefit from that,” said Rich Nelson, chief strategist for brokerage Allendale.

“Right now, you’re seeing the cattle futures holding ground on that belief,” Nelson said. “But in my opinion, the reality doesn’t quite match up, because historically there’s not that much carryover support between the meats.”

The livestock market also was supported by news that Tyson Foods received approval from U.S. and Chinese authorities to export American poultry to China from all 36 of its U.S. processing plants — and expects to begin taking orders early next year.

The benchmark February live cattle contract settled down 0.3 cents at 127.25 cents/lb.

January feeder cattle futures eased down 0.425 cent to close at 145.25 cents/lb.

Chicago Mercantile Exchange (CME) February lean hog futures settled up one cent at 70.5 cents/lb.

— P.J. Huffstutter reports on agriculture and agribusiness for Reuters from Chicago.

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