DTN Early Word Opening Livestock

Cattle Futures Should Open Mixed Prior to July 1 on Feed Report

(DTN file photo)

Cattle: Steady/Weak with Wed Futures: Mixed Live Equiv $134.96 - .55*

Hogs: Steady-$1 LR Futures: Mixed Lean Equiv $ 94.45 - .65**

* based on formula estimating live cattle equivalent of gross packer revenue

** based on formula estimating lean hog equivalent of gross packer revenue

GENERAL COMMENTS:

Cattle buyers and sellers should be looking for ways to generate a late round of light to moderate trade volume. Hopefully the board will stabilize enough to encourage both bids and asking prices. Our guess is that bids will start out around $113 to $114 in the South and $181 to $182 in the North. Preliminary asking prices may be around $115 to $117 in the South and $185 in the North. The July 1 Cattle on Feed report will be released Friday afternoon at 2:00 p.m. Average guesses anticipate the following: on feed, up 1% to 2%; placed in June, up 7% to 8%; marketed in June, up 9% to10%. Live and feeder futures should open on a mixed basis linked to residual selling on one hand and pre-report short-covering on the other.

The cash hog trade seems set to begin with bids steady to $1 lower. Packers have enjoyed yet another week of lowering the cost of live inventory. Carcass value has eroded this week, but not as much or persistently as the country hog trade. Accordingly, processing margins have gone from good to even better. Lean futures are geared to open mixed thanks to follow-through selling and late-week profit-taking.

BULL SIDE BEAR SIDE
1)

Bears have dug an extraordinary hole in cattle futures just as the July 1 on feed report is to be unveiled. In short, the board seems extremely vulnerable to whatever bullish surprise Friday afternoon's report might contain.

1) Live and feeder futures imploded more aggressively than ever on Thursday. New contract lows were slammed in every corner of the board, further demoralizing country psychology and crippling feedlot leverage.
2)

Actual beef exports last week totaled 14,620 metric tons, up 27% from the previous week and 9% from the prior four-week average. The primary destinations were Japan (4,900 MT), South Korea (4,000 MT), Mexico (1,800 MT), Canada (1,200 MT), and Hong Kong (1,000 MT).

2)

For the week ending July 9, cattle carcass weights jumped significantly: all cattle averaged 820 pounds, 7 pounds heavier than the previous week and 5 pounds lighter than 2015; steers averaged 875 pounds, 7 pounds larger than the week before and 10 pounds below last year (the heifer average on Thursday, slipping moderately lower thanks to softer demand for all primals except the loin.

3)

Actual pork exports last week totaled 20,200 MT, up 30% from the previous week and 9% from the prior four-week average. The primary destinations were Mexico (7,200 MT), Japan (4,700 MT), China (2,600 MT), Canada (1,600 MT), and South Korea (1,200 MT).

3) Lean hog futures also collapsed Thursday with bears scoring another bumper crop of new contract lows. Aggressive long liquidation continues, stoked by the large build up in open interest last quarter.
4)

Friday's monthly Cold Storage report is expected to document smaller frozen pork and beef stocks as of June 30. Analysts expect beef stores total close to 438.2 million pounds, 4% below 2015; pork supplies should total around 559.1 million, 9% below May and 11% less than 2015.

4) The pork carcass value closed moderately lower on Thursday with all primals except the loin reflecting softer demand.

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OTHER MARKET SENSITIVE NEWS
CATTLE:

(CNBC News) -- Fresh, never-frozen beef patties may be what consumers want, but McDonald's franchisees are concerned that a major change to the chain's operations could give way to a food safety disaster.

In a recent survey by Nomura, Golden Arches' franchisees noted that swapping to fresh beef would not only impact the speed at which burgers could be served, but opened up the chain to potential foodborne illness outbreaks.

"An uncaring employee doing something that puts the entire system at risk," one franchisee said. "We are the lightning rod. Chipotle will be a walk in the park if we have an incident."

Another wrote, "If we do not handle the meat perfectly there is the opportunity for bacterial invasion of our product."

Some 27 franchisees, who collectively own around 200 McDonald's restaurants in the United States, noted that their same-store sales had grown 2.4 percent in the second quarter. However, many voiced concerns that implementing unfrozen beef nationwide "would be a huge distraction" from the company's turnaround.

McDonald's operates 14,000 restaurants in the U.S., 90 percent of which are franchised.

Until it implemented its All Day Breakfast promotion last year, the chain struggled to maintain strong foot traffic and same-store sales. Since McDonald's began doling out Egg McMuffins morning, noon and night, the company has seen sales boom; the company's stock is up almost 30 percent year over year.

Some franchisees said that the move to fresh beef, which it is testing in 14 Dallas locations, could help improve customer perception of the chain and lead to other quality improvements.

"Our line continues to slow down with added items and will continue to do so," a franchisee wrote. "However, we are a restaurant and we ought to always serve the best food so [the slow down of the line] may not outweigh the positive [of adding fresher ingredients]."

However, the majority see the swap as "purely a marketing move," noting that the brand's naysayers and focus group participants care more about the swap than loyal customers, but won't be enticed into stores if the change is made.

"The only ones who care are the ones who don't eat at McDonald's," one franchisee said.

HOGS: (CNBC) -- Burgers and bacon have long been a match made in food heaven, but Carl's Jr. and Hardee's don't think you're getting enough bacon for your buck.

The restaurants, owned by CKE Restaurants, will now offer a Bacon 3-Way Thickburger — a black angus beef patty with lettuce, tomato and American cheese topped with three different kinds of bacon — for a limited-time only.

"Typically, if bacon is in the name anywhere, it's going to sell more," Haley said, explaining that CKE Restaurants has launched at least a dozen different bacon-inspired burgers in the last decade.

While the new burger features traditional bacon strips and crumbled bacon bits, it will also be slathered with bacon jam, a sweet-and-savory spread made from bacon, balsamic vinegar, caramelized onions and molasses — a first in the quick service restaurant industry.

Menu mentions of bacon jam have increased by 50 percent since 2013, according to Mintel, with consumers gravitating toward sweet and savory combinations, especially on burgers.

"Bacon jam is becoming a bit of a trend out there," Brad Haley, chief marketing officer for Carl's Jr. and Hardee's, told CNBC. "Bacon's popularity amazingly never seems to be diminishing in any way whatsoever."

The Bacon 3-Way Burger will sell for $4.49 for a single burger, $5.49 for a double burger and $5.49 for a one-third pound Thickburger. It can also be ordered as a combo meal with fries and a drink starting at $6.99.

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

(BAS)

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