DTN Early Word Opening Livestock
Residual Bullishness to Sponsor Higher Opening for Cattle Futures
GENERAL COMMENTS:
Cattle: Steady/frm w/Thurs Futures: 100-200 HR Live Equiv $159.19 - .17*
Hogs: Steady-$1 HR Futures: Mixed Lean Equiv $ 96.74 + .44**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Thursday's bullish explosion in the cash cattle was nothing short of shocking. Many thought basic price stability following Memorial Day would constitute a bullish victory of sorts. But a $5 jump in live sales? Almost unbelievable, and yet market reporters documented moderate to active trade volume Thursday at sharply higher money (i.e. $136 to $137 in the South; $215 to $217 in the North). Clean-up action is possible Friday, but we suspect that the lion's share of the week's business is now completed. Steers and heifers remaining on showlists are priced around $138 in the South and $217 to $218 on the North. Live and feeder futures are likely to open solidly higher thanks to residual buying and growing cash premiums.
Look for the cash hog market to open with bids ranging from steady to $1 higher. Pork processing margins remain very attractive, a fact that easily explains why Saturday's kill is expected to total as much as 220,000 head. Lean futures are likely to begin on both sides of unchanged thanks to a combination of light bull spreading and the unwinding of bear spreads.
| BULL SIDE | BEAR SIDE | ||
| 1) | Short bought, hungry, and well margined beef packers aggressively chased showlists, spending as much as $5 more on a live basis. Despite all the negative talk, larger fed supplies remain in the back seat with strong product demand still racing behind the wheel. | 1) | Boxed beef prices and volume have been lackluster at best this week. Furthermore, supplies on Thursday's close were described as "heavy," suggesting that wholesale prices could increasingly struggle as we move through June with increasing chain speed and production. |
| 2) | Multiple live and feeder cattle contracts locked limit up on Thursday, posting the highest close in nearly a month. With feedlot country still commanding significant leverage, the wisdom of deep board discounts look more and more suspect. | 2) | The surge in beef prices over the last 30 to 60 days and larger premiums on beef compared to pork and chicken will likely temper beef's role in summer merchandising plans. |
| 3) | Unexpected cattle and beef strength this month could make it easier for bullish fundamentals in the pork complex to really catch fire in terms of price potential. | 3) | For the week ending May 27, U.S. hatcheries set 224 million broiler eggs in incubators, up 2% from a year ago. At the same time, U.S. growers placed 183 million chicks for meat production, also up 2% from 2016. |
| 4) | The pork carcass value closed moderately higher Thursday, supported by better demand for loins, picnics and hams. | 4) | The inability of nearby lean hog futures on Thursday to build on recent gains given explosive cattle futures and sound pork fundamentals was more than a little disconcerting, possibly another sign that the hog rally is starting to run out of gas. |
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CATTLE: (Bloomberg) -- McDonald's Corp. will expand delivery service to 1,000 more U.S. restaurants this week, including locations in the New York area, part of a gambit that the 77-year-old chain can find a major new source of growth.
The burger chain is relying on Uber Technologies Inc.'s UberEats to handle the "McDelivery" program, which is now available from more than 2,000 locations. Other cities getting the service this week include Dallas; Denver; Fresno, California; Houston; San Antonio; Seattle; and Washington. UberEats typically charges a booking fee -- say, $4.99 -- that can vary by location.
The Big Apple -- where delivery services are widely used and highly competitive -- provides the biggest testing ground yet for the push. The stakes are high: The Oak Brook, Illinois-based company sees restaurant delivery as a $100 billion market that could help reignite sales. In New York, UberEats is available from 7 a.m. until 1 a.m. seven days a week.
"We'll bring the McDonald's experience to more customers in their homes, their dorm rooms, their workplaces and beyond," Chief Executive Officer Steve Easterbrook said at an investor conference on Wednesday. "We see significant potential."
After testing delivery for years, the fast-food giant is now racing to scale up the effort. The idea is to offer the option from 3,500 U.S. locations by the end of June. Orders frequently come later in the day, bringing in revenue at a time when customers may not be walking into restaurants, Easterbrook said.
"Nearly 60 percent of orders are being placed during the evening or late night," he said. "And because speed matters, we're getting food from or
HOGS: (Agri-Pulse) -- U.S. Commerce Secretary Wilbur Ross says he's anxious to move quickly on renegotiating the North American Free Trade Agreement, stressing that his goal is to "do no harm" to exports of U.S. farm commodities and other goods to Mexico and Canada.
"The first guiding principle … is do no harm because there were some things that were achieved under NAFTA and other trade agreements," Ross said in a discussion Friday hosted by the Bipartisan Policy Center in Washington.
One of the major NAFTA achievements for the U.S. farm sector was the removal of virtually all tariffs on U.S. corn, soybeans, rice, wheat, beef, pork, sorghum and other farm commodities. That lack of tariffs has allowed U.S. agricultural exports to Mexico to skyrocket, making it the largest foreign market for crops like rice and corn. NAFTA also tore down barriers to U.S. exports of beef and pork to Canada, spurring increased trade as well domestic demand for feed grains.
The U.S. exported about $20 billion worth of agricultural commodities to Canada in 2016 and about $18 billion to Mexico, according to USDA data.
Chip Bowling, chairman of the Corn Board for the National Corn Growers Association, also spoke at Friday's event. He said that he and his group are still very concerned about any repercussions the NAFTA renegotiation may have on corn exports.
Bowling, who spoke to Agri-Pulse after the event, said he doesn't know enough about the Trump administration's plans and goals yet.
"I think they're still trying to figure out which direction they need to go," Bowling said. "We haven't had any type of a conversation with Mr. Ross or the administration at this point. We're not less concerned, but we want to make sure we keep what we have and actually build upon it. Until we have those conversations, we're on high alert when it comes to NAFTA -- that's for sure."
On the upside, Bowling said he is heartened by Trump administration assurances that farm groups like NCGA will have a seat at the table during renegotiation.
Follow John Harrington on Twitter @feelofthemarket
John Harrington can be reached at feelofthemarket@yahoo.com(BAS)
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