DTN Early Word Opening Livestock

Lean Hog Paper Staged For Mixed Opening at Midweek

(DTN file photo)

Cattle: Steady-$2 LR Futures: 50-100 LR Live Equiv $137.28 - .21 *

Hogs: Steady-$1 LR Futures: Mixed Lean Equiv $100.98 -2.13 **

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

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

GENERAL COMMENTS:

Midweek cash potential (i.e., positive or negative) has become a pretty good bet this summer. Accordingly, we won't be surprised if cash business at least gets started sometime Wednesday. Packers seem fairly short bought, but these days it's hard to tell. Opening bids should start around $115 in the South and $184 to $185 in the North. Whatever trade volume we see Wednesday, country activity is likely to stay quiet until after the FCE results are known later Wednesday. Look for asking prices to start out around $120 plus in the South and $190 plus in the North. Live and feeder futures should open moderately lower, pressured by follow-through selling and nervousness regarding late-summer fundamentals.

The cash hog trade Wednesday is likely to open steady to $1 lower. The combination of attractive processing markets and slowly increasing market hog numbers points to a fairly aggressive weekend kill. At this time, it looks like this Saturday slaughter could total as much as 135,000 head. Lean hog futures are staged to open on a mixed basis linked to uneven spreading plans and light profit-taking.

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BULL SIDE BEAR SIDE
1) Given the fact that the comprehensive beef cutout has fallen by nearly $32 per cwt since mid-June, retailers and food mangers are now enjoying outstanding margins on beef cuts in the meat case and beef entrees on the menu. That should translate into significant buying incentive as Labor Day demand starts to rise on the horizon. 1) Beef cutouts continued to erode on Tuesday with buyers remaining defensive given expectations of escalating production over the next 30 to 60 days.
2) Boxed beef sales were sluggish moving through the dog days of summer but should pick up heading deeper into August. 2) Most private analysts seem to be assuming that last month's feedlot placement was another big one compared with June 2016, possibly 8% to 10% larger.
3) Hog buyers found it necessary to raise country bids Tuesday (i.e., the national dressed base price jumped more than a buck) in order to generate significant trade volume (i.e., 15,602 head). 3) The pork carcass value quickly surrendered Monday's progress and then some. The cutout imploded by more than $2 on Tuesday, specially pressured by a $9.25 drop in the belly primal.
4) The seasonal tendency is for August lean hogs to appreciate in value entering expiration and given the firmness in cash hog prices is likely to be the case this year as well. 4) Despite the recent rally, the discount between August lean hog futures and October remains much wider than normal, reflecting trade expectations of a larger-than-seasonal decline in hog prices this fall.

OTHER MARKET SENSITIVE NEWS

CATTLE: (CNBC) -- McDonald's will nearly double the number of restaurants in China in the next five years, eventually surpassing Japan as the hamburger chain's second-biggest market outside the U.S.

The company, based in Oak Brook, Illinois, just outside of Chicago, expects to have 4,500 restaurants in China by 2022, up from 2,500. With fewer people eating at U.S. locations, it hopes to grow sales in China by double digits in each of the next five years.

The announcement Tuesday comes a week after McDonald's completed a previously announced deal to sell most of its operations in China. The deal leaves McDonald's with a 20 percent stake in its China business.

There are about 37,000 McDonald's restaurants worldwide and more than 14,000 in the U.S.

HOGS: (Feedstuffs) -- Newly proposed action would relieve CSF-specific restrictions on the importation of pork and pork products from Mexico, but other animal health concerns remain before live swine and swine genetics can be imported from Mexico.

The U.S. Department of Agriculture's Animal & Plant Health Inspection Service (APHIS) is providing a notice of evaluation that proposes to recognize Mexico as free of classical swine fever (CSF).

APHIS will also withdraw a previous proposed rule that would have recognized a low-risk CSF region in Mexico.

The proposed rule that will be withdrawn was published for comment on July 29, 2014. Since it was published, the World Organization for Animal Health (OIE) recognized Mexico as CSF-free. As a result, Mexico's government requested that APHIS suspend its rulemaking and instead continue evaluating Mexico's CSF status. APHIS reopened its evaluation and conducted a site visit in 2015.

Based on the 2015 site visit report, along with updated surveillance data and additional information submitted by Mexico's government, APHIS determined that current conditions support CSF-free recognition for all of Mexico, the agency said Aug. 7.

This newly proposed action would relieve CSF-specific restrictions on the importation of pork and pork products from Mexico, while continuing to protect the U.S. against this serious swine disease. However, other animal health concerns related to the import of live swine and swine genetics have not yet been evaluated and will still need to be addressed before live swine and swine genetics may be imported from Mexico.

APHIS is inviting public comments on the evaluation for 60 days. APHIS will then review and consider the comments received and make a final determination, which will be published in a later Federal Register notice.

This evaluation will be available for public comment, beginning Aug. 8, in the Federal Register at www.regulations.gov. It may be viewed online Wednesday at:https://s3.amazonaws.com/…. Written comments can also be submitted through the mail: Docket No. APHIS-2016-0038, Regulatory Analysis & Development, PPD, APHIS, Station 3A-03.8, 4700 River Road Unit 118, Riverdale, Md. 20737-1238.

John Harrington can be reached at feelofthemarket@yahoo.com

Follow John Harrington on Twitter @feelofthemarket

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