DTN Early Word Opening Livestock

Cattle Paper to Cautiously Position Ahead of Cash News

John Harrington
By  John Harrington , DTN Livestock Analyst
Connect with John:
(DTN file photo)

Cattle: Steady Futures: Mixed Live Equiv $130.84 - .18*

Hogs: $1-2 LR Futures: Mixed Lean Equiv $ 87.36 - .04**

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

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

GENERAL COMMENTS:

The cash cattle clock is starting to tick louder. With packer margins tightening and board premiums holding firm, buyers and sellers could he headed for another Friday showdown. Bids Thursday should be restated at $102 to $103 in the South and $162 to $164 in the North. At the same time, asking prices will again be underscored around $107 to $108 in the South and $170 in the North. Live and feeder futures seem geared to open on a mixed basis with follow-through buying on one hand and nervous cash prospects on the other.

Hog buyers will keep swinging the hammer Thursday with initial bids another $1 to $2 lower. While the pork carcass value has been consistently struggling since before Labor Day, packers have effectively held onto the handsome processing margins. As of Wednesday's close, the pork cutout stood nearly $14 above the latest cash index (implying processing profits of $20 to $25 per head). It looks like the Saturday hog kill will total close to 180,000 head. Lean futures should also open mixed thanks to a combination of spillover selling and short-covering.

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]

BULL SIDE BEAR SIDE
1) Nearby live futures closed impressively higher at midweek, reasserting a large premium over feedlot cash, one that will clearly fortify country leverage. 1) Despite last week's smaller round of beef production linked to the Labor Day break, beef cutouts are clearly struggling. The select box fell more than $2 on Wednesday.
2) Given fact that the "official" index roll will end on Thursday, spot October live could soon become even more attractive to bullish-minded specs. 2) The premium in December live cattle has continued to widen, well beyond the widest level in the previous five-year band. With feedlots encouraging selling later rather than sooner, a slowing marketing rate could push cattle back and further build front-end supplies through a period when numbers are already larger than a year ago.
3) If the premium of deferred live cattle futures proves to be fully justified (perhaps even understated), the strength of late-year beef demand could go far in boosting late-year pork demand that currently seems so doubtful to specs and commercials. 3) For the week ending Sept. 9, U.S. hatcheries in the United States set 218 million broiler eggs in incubators, up 4% from a year ago. At the same time, chicks placed totaled 182 million chicks, up 3% from 2016.
4) While the stubborn and extreme discounts of fourth quarter lean hog futures are here, now is the mood to consider bullish possibilities, there are clearly at least three wild cards still in the 2017 deck: 1) intense competition between an expanding number of plants; 2) stronger than expected export demand (say close to equal to the first half of the year; 3) late-year market hog supplies will prove smaller than expected and inadequate vis-a-vis larger chain capacity. 4) Live weights for barrows and gilts in Iowa/Southern Minnesota last week averaged 282 pounds, 2.1 lbs. heavier than the prior week and 1.8 lbs. heavier than 2016.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Bloomberg News) -- McDonald's Corp. suffered its worst stock decline in more than a year on mounting fears that storms in Florida and Texas will weigh on results this quarter.

The concerns escalated Tuesday after data tracker M Science said its sales projections for the fast-food chain are below Wall Street's estimates. The analysis firm has previously swayed stocks like Chipotle Mexican Grill Inc. and Weight Watchers International Inc. with its reports.

Two major storms have battered the U.S. in recent weeks, with the impact centered on two of the nation's three most populous states. Hurricane Harvey struck Texas late last month, with Irma hitting Florida in the past weekend. Though McDonald's is less exposed to the markets than some restaurant chains -- thanks to its global footprint -- the company has more than 2,000 locations combined in the two states.

M Science Chief Executive Officer Michael Marrale said his firm has evaluated purchasing, traffic and regional performance trends for McDonald's. The analysis indicates that the company will miss consensus estimates for domestic revenue and same-store sales, he said.

The shares fell as much as 3.6 percent to $155.77 on Tuesday, marking the biggest intraday drop since July 2016. The stock had been up 33 percent this year through Monday, bolstered by McDonald's outperforming much of the restaurant industry.

Starbucks Corp., which is also dealing with the aftermath of the storms, indicated that the sales disruption is expected to be a drag on results. The company said on Monday that it had closed more than 700 stores in the southeastern U.S. and Puerto Rico as a result of Hurricane Irma and that "nearly all of those stores remain closed." That followed the closure of more than 400 Texas locations because of Hurricane Harvey, Starbucks said.

The effect of the storms, including the resulting higher gas prices, is spurring concern that restaurant chains will post weaker results, said Peter Saleh, an analyst at BTIG LLC.

"Everybody is on edge right now in the restaurant space," he said. "It's sell first, ask questions later."

HOGS: (meatFYI.com) -- A JAPANESE memorial to close to 300,000 animals put to death as a consequence of the country's catastrophic 2010 Foot & Mouth Disease outbreak provided a sobering reminder of biosecurity risk to Australian beef industry stakeholders on the Japan Wagyu study tour this week.

The FMD memorial dominates an agricultural learning centre in the southern Japanese prefecture of Miyazaki, which was at the epi-centre of the disease outbreak. The memorial honours the lost animals themselves, and documents how the local community and government worked together to manage the outbreak and begin a long road to recovery.

A national FMD state of emergency was declared on 18 May 2010, about a fortnight after the first diagnosis was made, before spreading rapidly. The plan involved slaughter of all cloven-hoofed animals (cattle, pigs, native deer, goats etc) in immediate proximity to the infected herds, and a blanket vaccination program in a larger 'ring' outside that, as a precautionary measure. At its height around 15 May that year, up to 20 herds per day were being discovered with new outbreaks. The episode was officially declared over some 130 days after first cases were found. The episode had a major impact on Miyazaki's economy, estimated at 230 billion yen (about $2.8 billion in Australian currency). Cattle losses totalled almost 70,000 head -- many of them extremely valuable Wagyu animals worth anything from A$10,000 as calves to $18,000-$20,000 as finished bullocks; 227,000 pigs; and various other species. Almost 270 burial locations were used.

Impact on the livestock sector alone was estimated at some 82 billion yen, or about A$1 billion, and about half that again for livestock and meat-related industries.

While the meat and livestock industry bore the biggest brunt of the impact, movement restrictions also devastated the local tourism and general commerce and manufacturing sectors. Events, festivals and other public activity was cancelled for some months after the outbreak occurred.

John Harrington can be reached at feelofthemarket@yahoo.com
Follow John Harrington on Twitter @feelofthemarket

(BAS)

P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]
P[R1] D[300x250] M[300x250] OOP[F] ADUNIT[] T[]
P[R2] D[300x250] M[320x50] OOP[F] ADUNIT[] T[]
DIM[1x3] LBL[] SEL[] IDX[] TMPL[standalone] T[]
P[R3] D[300x250] M[0x0] OOP[F] ADUNIT[] T[]

John Harrington

John Harrington
Connect with John: