DTN Early Word Opening Livestock

Meat Futures Seem Staged to Open Week with at Least Moderate Strength

John Harrington
By  John Harrington , DTN Livestock Analyst
(DTN file photo)

Cattle: Steady-$2 LR Futures: 50-100 HR Live Equiv: $144.45 + 0.15*

Hogs: $1-2 HR Futures: 50-100 HR Lean Equiv $ 89.36 + $1.76**

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

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

GENERAL COMMENTS:

As far as we can tell, relatively few steers and heifers traded last week with buyers and sellers haven't great difficulty in finding terms of compromise. A limited number sold in the South late Friday at $112-113, $2-3 lower than the previous week. Needless to say, it will be very interesting to see what develops this week given a strange combination of larger showlists and short bought packers. Having said that, activity today should be limited to the distribution of new showlists. Live and feeder futures seem set to open moderately higher based on follow-through buying and cash premiums.

Although we expect the cash hog trade to keep rolling higher, it's a little tempting to wonder is the country market has become too hot not to cool down—at least some. Nevertheless, look for buyers to resume work this morning with bids $1 to $2 higher than Friday. Despite the fact that processing margins have seriously narrowed, competition for tightening numbers is very keen. It's worth noting that the extreme heat suffered in recent weeks has tightened the pool of marketable gilts even more. Lean futures should open with a firm undertone thanks to bull spreading interest and constructive fundamentals.

BULL SIDE BEAR SIDE
1) Following successful beef clearance over the Fathers Day weekend, the buying interest of retailers and food managers should improve this week as they restock shelves and coolers 1) Look for showlists to be significantly larger in most cattle feeding areas thanks to a combination of the requirements of seasonal marketing and a substantial number of unsold steers and heifers carried over from last week.
2) Given last week's extremely slow round of feedlot business coupled with another large weekly cattle slaughter (i.e., 654,000 head), it seems like a good bet that beef processors will start this week quite short bought. 2) From Friday to Friday, the choice beef cut-out lost more than $4. While there's plenty of grilling time ahead of us, demand is now closer to the dog days of summer than the budding promise of early spring.
3) The pork carcass value surged sharply higher on Friday, powered by major gains in the loin (up $2.83), ham (up $1.87), and belly (up $1.54) primals. 3) The trade war between the U.S. and China changed from strong talk to real bullets last week. China has now imposed retaliatory duries on U.S. beef and pork.
4) Hog slaughter continues to decline from week to week. Chain speed should remain in this bullish groove for another 30 days or so. Last week's klll totaling 2.221 million head, 56,000 below the previous year. 4) With Mexico possibly pulling back under new tariff rates and a second packer shift halted for one of the new plants, hogs may not find the competition among packers that they saw this week.

OTHER MARKET SENSITIVE NEWS:

CATTLE: (Drovers) -- Cattle slaughter surged over the last 6 weeks with weekly slaughter over 650,000 head every week since the first of May, except the Memorial Day shortened week. Total cattle slaughter is up about 9 percent compared to the same period a year ago. Much of the year-over-year increase in slaughter is from heifers.

Fed heifer slaughter is up about 17 percent over the last six weeks, using the daily slaughter data and estimating the first two weeks of June. Going back to the first of April fed heifer slaughter is up about 16 percent compared to a year ago. Weekly slaughter levels were the largest since May 2013.

Steer, heifer, beef cow, and dairy cow slaughter tend to have their own different seasonal pattern. These depend, in large part, on seasonal production patterns. Beef cow culling tends to climb in late Spring-early Summer then peaks in Fall. Dairy cow culling bottoms out in summer. Looking at the last few years, heifer slaughter tended to be at it's seasonal low from about May-July at the same time steer slaughter hit it's seasonal high.

Summer seasonal lows in heifer slaughter over the last few years reflects cow herd expansion. Fewer heifer calves were sent to feedlots as they were kept to enter the herd. The seasonality of heifer slaughter is likely changing as the herd size has recovered from the drought and expansion is slowing. More heifer calves and feeders are available to go to feedlots because more were born and fewer are needed for herd replacement.

The Cattle on Feed report each quarter includes a breakout estimate of the number of steers and heifers on feed. The April Cattle on Feed report indicated that there were 14 percent more heifers on feed than the year before. That estimate is not far off the growth in heifer slaughter, year-over-year in the April-early June period. While the number of heifers on feed has been very large compared to the last few years, it is about the same as the number on feed, on average, over the 2007-2012 period before the drought and during the herd adjustments to ethanol fueled feed costs. The July Cattle on Feed report will provide the next estimate of the number of heifers in feedlots.

HOGS: (Seaboard Triumph Foods) — Seaboard Triumph Foods (STF) announced on Friday it has targeted mid-October 2018 to begin second shift pork processing at its Sioux City, Iowa, facility. After a ramp-up period to reach full second-shift production, the new pork processing plant will employ more than 2,000 employees.

Since May 2018, the new pork processing plant has been running limited operations on second shift while hiring and training for the second shift.

"We are extremely thankful and proud of the entire team who has made this moment possible. With their commitment and dedication to make first shift fully operational, we all are looking forward to the second shift ramp up," says Mark Porter, Seaboard Triumph Foods chief operating officer. He adds, "We're also grateful for the continued support from the community and local and state leadership and officials."

On Sept. 5, 2017, the Sioux City plant started first shift operations after a 2 -year plant construction project with numerous local and regional contractors and the construction management firm, Epstein. The design of the facility incorporates robotics and innovative technologies resulting in a modern, state-of-the-art facility to produce the most sought-after pork for diverse global consumers in several market segments including retail, international, food service and further processing markets.

The Seaboard Triumph Foods Sioux City plant, owned equally by strategic partners Seaboard Foods and Triumph Foods, produces fresh pork products under the domestic Prairie Fresh® Pork brand and Seaboard Farms® international brand. Seaboard Foods will continue to market and sell the pork produced by the Sioux City plant. The plant also supplies Daily's® Premium Meats with raw materials for its premium pork products, including raw and precooked bacon.

At full two-shift capacity, the facility will process 21,000 market hogs daily. Porter says, "We are so appreciative of the collaborative efforts with the regional hog producers who have helped supply our plant. Continuing to build new and strengthen existing relationships with those producers is very important to us."

Primary hog supplies are sourced from Triumph Foods producer-owners' farms and Seaboard Foods' farms. About 30 percent of the market hogs at the Sioux City plant will be sourced from regional farmers who align with Seaboard Triumph Foods' animal care and environmental stewardship practices, and share a common commitment to seeking a better way to produce wholesome pork.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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John Harrington