DTN Early Word Opening Livestock

Look for Meat Futures to Open Thursday With Uneven Price Action

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

Cattle: Steady-$2 LR Futures: Mixed Live Equiv: $142.88 - .76

Hogs: Steady-$1 LR Futures: Mixed Lean Equiv: $ 90.15 + .17**

* 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 should quickly restate the bids posted Wednesday (i.e., $108 live in the South, and $173 to $175 dressed in the North), and then sit back and watch the board for at least an hour or two. They'll no doubt be hoping that significant board weakness will help their cause. Yet if futures don't cooperate that way, or even manage to move higher, packers may soon be forced to start hiking bids toward country asking prices of $115 live and $183 dressed. An extension of the impasse could certainly be pushed into Friday, but we're guessing that short-bought buyers need to make something happen sooner rather than later. Live and feeder futures are likely to open on a mixed basis as traders position before the development of cash news.

Look for the cash hog market Thursday with near steady bids. Chain speed has been slower this week, partially because of tightening numbers off finishing floors and partially because of poor processing numbers. Saturday's kill is not likely to be much over 2,000 head. The weekly total should be around 2.2 million head. Lean futures should also begin with uneven price action in light trade volume.

BULL SIDE BEAR SIDE
1)

Between their short bought status (i.e., linked to last week's limited buy of live inventory) and still relatively attractive processing margins, cattle buyers are starting to run out of time in terms of securing short-term slaughter. This reality should lend feedlot managers greater late-week leverage.

1)

For the third consecutive session, beef cutouts tripped significantly lower on Wednesday with box supplies described as "heavy."

2)

While the gains scored by cattle futures at midweek were relatively modest, the board seems to be improving its technical progress. The close in spot June was a bit above the 100-day moving average. August momentarily spiked above its 100-day moving average for the first time since early March, closing slightly below that technically important threshold.

2)

For the week ending June 16, U.S. hatcheries set 231 million eggs in incubators, up 3% from a year ago. At the same time, broiler growers placed 188 million chicks; up 2% from 2017.

3)

Poorly-margined pork processors have been trading hard this week to slow the cash hog train down. Success in this regard for a handful of days is one thing, but it could be more like mission impossible over the next 30 to 45 days given the perseverance of tight country supplies and keen competition between packers trying to cover as much overhead as possible.

3)

Traders of late summer and fall lean hog futures are becoming increasingly nervous about the ability of demand to handle third quarter and beyond supplies. August and October tumbled significantly below 40 cent moving averages on Wednesday.

4)

For the week ending June 16, Iowa barrows and gilts averaged 278.5 pounds, .2 pounds below the prior week (though still a pound heavier than last year).

4)

If the EU and Canada moves to sell more product to Mexico as they react to tariff realities, the U.S. share of the Mexico could drop significantly (see article below).

OTHER MARKET SENSITIVE NEWS:

CATTLE: (Wyoming Tribune Eagle) -- Wyoming startup company BeefChain is at the intersection of traditional cattle ranching and the state's economic diversification efforts.

The company is using blockchain technology -- a buzzword during this year's legislative session -- to give producers and consumers the opportunity to track beef products farm to table.

The company, started five months ago, has already tagged roughly 1,500 cattle on five ranches throughout the state using radio frequency ID tags that are now linked to a digital supply-chain ledger.

Founders believe this pilot program could be the beginning of more international trade opportunities for ranchers, and may put Wyoming on the front lines of "ethical agriculture." The end goal is to highlight living conditions of livestock, ultimately producing higher-quality meat to sell in foreign markets.

Co-founder Rob Jennings, CEO of Wyoming Certified Beef LLC, said, at the very least, the endeavor will get people talking about Wyoming beef.

"We currently have millions of dollars in agricultural assets tagged in Wyoming," Jennings said. "We are taking a new, modern technology and using it not to change what the Wyoming rancher does, but to demonstrate what the Wyoming rancher does. We can show the data points -- where cattle are fed, where they graze, how they are handled and how they are vaccinated. Blockchain becomes not just a practical tool for increasing sales, but for telling a story of the Wyoming rancher."

The company is incorporated in Cheyenne, but ranchers throughout the state are taking notice.

Wyoming Sen. Ogden Driskill, R-Devils Tower, who sponsored a number of blockchain bills in the Legislature this year, signed on to BeefChain almost immediately, tagging 323 calves from his family-owned Campstool Ranch near Devils Tower in May.

His free-range farming technique, one his family has employed for generations, is pricier than industrial factory farming operations. Although there is a growing market for ethically raised livestock, the challenge lies in guaranteeing the food's source.

This is where the digital ledger comes into play.

Blockchain is often discussed in conjunction with virtual currencies like bitcoin, but the ledger is also known for its tracking and security properties. It uses decentralized databases to verify digital transactions.

Thomas Haynes, who operates a small ranch in central Wyoming, said he heard about the company during discussions with other producers.

"It is something I continue to seriously think about as the industry changes and there is more focus on quality and animal welfare," Haynes said. "I am eager, as I know many are in the industry, to see where this goes."

Last year, 11,400 Wyoming farms generated $1.1 billion in cattle sales, making it the 14th-largest producer in the U.S., despite the state's small population.

Alongside Jennings, co-founder Tony Rose joined former Morgan Stanley managing director and former president of blockchain startup Symbiont, Caitlin Long, to decide what's next.

First, they want to demonstrate the technology's value and see how it can grow in a manageable way. This includes the possibility of changing how ranchers sell beef.

"Producers could essentially tokenize or fractionalize ownership of the herd," Jennings said. "Once you have recorded the cows into your ledger and verified it, you could sell partial ownership to people; there is a way for the rancher to gain a stronger footing in how his or her operations are financed every year."

Jennings said the blockchain beef is expected to be exported to Asia by 2019.

"People are hearing about this, and we have interest from around the globe, but ultimately this is about the Wyoming rancher and making his or her story known," Jennings said.

HOGS: (GlobalMeatNews) -- The US Meat Export Federation (USMEF) has anticipated a sharp drop in US market share if the EU and Canada decide to increase pork supplies to Mexico.

USMEF believes that if the EU and Canada up their supplies to Mexico, then the US market share could decrease from the 90% registered during the first quarter to 75% for the second half of the year.

The decline in market share could result in a decrease in US exports of around 10,000 metric tonnes per month or more than 60,000 metric tonnes for the remainder of 2018.

The predictions came after USMEF issued a report on the current and potential losses to the US pork industry from retaliatory tariffs, with a focus on Mexico.

Mexico imposed a retaliatory 10% tariff on US pork, which will increase to 20% from 5 July, after President Donald Trump introduced tariffs on steel and aluminium imports, sparking a negative reaction among US farmers.

Following the decision made by Mexico, US farmers said the escalating tariffs on pork would "devastate" pork-producing families across the country.

"If unit values hold at Q1 levels, the drop in export value to Mexico would be more than US$100m over six months," USMEF said in the report.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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John Harrington