DTN Early Word Opening Livestock

Look for Further Lean Hog Strength on Opening, Especially in the Front-End Contract

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

Cattle: Steady-$2 LR Futures: Mixed Live Equiv: $142.43 - .40*

Hogs: Steady-$1 LR Futures: 50-100 HR Lean Equiv: $ 92.73 + .97**

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

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

GENERAL COMMENTS:

Packer inquiry in cattle-feeding country could slowly start to develop at midweek. Look for initial bids around $105 live and $172 dressed. Our guess is that feedlot managers will start out pricing steers and heifers around $110 plus live and $178 plus dressed. Significant trade volume could easily be delayed until Thursday or Friday.

Hog buyers should resume work on Wednesday with bids steady to $1 lower, hoping to extend the strengthening of leverage since late last week. While processing margins have been improving, they remain pretty bleak. Chain speed seems to be running a bit faster. Weekly slaughter should total close to 2.21 million head. Lean futures seem set to open moderately higher, supported by follow-through buying and the premium of the cash index.

BULL SIDE BEAR SIDE
1)

With the cost of live inventory dropping faster than cutouts, beef processors own decent margins and appear to have a formidable commitment to tonnage over the next several weeks. This reality should lend some support to the cash cattle trade.

1)

Cattle futures closed little better than mixed on Tuesday, a pretty puny dead cat bounce in the wake of Monday's ugly price fall.

2)

Although May placement (2.124 million head) exceeded trade expectations and matched the large in-movement of late spring 2017, the average size of animals placed was considerably different than last year. Placements less than 600 pounds were up 45,000 head (11%less than a year ago), while placements over 800 pounds were down 2%. This points to a broader scattering of ready cattle this fall, one that may be more manageable vis-a-vis demand.

2)

The discount of late-summer livestock futures, coupled with the danger of excessive heat to both consumer demand and animal heath, could soften the selling resolve of producers.

3)

The pork carcass value continues to show good strength. The cutout closed solidly higher again on Tuesday thanks to better demand for all primals except the ham.

3)

The fact that the Fourth of July holiday is falling in the middle of the week is likely to take away some of its punch in terms of retail meat buying.

4)

Although nearby lean hog bulls didn't manage to completely erase the board damage suffered on Monday, spot July did succeed in nosing back above its 100-day moving average.

4)

As far as lean hog futures are concerned, the short-term trend is bearishand sois the long-term trend. The structure of the market is also bearish with spot July trading at a discount to the current settlement index value, and the remaining contracts are trading at a discount to the July.

OTHER MARKET SENSITIVE NEWS:

CATTLE: (Feedstuffs) -- Joel Haggard, USMEF senior vice president for the Asia Pacific, said re-establishing a foothold in the world's fastest-growing beef market has not been easy, and the threat of new duties has already had an effect on customer interest in U.S. beef, especially in the form of a noticeable slowdown from some of the industry's loyal restaurant and retail partners.

"I think owners and operators are nervous not just about supply reliability after additional 25% duties imposed and, of course, the pricing, but they're also concerned about consumer response, especially if the war of words on the trade front escalates further," he said.

USMEF expects that the volume of beef entering China will decline once the higher duty rate takes effect.

"U.S. exporters can't be expected to lower prices by the extent of the duty because alternative markets exist for the U.S. beef products being shipped to China now, such as rib-eye, short ribs, chuck rolls, other steak cuts, etc. So, it really means we face the prospect of a significantly lower flow of beef coming into the marketplace here and very likely the loss of existing U.S. beef accounts ranging from Korean barbeque restaurants to steakhouses and supermarkets," Haggard said. "This is all very regrettable, because the U.S. beef industry has put a lot of effort and capital into getting things kick-started over here over the last year."

USMEF will continue to support loyal customers regardless of any larger turmoil and uncertainty as the group still believes China offers incredible long-term potential to the U.S. beef industry, he added.

HOGS: (American Farm Bureau Federation) -- A cookout of Americans' favorite foods for the Fourth of July, including hot dogs, cheeseburgers, pork spare ribs, potato salad, baked beans, lemonade and chocolate milk, will cost slightly less this year, coming in at less than $6 per person, says the American Farm Bureau Federation.

Farm Bureau's informal survey reveals the average cost of a summer cookout for 10 people is $55.07, or $5.51 per person. The cost for the cookout is down slightly (less than 1 percent) from last year.

"This is a very tough time for farmers and ranchers due to low prices across the board. It is appropriate that this very painful situation hitting farmers be reflected at the retail level as well," said AFBF Director of Market Intelligence Dr. John Newton. "We are seeing record meat and dairy production in 2018 so that has also influenced retail prices and so, for consumers, this year's Fourth of July cookout costs will be slightly less than last year's."

AFBF's summer cookout menu for 10 people consists of hot dogs and buns, cheeseburgers and buns, pork spare ribs, deli potato salad, baked beans, corn chips, lemonade, chocolate milk, ketchup, mustard and watermelon for dessert.

"Milk production in 2018 is projected at a record 218 billion pounds, contributing to lower retail milk prices," Newton said. While fluid milk prices have declined, tighter stocks of American cheese contributed to slightly higher cheese prices, he added.

Competition in the meat case continues to benefit consumers through lower retail prices, making grilling for July Fourth even more affordable for consumers this year, according to Newton.

A total of 96 Farm Bureau members in 28 states served as "volunteer shoppers," checking retail prices for summer cookout foods at their local grocery stores for this informal survey.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow John Harrington on Twitter @feelofthemarket

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John Harrington