Cattle: Steady Futures: 50-100 HR Live Equiv: $135.82 - .40*
Hogs: $1-2 LR Futures: Mixed Lean Equiv: $ 78.92 - .18**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Cattle buying interest could improve Thursday. Initial bids are likely to be restated around $110 live in the South and $174 to $177 dressed in the North. Yet if feedlot managers dig in their heels around $115 in the South and $183 plus dressed in the South, significant trade volume may be delayed until Friday. Live and feeder futures seem likely to open moderately higher thanks to residual buying energy and cash optimism.
The cash hog market is on a serious slide downward, and we expect that to continue Thursday. Specifically, opening bids should once again be $1 to $2 lower. Pork processing margins are slowly improving but still remain slightly in the red. The Saturday kill scheduled should total close to 70,000 head. Lean futures should open on a mixed basis tied to follow-through selling and short-covering.
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Live and feeder futures closed sharply higher, pounding against the top of the summer-long price range, perhaps anticipating steady/firm feedlot sales late this week.
The beef cutouts closed moderately lower with Wednesday's box demand (usually the week's best) described as no better than "light."
Beef cutouts should be relatively well supported over the next two to three weeks as retailers and food managers put Labor Day features together.
President Trump has instructed his top trade representative to consider imposing a 25% tariff on $200 billion in Chinese imports, a much stiffer penalty than previously proposed. The penalty would apply to a broad range of products, including refrigerators, bedsheets, clothing, furniture and toilet paper.
The U.S. and China are trying to restart talks aimed at averting a full-blown trade war between the world's two largest economies, two people familiar with the effort said. Representatives of U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He are having private conversations as they look for ways to reengage in negotiations, according to the people who spoke about the deliberations on condition of anonymity.
For the week ending July 28, U.S. hatcheries set 229 million eggs in incubators, up 1% from a year ago. At the same time, chicks placed in the United States totaled 187 million, up 2% from a year ago.
Severely-discounted deferred lean hogs may be closer to a bottom than some think thanks to the towering premium of cattle futures.
For the week ending July 20, Iowa barrows and gilts averaged 276.5 pounds, 0.1 pounds below the previous week and 0.6 pounds more than 2017. Seasonally, hog weights seem very close to bottoming out and are consistently moving higher through the fourth quarter.
CATTLE: (NYP HOLDINGS, INC.) -- McDonald's is fighting to hold onto customers as the Big Mac turns 50, but it isn't changing the makings of its most famous burger.
The company is celebrating the 1968 national launch of the double-decker sandwich whose ingredients of "two all-beef patties, special sauce, lettuce, cheese, pickles, onions and a sesame seed bun" were seared into American memories by a TV jingle. But the milestone comes as the company reduces its number of U.S. stores. McDonald's said Thursday that customers are visiting less often. Other trendy burger options are reaching into the heartland.
The "Golden Arches" still have a massive global reach, and the McDonald's brand of cheeseburgers, chicken nuggets and french fries remains recognizable around the world. But on its critical home turf, the company is toiling to stay relevant. Kale now appears in salads, fresh has replaced frozen beef patties in Quarter Pounders, and some stores now offer ordering kiosks, food delivery and barista-style cafes.
The milestone for the Big Mac shows how much McDonald's and the rest of fast-food have evolved around it.
"Clearly, we've gotten a little more sophisticated in our menu development," McDonald's CEO Steve Easterbrook said in a phone interview.
As with many of its popular and long-lasting menu items, the idea for the Big Mac came from a franchisee.
In 1967, Michael James "Jim" Delligatti lobbied the company to let him test the burger at his Pittsburgh restaurants. Later, he acknowledged the Big Mac's similarity to a popular sandwich sold by the Big Boy chain.
"This wasn't like discovering the light bulb. The bulb was already there. All I did was screw it in the socket," Delligatti said, according to "Behind the Arches."
McDonald's agreed to let Delligatti sell the sandwich at a single location, on the condition that he use the company's standard bun. It didn't work. Delligatti tried a bigger sesame seed bun, and the burger soon lifted sales by more than 12 percent.
After similar results at more stores, the Big Mac was added to the national menu in 1968. Other ideas from franchisees that hit the big time include the Filet-O-Fish, Egg McMuffin, Apple Pie (once deep-fried but now baked), and the Shamrock Shake.
"The company has benefited from the ingenuity of its small business men," wrote Ray Kroc, who transformed the McDonald's into a global franchise, in his book, "Grinding It Out."
Franchisees still play an important role, driving the recent switch to fresh from frozen for the beef in Quarter Pounders, Easterbrook says. They also participate in menu development, which in the U.S. has included a series of cooking tweaks intended to improve taste.
Messing with a signature menu item can be taboo, but keeping the Big Mac unchanged comes with its own risks. Newer chains such as Shake Shack and Five Guys offer burgers that can make the Big Mac seem outdated. Even White Castle is modernizing, recently adding plant-based "Impossible Burger" sliders at some locations.
A McDonald's franchisee fretted in 2016 that only one out of five millennials has tried the Big Mac. The Big Mac had "gotten less relevant," the franchisee wrote in a memo, according to the Wall Street Journal.
McDonald's then ran promotions designed to introduce the Big Mac to more people. Those kind of periodic campaigns should help keep the Big Mac relevant for years to come, says Mike Delligatti, the son of the Big Mac inventor, who died in 2016.
"What iconic sandwich do you know that can beat the Big Mac as far as longevity?" said Delligatti, himself a McDonald's franchisee.
HOGS: (Bloomberg News) -- One of the most prominent corporate victims of the U.S.-China trade dispute appears to be turning a bit more resilient to news about tariffs between the world's two largest economies.
WH Group Ltd. rose as much as 5.6% in Hong Kong on Wednesday before paring that gain in the afternoon, seemingly shrugging off news of potentially higher U.S. levies on imports from China. The world's largest pork company, which generates nearly 60% of its revenue and profits in the U.S., has slumped 33 percent from its February high amid the trade tensions.
"The market is ignoring the news of potential 25% tariff, as previous headlines on trade war haven't always been consistent with results," says Frances Cheung, head of Asia macro strategy at Westpac Banking Corp. in Singapore.
The Chinese owner of brands including U.S.-based pork giant Smithfield Foods is the third-worst performer on Hong Kong's Hang Seng Index this year and has become exceptionally susceptible to shifts in trade tensions. The stock slumped 12.5 percent in the four trading days from March 22 when President Donald Trump was said to plan to impose $50 billion of tariffs against China. Investors then rejoiced at news on May 17 that Trump intended to meet with China's top economic envoy to resume trade talks, by driving up WH's shares by 7.6 percent over the next two days. But, investors ducked for cover from June 5, selling the stock down by 15.4% during the next eight days, ahead of a June 15th deadline for the U.S. to reveal a list of goods subject to levies, as meat products were unlikely to be spared.
The selloff in WH Group's shares escalated a downgrade by Credit Suisse Group AG in mid-June, with the brokerage cutting the rating to neutral from outperform, citing increased tension in international pork trade and low price of the commodity. WH's next half-year results will be a "major disappointment" for investors as the expected recovery in the U.S. market is unlikely, according to its report.
"Shares have been weak since the beginning of the trade war so it's no surprise to see some rebound," Daniel So, a Hong Kong-based strategist at CMB International Securities Ltd., said, referring to Wednesday's gains. The real impact from the trade war is "still yet to be seen. I don't think the shares will resume an uptrend."
John Harrington can be reached at email@example.com
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