DTN Early Word Opening Livestock

Look for Stronger Cattle Futures on Opening

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

Cattle: Steady-$2 HR Futures: 50-100 HR Live Equiv: $136.33 + .38*

Hogs: $1-2 LR Futures: 50-100 LR Lean Equiv: $ 76.73 -1.56**

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

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


Monday's action in the cattle trade should be typically slow as packers limit their focus on the assessment of new showlists. Given how aggressive beef producers responded to higher packer bids late Friday ($113 to $114 live; $178 dressed), we expect the new fed offering to be generally smaller, especially in the North. Live and feeder futures are geared to open higher thanks to short-covering, technical buying and the premium of cash feedlot trade.

Chances are good that hog buyers will continue to pound away at the cash market thanks to ample offerings and struggling pork demand. Cash bids Monday should open $1 to $2 lower. Lean futures seem set to open at least moderately lower, pressured by follow-through selling and bearish fundamentals.


Feedlot managers demonstrated superior cash leverage late Friday, forcing short-bought packers to spend $1 to $2 more for ready cattle.


Seasonally, August live cattle futures tends to strengthen into early August and then deteriorate toward expiration.


By surging to its highest close since March 14, spot August live seems ready to support firm country sales through the late-summer period. October and December are on the verge of breaking out of lateral ranges in place since before Memorial Day.


Dry conditions continue to pressure the cow-calf sector, leading to declining pasture conditions, bringing larger quantities of cows to market, and portending a more difficult back half of 2018 than a year ago.


The latest job figures (i.e., 157,000 added in July) follow a steady stream of hiring gains and a robust reading on economic growth. Although the overall gain for July came in slightly below expectations, figures for payroll increases in May and June were revised substantially higher.


Responding in part to a big jump in weekly hog slaughter (i.e., 2.3 million), the pork carcass value fell hard again on Friday, especially after being torpedoed by a $10.33 drop in the belly primal.


The pork cutout is forecast for support this week as several primals have renewed interest and demand for Labor Day preparations already. Perhaps this will help spark the seasonal tendency of August lean hogs to appreciate in value entering their expiration period.


For the week ending July 31, noncommercial traders increased their short position in lean hog futures by 3,500 contracts, now totaling 26,500 net-short.


CATTLE: (Beef Central) -- Beef exports during July continued to surge, in line with high rates of drought liquidation-driven beef kill that has continued later into the year than what many had anticipated.

July's monthly export tonnage 105,157t is easily the highest this year, and appears to be the biggest monthly number since December 2015, which came at the end of prolonged near record-high 2015 cattle turnoff due to drought.

MLA's recent mid-year projections update clearly showed the strength of beef kills during the first half of the year. Ongoing drought conditions combined with a surge in female turn-off has promoted MLA to lift its forecast for 2018 calendar year adult slaughter to 7.8 million head, 9pc higher than the 2017 total. For the first six months of 2018, Australian adult cattle slaughter totaled 3.1m head -- an increase of 11pc, from the same period last year.

Last month's export trade represented a sharp 4pc rise on June shipments, and was 13pc higher than July last year. An extra two working days during July was a small factor in larger throughput than June, but overwhelmingly, the story was about supply, a trade contact said. Some carry-over of stocks in cold storage in June may also have occurred, the source said.

For the seven months of the 2018 calendar year to date, exports have now reached almost 642,000t, a sharp 13pc rise year-on-year.

Last month's volume growth was spread across a range of key markets, but was especially apparent in Asia. The exception to the trend was the US, where there has been little change.

Japan took 30,192t of Australian chilled and frozen beef -- the largest volume seen in at least 12 months -- up from 28,700t in June and 27,200t this time last year.

Year-to-date, Japan has taken almost 185,000t of Australian beef, an 11pc rise on the previous year.

Exports to the US topped 23,300t last month, a little higher than June and almost identical to this time last year. The enormous surge in US domestic beef production this year is the primary cause.

HOGS: (South China Morning Post) -- China has reported its first case of African swine fever (ASF), a highly contagious disease of pigs, in the northeastern city of Shenyang and culled more than 900 hogs to prevent the epidemic from spreading, local media reported. This is also the first reported case in East Asia.

Central authorities confirmed the devastating illness in a pig on Friday in a community in Shenyang's Shenbei New Area, before killing all the pigs there that were thought to be affected and launching tests on others in the area that might be threatened, Liaoshen Evening News reported.

ASF, which poses no threat to humans, is often prevalent in countries in Sub-Saharan Africa. Outbreaks have also occurred in Europe.

So far 913 hogs have been killed and disinfection in the affected part of the city is ongoing which has been designated a threatened area by the agriculture minister and local government.

Animal health workers are collecting samples from all hogs in the designated zone for a virus test, the report said.

ASF can cause death between two and 10 days after the animals have contracted it and mortality rates may be as high as 100 per cent, according to the World Organization for Animal Health. Any occurrence of the disease must be reported to the organization.

News of the infection will stoke concerns about its spread in a country which is by far the world's largest producer of pork. And there are fears the disease could spread to pig herds in Japan, the Korean peninsula and other parts of Asia.

Cases have been recorded across Europe, Russia and Sub-Saharan Africa, but it has never occurred in East Asia until now, according to the United Nations' Food and Agriculture Organization.

"If it can be put under control, it should not be a problem ... but we have to watch the developments very carefully," said Yao Guiling, an analyst with consultancy China-America Commodity Data Analytics.

"If the disease gets out of control, the losses will be immeasurable."

ASF occurs among pigs and wild boars. It is transmitted by ticks and direct contact between animals and there is no vaccine.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket


John Harrington