DTN Early Word Opening Livestock

Lean Futures Set to Open at Least Moderately Lower

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

Cattle: Steady Futures: Mixed Live Equiv: $141.43 + .30*

Hogs: Steady-$1 LR Futures: 50-100 LR Lean Equiv: $ 71.23 - .99**

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

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

GENERAL COMMENTS:

Look for the potential of the cash cattle market to start taking on some definition in terms of preliminary bids and asking prices. The situation at midweek seems so balanced between bulls and bears that significant bids may not surface until Thursday or Friday. Live and feeder futures should open on a mixed basis with both sides reluctant to press their cases until someone gets a better handle on cash potential.

The cash hog trade will be under pressure once again Wednesday. Expect opening bids to be at least steady to $1 lower. Week-to-date slaughter is already running substantially above last week's number. Indeed, some actually believe the total kill for the week could be dangerously close to 2.5 million head. Lean futures should open at least moderately lower, checked by a further deterioration of fundamentals.

BULL SIDE BEAR SIDE
1)

The October/December live cattle spread remains wider than the previous five years for this point in late summer. Part of this late-year optimism seems tied to assumptions that feedlot placement in the late summer/early fall will slow significantly.

1)

Cattle bulls may want to talk the talk, but few seem to want to walk the walk. Live cattle open interest has declined under 300,000, near the lowest levels since before Christmas 2016.

2)

Favorable beef processing margins are expected to continue encouraging packers to pull on available fed cattle inventories.

2)

Seasonally, August live cattle tends to strengthen into mid-August and then deteriorate toward expiration.

3)

African swine fever problems in China seem to be slowly growing. Nearly 15,000 pigs have been culled after an outbreak of African swine fever in the city of Lianyungang, in east China's Jiangsu Province, local authorities said Tuesday.

3)

Another alarming thing about imploding hog prices this month is that hog slaughter has actually been lower than indicated by USDA's June 1 market hog inventory estimates. The market hog numbers implied that June-August market hog slaughter would be up 3.3%, and thus far, summer hog slaughter has been up only 2.3%. How low would hog prices have dropped if slaughter had been 1% above expectations rather than 1% below?

4)

Since hog prices this summer started to fall out of bed extraordinarily early this year, the premium status of lean futures may be suggesting that market lows this fall will also come and go much faster than normal.

4)

The pork carcass value lost nearly a buck on Tuesday, pressured by softer demand for loins, picnics and hams.

OTHER MARKET SENSITIVE NEWS

CATTLE: (QRS Web) -- Although A&W locations in the U.S. are not offering meat-free burgers, Canadian units added the Beyond Meat Burger to the menu in July. The burgers-- made from so-called pulse crops, such as peas and mung beans rich in protein-- have been so popular that they are out of stock as of late last week, according to a press release.

The burgers should be back in restaurants over "the next few weeks," A&W Canada said. It has also invited customers to sign up for a Beyond Meat Mailing List to get immediate word of when the meat-alternative concoctions return.

"We're working hard to offer guests the mouthwatering burger again very soon, and to ensure that when it's back, it's back for good," said A&W Canada President and CEO Susan Senecal, said in the release. "The Beyond Meat Burger will be a permanent menu item and we are delighted that Canadians are as excited about it as we are."

A&W Canada introduced the burger alternative on July 9 and offers it with lettuce, tomato, red onion, pickles, ketchup, mustard, and mayo.

In the U.S. A&W Vice President of Marketing Sarah Blasi said the separately owned chain and its leadership is watching what's happening with the brand's offering in Canada and elsewhere.

"We are monitoring the trend towards meatless/vegan options and are also reviewing the Beyond Burger for possible introduction in the U.S., but have yet to make a commitment," Blasi said in an email to QSRweb. "It is something we are reviewing with our franchise community. We know Canada has been very successful with this burger and we support their decision to add this to their menu.

A&W in the States has begun a number of burger-quality upgrades, which she said has two phases.

"The Phase 1 changes we are making at this time are operational, (and) are improving the end-quality of the beef patty," Blasi said. "Those changes are rolling out in the field as we speak.

"Phase 2 is reviewing and improving the quality of the beef itself, and that's a bit longer road because of the high hurdle we've set as a target internally. We are working with our suppliers and supply chain to review the antibiotics and hormones in the beef we use.

"We are trying to stick within the '100 percent U.S. Beef' guardrails we've set, while still improving the quality. For the most part, our competitors that have made (the) strongest beef claims are not getting their meat from the U.S because of supply limitations. High quality is a long-term defensible proposition, and that is our focus."

A&W is a worldwide chain and has a particularly strong presence abroad and is quickly gaining steam again on the U.S. front.

HOGS:(Sioux City Journal) -- Pork processor Sioux-Preme Packing Co. is planning a $29 million addition to its Sioux Center facility that will add 50 jobs.

The project received approval for $894,403 in tax credits from the Iowa Economic Development Authority Board on Friday.

The company plans to construct a two-story, 50,000-square-foot addition to its existing facility south of Sioux Center, which currently employs 191 workers. The expansion will include automated pork cutting equipment and water jet cutting technology that will "position Sioux-Preme to compete in the rapidly growing antibiotic free and organic markets domestically and internationally," according to IEDA agenda documents.

Construction of the building is expected to be complete in January, with equipment installation by July and testing by September of next year.

Sioux-Preme started in 1970 as a supplier to domestic and international customers. It purchased its first Iowa facility in 1995 and began processing pork hams, rib, bellies, loins and shoulders, as well as started antibiotic-free or breed-specific lines.

The company was acquired by Perdue Farms in 2015 as part of its acquisition of Natural Food Holdings and its brands. Sioux-Preme's product now goes to upscale restaurants, retail food markets and countries including China, Japan, Mexico and Canada.

The IEDA board on Friday approved the award through the High Quality Jobs program. Ten of the 50 jobs qualified for the program.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

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John Harrington