DTN Early Word Opening Livestock

Live & Feeder Contracts to Open Mixed, Lean Hogs to Begin With Uneven Prices

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

Cattle: Steady w/Wed&Thurs Futures: Mixed Live Equiv: $141.71 + .13*

Hogs: Steady-$1 LR Futures: Mixed Lean Equiv: $ 69.89 -1.05**

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

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


Trade volume across feedlot country generally looks moderate (perhaps a bit more solid in the North). We think there's plenty of room for clean-up business, but prices are not likely to be any higher than what we've seen so far (i.e., $173 dressed; $109 to $110 live). The Aug. 1 Cattle on Feed report will be released Friday at 2 p.m. CT. Average trade guesses anticipate total on feed to be up by 4% to 5%; placed in July, up 6% to 7%; and marketed in July, up about 5%. Live and feeder futures should open mixed as bulls and bears await late-week cash and on-feed news.

Look for hog buyers to resume work Friday with bids steady to $1 lower. Saturday's kill could total as much as 218,000 head. Such a slaughter finale could boost the weekly total over 2.5 million head. Lean futures seem likely to open mixed, tied to a combination of residual selling and late-week short-covering.


Net beef export sales last week totaled a respectable 20,600 metric tons (MT), down 4% from the previous week, but up 45% from the prior four-week average.


For the week ending Aug. 11, cattle carcasses continued to grow: all cattle averaged 818 pounds, 1 pound bigger than the prior week and even with the prior year; steers averaged 881 pounds, 1 pound heavier than the week before and 1 pound less than last year; heifers averaged 811 pounds, 2 pounds more than the previous week and 6 pounds more than 2017.


While live cattle futures has drifted toward the bottom of a lateral trading range in place since early spring, 2018 contracts seem to holding above critical support near 100-day moving averages (e.g., (i.e., $108 and $112.25, basis October and December, respectively).


Actual beef exports last week totaled 16,900 MT, unchanged from the previous week, but down 6% from the prior four-week average.


Similarly, net pork export sales last week totaled as much as 26,800 MT, unchanged from the previous week, and only down 1% from the prior four-week average. At the same time, actual pork exports of 20,900 MT were up 7% from the previous week and 16% from the prior four-week average.


The pork carcass value continued to slide significantly lower on Thursday, deflated by softened demand for loins, ribs, hams and bellies.


Over the long pull, if trade relationships can be repaired and the situation in China with African swine fever develops further, then worldwide pork prices could find some upward price risk, which would help move more U.S. product.


Spot October lean hogs imploded Thursday, pulled lower by a spineless cash market that simply refused to find a bottom.


CATTLE: (Drovers) -- With the Labor Day holiday less than 2 weeks away, beef is positioned to sell at retail counters. The three-day weekend is the last stop on the summer grilling cycle, and beef demand is as important now as at any time of the year. The fall seasonal trend strongly implies lower beef carcass cutout values after Labor Day through the middle of October.

Cattle feeders are anticipating a 4th-quarter rally in fed cattle prices, which have developed plainly in 4 out of 5 of the most recent years. The point from which the market rallies sets the stage because the late-September to early-October time frame defines the fall low for the comprehensive cutout. This, in part, may determine the depth of the fed-cattle price low prior to the anticipated rally -- let's keep in mind packer margins are exceptionally wide, providing them flexibility should they need to procure cattle.

Recent Certified Angus Beef (CAB) cutout prices have been supportive to the retailer as the spot market value has just moved ahead of 2017 prices in the past couple of weeks. Beef retail ad features are currently pegged at 12¢/lb. lower than a year ago over an 8-week period, according to Cattle Fax, with beef dominating front-page ads at just over 50% of the three competing proteins. Timing is important: Fed cattle carcass production should ramp up with large weekly total harvest numbers expected through September, basis packer profitability.

HOGS: (Nikkei Asian Review) -- Mitsubishi Corp. will acquire an American ham and sausage maker with a strong retail network in the country, seeking synergies with the Japanese trading house's existing wholesale business as U.S. pork consumption grows.

Mitsubishi subsidiary and meat processor Indiana Packers will purchase Specialty Foods Group, which sells meat products nationwide under brands like Kentucky Legend, in a deal likely worth over $100 million. Specialty Foods will become a wholly owned subsidiary.

The agreement will create a vertically integrated pork business in the U.S., with Indiana Packers providing Specialty Foods pork for processing. Indiana Packers also will acquire the company's sales network, reaching retailers like Walmart, and bring its existing strengths in restaurants and wholesalers to expand sales of Specialty Foods products.

U.S. pork consumption is gradually increasing as the economy continues to grow around 3% and the population rises. Americans purchased about 9.5 million tons of pork in 2017, a figure expected to reach 10.5 million tons in 2027.

The U.S. not only boasts many pig farmers, but also serves as a major producer of grain feeds like corn and soybeans, making the country's pork production costs highly competitive worldwide. Recent trade tensions with China have lowered the price of American grains, potentially providing a tailwind for the pig farming and pork processing industries.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket


John Harrington