Cattle: Steady Futures: 50-100 LR Live Equiv: $141.50 - .21*
Hogs: Steady-$1 LR Futures: Mixed Lean Equiv: $ 69.19 - .70**
* based on formula estimating live cattle equivalent of gross packer revenue
** based on formula estimating lean hog equivalent of gross packer revenue
Activity in feedlot country should be typically limited to the distribution of new showlists. The late-month offering should be somewhat larger than last week. We assume that boxed beef demand will be slower right before Labor Day. Our guess is that most retailers and food managers at this point have their holiday needs covered. Live and feeder futures should open moderately lower, checked by residual selling interest and the bearish Cattle on Feed report released Friday afternoon.
Hog buyers should resume business Monday with bids steady to $1 lower. There's a tremendous amount of product on the street thanks to last week's big kill, and it will be critical to see if enough pre-holiday demand can be found to minimize cash market pressure. Lean futures should open on a mixed basis thanks to spillover buying and challenging fundamentals.
|BULL SIDE||BEAR SIDE|
Beef processing margins have improved from good to great to gigantic. Last week's combination of lower cost of live inventory and higher carcass value (i.e., choice and select cutouts increased by $1.94 and $2.90, respectively) means that packer gross margins start out Monday close to $350 per head..
The Aug. 1 on feed report released on Friday turned out to be somewhat more supply bearish than the trade expected, especially in terms of aggressive July placement activity, up 8% from midsummer 2017.
Through a combination of adding to longs and reductions from the short side, noncommercials increased their net-long positions in live cattle futures by 7,300 to a total of 67,900 in the week of Aug. 21.
Live cattle charts suffered substantial technical damage Friday when spot October and December closed below 100-day moving averages.
â€¨Authorities in the eastern province of Zhejiang said they would slaughter 1,332 hogs and seal off an area within 3 km (1.8 miles) from the pig farming community in the city of Yueqing, where the outbreak was discovered on Thursday. The latest cull will bring the total number of pigs killed to prevent the spread of the highly contagious disease to over 25,000.
Last week's hog slaughter was enormous, totaling 2.534 million head, 75,000 head more than last week and 188,000 more than 2017. Such production will seriously challenge the strength of pre-Labor Day pork demand.
For the week ending Aug. 21, noncommercial traders reduced their short position in lean hog futures by 7,400 contracts to 17,500 net-short.
The pork carcass value closed moderately lower on Friday, pressured by faltering demand for loins, bellies and picnics.
CATTLE: (Boston Globe)-- Mike Salguero has been involved in building two startups in Boston.
One raised nearly $30 million from some of the country's top venture capital firms, including Google Ventures and Boston-based NextView Ventures.
The other he began with $10,000 of his own money. The first company cratered, and never managed to get much past $1 million in annual revenue. The second company topped $10 million in revenue in 2017, its second year in business, is profitable, and is growing revenues at more than 300 percent annually.
The first company ran an online marketplace for custom-made items, CustomMade.com.
The second business, ButcherBox, sells meat by mail.
Let's start in 2015, when Cambridge-based CustomMade, as Salguero puts it, "imploded." (His co-founder bought the assets in foreclosure and restarted the website, which now focuses only on custom jewelry.)
"I was married, with a 6-month-old at home," Salguero says. He hoped to create a new business that wouldn't be so reliant on venture capital to get off the ground. "With CustomMade," he says, we got caught up in venture fever."
Because the company had been based on an infrequent kind of purchase -- how often do you have someone design a custom dining table for you? — he wanted his next business to have a consistent monthly revenue stream.
Salguero had been buying meat through cow share programs, which let independent farmers sell directly to consumers, and he was selling some of the excess to friends. That led to the idea for ButcherBox. He decided to launch it on the funding site Kickstarter, inviting people to pre-order a $130 box of assorted grass-fed beef: sirloin cuts and tips, short ribs, ground beef, enough for 15 to 20 meals.
"If ButcherBox launched to crickets, and failed, I thought I would be seen as a failure," Salguero says. "I figure I would've had to leave town." But the first three days of the campaign pulled in $80,000 in pre-orders, and by the time the month-long campaign ended, more than 1,000 people were in line for a box o' beef.
There are environmental benefits to eating meat that was not raised on a factory farm, but Salguero says for most ButcherBox customers, "it's mostly the health benefits, about themselves and their families first." The company has also benefitted from fitness and diet fads like CrossFit and the meat-centric paleo and ketogenic diets.
The core of the company's marketing strategy has been connecting with bloggers and social media "influencers" who were already talking about the merits of eating grass-fed beef. The ideal target is a blogger who has a large e-mail list of readers and is willing to plug ButcherBox's subscription service. (A mixed box, including chicken, pork, and beef, costs $129 a month, though there are also add-ons like bacon and breakfast sausage.) In return, a blogger gets money for every customer who signs up. "The most successful of our influencers are earning $15,000 or $20,000 a month" from the referral fees, Salguero says.
At CustomMade, Salguero remembers standing up in front of his employees and talking about the goals for the current quarter, or the year. "We would just never hit them," he says. Now, at ButcherBox, "we put up these goals and think, 'This would be nuts,' and we blow through them." One example: in early 2017, he laid out the goal of getting to 35,000 ButcherBox subscribers. "I said, 'Let's pick some amazing prize,' " Salguero recalls. "If we hit these, we're going to go to Mexico." By October, they'd reached the goals. Taking the entire company to Mexico "was very cathartic for me," he say.
The company now has nearly 50 employees, and offices in Cambridge and Peabody, where ButcherBox has built a test kitchen and video production studio. Salguero explains, "We felt we needed to show people what to cook with our product, so we have a chef who is full-time and does our videos," instructing subscribers on how to make a marinade or a dish like rib-eye with sweet potato hash.
ButcherBox has been growing so fast that Salguero doesn't want to be specific about the current revenues. "We're quietly building something really big," he says. "The longer we stay off the radar, the better."
Salguero isn't the only meatrepreneur trying to connect with customers without putting a product on grocery store shelves. A New Bedford startup, Brothers Artisanal, collected $46,000 on Kickstarter earlier this year for boxes of uniquely-flavored beef jerky. Like ButcherBox, it focuses on grass-fed beef, but also uses organic turkey and heritage breeds of pork. Flavors include a Thai-inspired turkey jerky and ginger dumpling pork. And as with ButcherBox, the goal is to get customers onto a monthly subscription plan (ranging from $75 to $150.)
Brothers Artisanal CEO Phil Beauregard previously ran two tech startups that proved to be more paper airplane than rocket ship. As a result, he says, "I feel stronger, like I'm wearing the scars of a tremendous amount of experience on the field." He says the new venture has required between $850,000 and $1 million of startup capital, and that he likes the more hands-on nature of the work — dehydrating pork instead of trying to motivate software developers. "I get to slice and dice, use knives, let people taste the product, ask them what they think about it, and get that instantaneous feedback," he says. His older brother, Pierre, is the company's chef and "main jerkologist."
Walden Local Meat Co., another relatively new startup, has 50 employees in Billerica and Danbury, Conn. "When we started a few years ago," explains CEO Charley Cummings, "there were a lot of websites marketing meat from far-flung places, but there wasn't a way to help New England farmers, who were doing everything right from a sustainability perspective." Walden works directly with about 75 different farmers, contracting with them to raise animals that it owns, and it manages all of its own delivery with a fleet of vans that roam from New Jersey up to Maine, Cummings says. The company has raised "several million dollars of capital" from investors, he says, "all of whom are long-term oriented and are passionate about the mission we're trying to achieve."
The company delivers to "several thousand customers each week," Cummings says, declining to share revenues. "One of our company values is confident humility," he says.
Jen Faigel is the executive director of Commonwealth Kitchen, a Boston nonprofit that supports food entrepreneurs. She says it's a rather active time in the industry. "How people are buying food is changing, and what they're buying is changing," she says. Consumers are also more willing to try a product from a brand they've never heard of — if they can understand what's in it and feel it's an "authentic" product, she says.
That creates opportunities for entrepreneurs-- some of whom can find success with thousands of dollars, rather than tens of millions.
HOGS: (Bloomberg News) -- Nafta talks are poised to spill into next week, pushing up against the goal for a deal by the end of the month, as the U.S. and Mexico work out their issues in order to reincorporate Canada.
After two days of talks focused on rules for car production, Mexican Economy Minister Ildefonso Guajardo said that the U.S. and Mexico still haven't resolved all their pending issues. Mexico won't consider negotiations complete until Canada also agrees to a deal, Guajardo said, and that nation's minister hasn't attended talks in the past five weeks.
The U.S. and Mexico are running out of time to get a deal and have President Donald Trump and his counterparts sign it before Mexican President Enrique Pena Nieto leaves office in December. Some of the toughest issues, like an American demand for greater access to the Canadian dairy market and a clause that could end Nafta after five years, remain unsettled.
"We need to have engagement with Canada, and the only way it can happen is if we continue through the weekend and into next week," Guajardo told reporters Thursday afternoon. Mexican Foreign Minister Luis Videgaray said negotiators will be back to meet with U.S. Trade Representative Robert Lighthizer on Friday morning.
Nafta negotiators, who began their work one year ago, have missed a series of informal deadlines, from an original goal for a deal by last December to a revised objective for an agreement in the first half of this year. Mexican President-elect Andres Manuel Lopez Obrador now looms large over talks, with some advisers close to him wanting to remove rules for the oil industry from negotiations, an issue that could inject uncertainty if it became part of Mexico's deal objectives under a new administration.
Canadian Prime Minister Justin Trudeau preached some caution on expectations for Nafta talks Thursday, saying he's encouraged by the latest optimism but won't sign just any deal.
The U.S. and Mexico in recent weeks have made progress on the thorny issue of car manufacturing, as the Trump administration pushes for a deal that would boost factory jobs in America. The U.S. has proposed tightening regional content requirements for car production and having a certain percentage of a car manufactured by higher-paid workers. While a U.S. proposal to increase tariffs on cars imported from Mexico that don't meet stricter new content rules was a sticking point earlier this week, that issue appeared to be resolved by Thursday.
The U.S. agreed to keep the 2.5 percent tariff currently applied under World Trade Organization rules if the cars are made at factories that already exist, according to two people familiar with the plans, who asked not to be named discussing private negotiations.
That would leave open the possibility that cars that don't meet the rules and are built at new plants could face tariffs of 20-to-25 percent, pending the results of a Section 232 national security investigation that Trump ordered up in May, the people said.
Lighthizer's press office didn't immediately return an e-mail seeking comment.
Other issues that still need to be resolved include the so-called sunset clause, which would kill the deal after five years unless the parties agree to renew it; rules for government procurement; and, dispute settlement mechanisms. Mexico's position is that Canada needs to be at the table in order to reach a conclusion on those topics, because they affect all three countries.
Representatives from Mexico's private sector are in Washington to support Guajardo's team and advise on the rules that their industries would be willing to accept under a new agreement. Juan Pablo Castanon, president of the CCE group that comprises some of Mexico's most influential industry associations, said Wednesday night that he expects key advances in the Nafta talks in the next few days.
While there was speculation earlier this week that the U.S. would announce a deal with Mexico on Thursday, the day came and went with no such statement. Guajardo said it's still too early to declare victory.
"We're trying to really get all the solutions that are required, and we're well advanced, but we're not there yet," Guajardo said. "I hope that soon we'll be able to find a landing zone."
John Harrington can be reached at email@example.com
Follow him on Twitter @feelofthemarket
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