DTN Early Word Opening Livestock

Meat Futures Set for Mixed Opening

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

Cattle: Steady Futures: Mixed Live Equiv: $19.41 -0.76*

Hogs: Steady Futures: Mixed Lean Equiv: $72.88 - 0.65**

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

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

GENERAL COMMENTS:

Cattle buyers should start to show more serious intentions Thursday. Look for opening bids around $105 to $107 on a live basis, well below asking prices of $110 to $112. Significant cash trade volume can easily be delayed until Friday. Live and feeders futures are geared to open mixed thanks to follow-though selling and pre-cash short-covering.

Look for the cash hog trade to begin in the early going with generally steady bids. Processing margins remain very attractive. Packers have plenty of incentive to keep chain speed in higher gear. Lean futures should open on a mixed basis tied to residual buying on one hand and short-covering on the other.

BULL SIDE BEAR SIDE
1)

The nearby contract is at a $2 premium to last week's cash cattle market, compared to an "average" basis in early September of being at a dollar discount to cash. Basis weakness typically promotes feedlot leverage.

1)

If on feed estimates earlier this spring were accurate, ready numbers will be ample through the balance of the third quarter.

2)

For the week ending Sept. 1, Iowa barrows and gilts averaged 276.6 pounds, 1 pound lighter than the week before and 3.2 pounds smaller than 2017.

2)

While the "official" index roll begins early next week, whereby index funds roll October longs into primarily December and the early 2019 contracts, some pre-roll activity may already be occurring.

3)

A relatively strong upward seasonal pattern exists for October lean hogs from this point in time through contract expiration.

3)

The pork carcass value settled moderately lower Wednesday, pressured by all primals except belly, picnics, and butts.

4)

Beef cutouts closed solidly lower at midweek with box supplies described as "heavy."

4)

With spot October lean futures already floating 630 points over the cash index, it may be very difficult for the board to rally further with sure signs of fundamental strength.

OTHER MARKET SENSITIVE NEWS

CATTLE: (U.S. News & World Report) -- Investors never like to see companies closing more locations than they are opening. The total number of McDonald's Corp (NYSE: MCD) U.S. locations has been on the decline since 2014, but analysts say there's a good explanation for the decline and McDonald's will once again be expanding its U.S. footprint by 2020.

The total number of U.S. McDonald's locations peaked at 14,350 back in 2014. Since that time, U.S. restaurant counts have steadily declined to 14,036 in 2017. Bank of America analyst Gregory Francfort expects that trend to continue through 2019, when he projects total U.S. restaurant count will dip to 13,905.

He says there are several trends that are impacting restaurant counts. McDonald's has been closing its locations inside Walmart (WMT) superstores and has been reducing its presence in struggling shopping malls. Finally, opening new locations hasn't been the top priority for McDonald's in recent years. Instead, the company has been investing heavily in renovating its current locations in accordance with its Experience of the Future technology initiatives.

"We believe MCD's current 0.8 percent closure rate will taper and flip to expansion in 2020 as a heavy shrink in Walmart and mall units ends and we get beyond an expensive reimage program," Francfort says.

McDonald's total number of U.S. mall locations has declined by more than 50 percent from 160 in 2012 to 74 in 2017. Francfort projects that decline will continue to 37 mall locations by 2022.

"The Walmart stores have short leases and we think are closing due to WMT not choosing to heavily reinvest in the brand refresh MCD is pushing," Francfort says.

HOGS: (PigProgress.net) -- Bulgarian authorities reported the disease in 7 backyard pigs on a farm close to the Romanian border on Friday, August 31, another country where hundreds of cases of ASF have been confirmed. The Bulgarian Food Safety Agency said the 7 infected animals were discovered on a farm in the north-eastern village of Tutrakantsi. Tests confirmed ASF in the pigs and as a precaution all 23 pigs in the village will be culled plus a 3 km quarantine zone will be established around the perimeter of the village. All pigs within that zone must be slaughtered per order of the food safety agency.

Authorities have also banned the trading or transport of pigs in that same protective region. In addition, the trade and transport of pigs has also been banned in the region. Across Europe, more than 4,800 cases of ASF in both wild and domestic pigs have been reported so far this year, about 700 more than in 2017 in total.

Bulgaria is the 8th country in the European Union where African Swine Fever has been detected since the virus started spreading from Armenia and Georgia in 2007. In the EU, the virus has also emerged in Latvia, Lithuania, Estonia, Poland, Hungary, Romania and the Czech Republic.

Just last month Bulgaria had started to build a fence extending to 133 km on its land border with Romania to try and prevent the crossing of wild boars that could spread the ASF disease onto its territory.

Bulgarian governor Stoyan Pasev is calling an emergency meeting of the regional crisis management council to decide on best practices moving forward to try and contain the disease and prevent any further spread.

John Harrington can be reached at harringtonsfotm@gmail.com

Follow him on Twitter @feelofthemarket

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John Harrington