The cash cattle trade will be typically slow Monday with activity limited to the distribution of new showlists. We expect ready numbers to be generally larger than last week thanks to both unsold cattle carried over and an expanding supply of fed calves. Live and feeder futures should open on a mixed basis thanks to short-covering on one hand and long liquidation on the other.
Expect the cash hog trade to reconvene Monday with bids steady to $1 higher. Last week's bullish performance in the country may be a tough act to follow, but further tightening in marketable barrows and gilts should continue to push prices higher. Additionally, packers have decent margins, which should encourage them to push live procurement in order to fund the largest kills possible. Lean futures seem likely to begin with uneven price action with summer issues going on deferred contracts.
| BULL SIDE | BEAR SIDE | ||
| 1) | Given aggressive or even average grilling and meat clearance over the Father's Day, boxed beef demand should get off to a better start this week. | 1) | Live and feeder futures crashed hard through the week with virtually all contracts incurring significant technical damage. |
| 2) | Beef processing margins are nothing less than outstanding thanks to imploding cattle costs and only modestly lower carcass value. DTN calculates gross packer margins at dangerously close to $400 per head. | 2) | The June 1 Cattle on Feed report set for release on Friday is expected to have another bearish cast, especially in terms of May placement activity. Early guesses seem to range from 6% to 12% above 2016. |
| 3) | The pork carcass value closed solidly higher on Friday, supported by improving demand for all primals (especially the belly) except the picnic. | 3) | The late-week defensiveness of lean hog futures (i.e., with spot July falling below the cash index) in the face of positive fundamentals may suggest that traders believe the country trade is close to a top. |
| 4) | During the week ending June 13, noncommercial traders were net buyers of 1,500 lean hog contracts, increasing their net-long position to 54,800. | 4) | Fears of expanding hog slaughter and pork tonnage in the fourth quarter and into 2018 will keep commercials on the defensive, geared to be on the lookout for rallies and seeing them as selling opportunities. |
CATTLE: (foodmarket.com) -- The U.S. Department of Agriculture's (USDA) Agricultural Marketing Service (AMS) is proposing a revision to the U.S. Standards for Grades of Carcass Beef. The revision would include dentition and documentation of actual age as additional methods of classifying maturity of carcasses for quality grading. USDA quality grades are used as an indication of meat's tenderness, juiciness, and flavor and is a major factor in determining the value of beef and live cattle.
AMS works with its stakeholders to establish and revise U.S. standards for nearly 240 agricultural products. AMS will consider changes to its official grade standards to ensure they continue to serve their intended purpose. Currently, the beef standards only include skeletal and muscular evidence as a determination of maturity grouping. The proposed change would allow carcasses of grain-fed steers and heifers determined to be less than 30 months old either by dentition or by documentation of actual age to be included in the youngest maturity group for carcasses recognized as "beef" (A maturity) regardless of skeletal evidences of maturity.
HOGS: (agweb.com) -- The front and back month contracts for pork are lingering near the $80 per head mark. It's a price some didn't expect to hang out this long with a flush of pork on the market.
Pork industry experts say the reason prices are continuing in the green is not because of supply but demand.
"We're currently seeing so far this year in 2017, 15 percent more exports of pork and it's all going to foreign consumers," said Chris Hurt, an agricultural economist at Purdue University. "Strong demand is how we would explain the situation of more supply but even higher prices."
Experts say the increased appetite is global and higher beef prices in the United States have been positive for pork demand. Pig supplies are not getting any smaller anytime soon.
"We're pushing 4 percent more pork this year and 4 percent more pork next year," said Steve Meyer, vice president for EMI Analytics-Pork. "We're going to be pushing those per capita offerings over 52 pounds per person [domestically], which is about as high as we've ever seen."
When it comes to prices, Meyer believes prices could eventually decrease a bit come fall, mostly due to seasonal buying.
"We have hogs in the upper $70-mark on a monthly average basis this summer," said Meyer. "That would include a few $80 hogs."
Meyer says producers should consider taking advantage of futures prices right now.
"If you're risk averse, or if your balance sheet says you can't stand much risk, you're getting a lot of good pricing opportunities with futures right now," said Meyer. "How about 2018? Those prices look pretty good to us as well."
Hurt is also expecting continued strong prices.
"We think about $73 on a lean basis for the third quarter this year," said Hurt. "That compares with around $64 last year. That's going to continue into fall, we think."
He anticipates higher prices on into the fourth quarter.
"What we're anticipating this year when we're talking about $8 to $10 higher prices than year ago in the third and fourth quarter this year versus last year, we think a portion of that is attributable to these new packing plants that are going to be online," said Hurt.
Even though there are a handful of processing spaces coming online this fall, some analysts feel as if it could ultimately pressure prices long-term.
"If we were to fill all of these plants up by 2019, we would have about 10 percent more hogs than last year plus any gains in weight," said Meyer. "That's would be a very rapid output expansion. Some may say, 'Oh, we'll export it.' Well, the export market isn't limitless."
It's a balancing act between increasing production and expanding trade for the benefit of the industry.
Mexico and Japan are big export markets for U.S. pork. Meyer says other countries are gaining steam, including Australia, Honduras, the Philippines, Dominican Republic and Colombia.
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