Thursday, July 6, 2017

Thursday Morning Livestock Market Summary

GENERAL COMMENTS:

Light cash cattle trading developed in parts of the North on Wednesday with live sales marked at $117, which was $1.50 lower than last week's weighted average basis Nebraska. We expect trade volume to slowly expand Thursday and Friday. Look for asking prices to surface around $122 in the South and $190 to $192 plus in the North. Live and feeder futures seem likely to fall further on the opening, pressured by follow-through selling and early signs of additional cash weakness.
The cash hog trade should open Thursday with bids steady to $1 higher. This week's slaughter is forecast at 1.834 million hogs. Harvest levels should trend upward after this week, heading into the fall. Lean futures are expected to open moderately higher, supported by residual buying as well as positive cash and product news.

BULL SIDE BEAR SIDE
1) Live cattle futures are approaching support levels near 100-day moving averages (e.g., 112.50 basis spot August). This reality plus substantial cash premiums could soon revive decent buying interest. 1) Aggressive long liquidation in cattle futures seems to be accelerating as the market moves into the third quarter. Furthermore, open interest still remains historically large, making the trade vulnerable to additional waves of selling potential.
2) With gross packer margins still well over $400 per head, cattle buyers should not be all that reluctant to support feedlot cash if beef producers can somehow find more backbone. 2) There seems to be little relief in the post-holiday beef trade: cutouts were quoted $.31 (choice) to $2.13 (select) lower with demand no better than "light to moderate."
3)
Lean hog futures successfully nurtured bullish psychology over the holiday, at least enough to produce another decent serving of new contract highs on Wednesday.
3) Lean hog charts are beginning to look quite overbought with RSI oscillators in the low 80s (readings above 70 are typically suggestive of overbought conditions).
4) For the week ending July 1, Iowa barrows and gilts averaged 276.4 pounds, .5 lb. lighter than the previous week and .3 lb. smaller than 2016. 4)
While hog and pork fundamentals should remain generally supportive for the next several weeks or so, few disagree that the next big swing in both supply and demand metrics will be negative.


OTHER MARKET SENSITIVE NEWS

CATTLE: (Omaha World Herald) -- Wal-Mart has upgraded its beef to certified Angus as the fight for food shoppers' cash intensifies.

For the past year, the nation's biggest grocer worked with meat giants including Tyson Foods Inc. and Cargill Inc. to secure a supply of Angus steaks and roasts at no additional cost to consumers, said Scott Neal, Wal-Mart's senior vice president of meat, seafood and quality control.

The higher-quality cuts have been available in all of Wal-Mart's 4,700 U.S. stores since March, but the retailer hasn't announced or advertised the shift yet.

The move is part of Wal-Mart's response to rapidly intensifying competition: German discounters Aldi and Lidl are expanding aggressively, and Amazon.com's purchase of Whole Foods Markets Inc. threatens to upend the industry.

Wal-Mart also wants to entice shoppers by offering curbside pickup of online grocery orders and improving the quality of fresh foods like produce and meat that are a key draw for customers.

"All purveyors of food are being forced to step up their game," said Bill Lapp, president of consulting firm Advanced Economic Solutions. "There is such disruption in the grocery store sector that you have to do something."

With its marbled, tender cuts, Angus beef has become synonymous with quality. Demand for the meat has skyrocketed in recent years, with fast-food chains offering Angus burgers.

While U.S. beef consumption is down over the past decade because of a 2014 drought that cut the herd to the smallest since 1951, the USDA's Economic Research Service is predicting a rebound thanks to increased supply.

Demand could also increase now that China has restarted imports of U.S. beef, lifting a ban in place since 2003.

"Beef is an absolute opportunity for us in terms of where we can grow," Wal-Mart's Neal said in a phone interview. "Our market share is not where we want it to be relative to the rest of the store."
The retailer's "whole-muscle" beef product offering is now entirely Angus, he said, adding that Angus rib-eye steaks sell for just under $10 a pound. The change doesn't affect Wal-Mart's ground beef, which comes from a broader supply of meat that includes non-Angus sources.

Wal-Mart is calling its product "Verified Angus" since "Certified Angus Beef" is a brand name owned by a cattle rancher cooperative. Neal says Wal-Mart's Angus product adheres to similar quality standards on measures including marbling, flavor and consistency.

Angus beef "delivers the eating experience that consumers are looking for," said Jason Nichol, who oversees Tyson's relationship with Wal-Mart as senior vice president.
"We've been happy with the results to date."

Wal-Mart last upgraded its meat in 2011 when it moved from offering primarily Select beef, the lowest of the three government grades, to a blend of Select and Choice, the middle category. The change took eighteen months as suppliers had to shift stocks from other retailers. But it paid off, as Wal-Mart's market share in beef increased by 4 percentage points, Neal said.

The price premium for Choice grade widened to a record last month over Select in the wake of Wal-Mart's move, according to Kevin Good, who tracks the beef market for researcher CattleFax in Centennial, Colorado.

Wal-Mart "created more demand and competition for choice cuts," Good said. "Wide spreads create higher cattle prices."

HOGS: (Brownfield Ag News) -- The latest quarterly Hogs and Pigs report shows the largest U.S. hog herd on record and livestock market analysts say the industry is positioned to grow. Iowa is the nation's top pork producing state, with 22.2 million hogs and pigs on Iowa farms. That's up 7-percent from a year ago.

Lee Schulz, an economist with Iowa State University Extension, projects profitability for many producers. "We're looking at an annual estimate for 2017 right around that 15-dollars per head," Schulz says. "That's very much driven by what we've experienced here in the second quarter where profitability looks to be in that 16 to 17 dollar range."

Joe Kerns, president of Iowa-based Kerns and Associates, says expansion right now isn't driven by the economics of the industry. "It's everything to do with the ability to execute," he says. "Whether you're in a particular state where permitting is one issue and we have a construction industry that has finite resources. We can't just expand and contract. If you want slats right now, you can't save your soul form the devil in order to acquire them."

Kerns says that is evident by the variability in the growth of the sow herd across several states. "Perhaps as expected with the genesis of the new plant in Iowa…that Iowa added 30,000 sows," he says. "If you would take the same logic and apply it to the Eastern side where the Coldwater facility is going to be operational here shortly -- we don't see the same thing. You've got both Illinois and Indiana with a bit of a decline in their sow numbers."

Kerns says he expects even more sow herd expansion through the remainder of the year.

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