The cash cattle market should remain trapped in slow motion with bids and asking prices poorly defined. Significant trade volume will not surface until Wednesday or Thursday at the earliest. Our guess is that initial asking prices will be around $122 in the South and $192 plus in the North. Live and feeder contracts should open on a mixed basis thanks to follow-through selling and short-covering.
Look for the cash hog trade to open bids $.50 to $1 lower with buyers mindful of both a slow increase in ready numbers and a softening undertone in the wholesale pork box. Negotiated receipts on Monday were no better than moderate, and packers may find it necessary to firm spending late in the week in order to adequately fund theslaughter plan. But until then, they are likely to remain on the defensive. Lean futures are geared to begin with uneven price action with slow volume.
| BULL SIDE | BEAR SIDE | ||
| 1) | Beef cutouts got off to a much better start on Monday with the select box quoted more than $3 higher. Furthermore, early-week demand was described as "fairly good." | 1) | Live and feeder cattle futures crashed hard on Monday with spot August live settling a bit below its 100-day moving average. Most other contracts closed below 40-day moving averages. Such new defensiveness will encourage both specs and commercials to sell rallies going forward. |
| 2) |
The weekly boxed beef report released Monday afternoon contained more evidence that lower prices may stimulate greater buying interest. For the second consecutive week, out-front negotiated sales (22-day delivery or more totaled over 1,000 loads).
| 2) | New showlists distributed in feedlot country were larger than last week, with only Texas offering fewer ready steers and heifers. |
| 3) | Further selling of spot August lean hogs should be limited for two reasons: 1) the cash index is holding more than $10 premium with only about three weeks left in contract life; and 2) significant chart support sits around 78.50. | 3) |
For the week ending July 18, noncommercial traders reduced their net long in lean hog futures by 1,300 contracts to 63,300.
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| 4) | So far, the extremely hot temperatures this summer seem to be tough on swine breeding and fertility. The fall farrow could turn out to be a good deal smaller than currently projected. | 4) | The pork carcass value was moderately lower Monday thanks to softer demand for loins, ribs, picnics and hams. |
CATTLE: (Bloomberg) -- A safety scare. Political scandal. Export bans. This year's headlines could scarcely be worse for Brazilian meat producers.
Yet right now they're enjoying stellar market conditions for beef. Prices that meatpackers like JBS SA, Marfrig Global Foods SA and Minerva SA pay for cattle had the biggest decline in two decades this year. Meanwhile, wholesale prices have been mostly flat, fetching a premium of about 38 percent on cattle, the most since at least 2008, according to data from agricultural consulting firm Scot Consultoria.
"We have never seen a situation like this," said Mariane Crespolini, a researcher at Cepea, the University of Sao Paulo's agriculture research unit, in a telephone interview.
So what's going on? Domestic beef demand has shown some signs of recovery, according to Cepea, even after two years of recession and the so-called Carne Fraca ("Weak Flesh") investigation mounted by federal investigators, who in March went public with allegations of spoiled meat and bribery among state inspectors.
As for supply, there's an abundance of carcasses, partly because of concerns internationally about the quality of Brazilian meat. Domestic cattle prices have fallen by 15 percent since March after several nations temporarily banned Brazilian beef following the Weak Flesh probe. In Campo Grande municipality in Mato Grosso do Sul state, cattle prices fell Friday to their lowest since March 2014 at 114.69 reais per arroba ($36.56 per 15 kilos), according to Cepea data.
Additional downward pressure came as JBS, the nation's largest cattle buyer, was forced to reduce slaughtering after Joesley and Wesley Batista, the brothers who control and run the company, confessed in May to graft and other offenses. Research firm Agroconsult cut its forecast for Brazil's slaughtering volume by 1 million cattle to 39.6 million in the aftermath of the scandal.
Also boosting availability are ranchers offering more cows for slaughter after a drop in calf prices, and the sale of animals that finally reached slaughter weight after being put out to pasture last year because of high feed costs.
"Indicators haven't been so positive for meatpackers since at least the end of the 1990s," said Mauricio Nogueira, an associate at researcher Agroconsult, citing the spread between beef and cattle prices.
Marfrig, Minerva and JBS are expected to post higher second-quarter earnings before interest, taxes, depreciation and amortization compared with a year earlier, according to the average of analysts' estimates compiled by Bloomberg. Carne Fraca and the ensuing export bans are weighing on the companies, according to a report from Banco Santander SA. But stronger beef margins should offset the worst effects, Itau BBA said in a July 20 report.
Minerva and Marfrig declined to comment on their earnings. JBS didn't respond to a message seeking comment.
Attractive margins may spur local slaughterhouses that had suspended production over the past few years to resume operations, Agroconsult's Nogueira said. Marfrig, Brazil's second-largest beef producer, said July 3 it decided to reopen two slaughterhouses in Brazil's Center-West region and increase the use of four other plants as it seeks to expand capacity by 25 percent, citing higher cattle supplies and improved economic conditions, Minerva is also resuming operations in a plant in Mato Grosso, it said last month.
Marfrig's shares rose 2.2 percent to 6.60 reais at 3:38 p.m. in Sao Paulo. JBS fell 0.4 percent to 6.92 reais, while Minerva dropped 1.2 percent to 12.49 reais.
HOGS: (High Plains Journal) -- Pork producers have been dealing with not having enough rail space at packing plants for several years. The opening of the Seaboard Triumph plant in Sioux City, Iowa, should help relieve some of that pressure.
Mark Porter, COO and president of Seaboard Triumph Foods, said the plant should be online no later than Sept. 1, with a slow ramp-up as they grow the number of workers to its expected total of 2,000.
The $300 million plant had been originally forecasted to go online around July 31, but Porter said the company needed more time to get equipment into place and complete the commissioning process before the 925,000-square-foot plant becomes operational.
"Our staffing plan has a comprehensive strategy and we don't want to hurt any other companies in the area by taking their employees," said Porter.
The economic impact of the plant to the Sioux City area will be about $100 million per year once it reaches 2,000 employees. Initially, 1,100 folks will work at the plant. Seaboard will use employees from plants in six other states to help train employees at the Sioux City plant.
Seaboard Foods and Triumph Foods have teamed up for the Sioux City plant. They will also team up for the strategy to supply pigs to the plant. One-third of the supply will come from Seaboard sources, one-third will be from Triumph sources and one-third will come from local pork producers. The pig supply has been actively lined up for the past nine months in order for the supplies to be available when the plant does come online. The plant will start at harvesting 10,000 head per day and eventually be able to slaughter 21,000 head per day.
Seaboard Foods currently sells pork to 30 countries which 30 percent of their product being sent overseas. The Seaboard Triumph plant will be one of the largest pork plants in the country.
"The only thing we waste is the squeal," Porter said. "We'll not only feed the world with billions of pounds of pork, but also be a major supplier into pet food, animal feed and pharmaceutical industries."
The opening of the Seaboard Triumph plant will bring a positive impact to the area as well as the pork industry, with a support of pork prices with more slaughter space available.
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