Feedlot managers will be looking for a way to
stabile the cash cattle trade this week. So far, the late summer market
has been a rough ride. Frankly, late August just before Labor Day tends
to be a tough time to find cash brakes. At any rate, the question won't
be seriously framed today as packers limit efforts to the distribution
off new showlists. We suspect the late month offering will be about
steady with last week. Our guess in that asking prices will start out
around $108-110 in the South and $173-175 in the North. Live and feeder
futures should open on a mixed basis tied to short covering on one hand
long liquidation on the other.
Expect cash hog buyers to return to work this
morning with yet another rounds of lower bids. Given ample country
offerings and defensive pork demand, steady cash erosion has clearly
been the path of least resistance. Lean futures should open moderately
lower, pressured by follow-though selling and defensive fundamentals.
| BULL SIDE | BEAR SIDE | ||
| 1) | The August 1 on feed report released Friday turned out to be friendlier than anticipated. Specifically, July placement activity was only 3 percent larger than 2016. The average trade guess called for last month's in-movement to be up by 6 percent. | 1) | Meat demand immediatey before the Labor Day weekend is typically lackluster since retailers and food managers have featuring plans in place and fully funded. Additionally, cattle buyers could be even more apathetic than they've been in recent weeks given the short kill schedule following the late summer holiday. |
| 2) | Live and feeder cattle futures opened significantly lower on Thursday but managed to close moderately higher. Many contracts settled 200 points or more above session lows. Could this be the beginning of bottom-building interest? | 2) | Though the recently monthly feedlot inventory could have been worse, its general impact potential looks bearish, necessitating the slaughter of more fed cattle in the last third of the year. The DTN feeding model now suggest that big lots now have scheduled 1.73 million head to finish in November, 11 percent more than 2016 and 7.5 percent greater than the 5-year average. |
| 3) | It's possible the new plants coming on line next month will need to bid up the price of hogs as producers have more options in selling? Even if hogs do not get bid higher, packers may still need to support pricing from going lower at the current pace.Long liquidation in live cattle futures appears to be slowing. For the week ending August 22, the net-long position held by noncommercials declined by just 600 to 93,000 contracts. | 3) | The pork carcass value remained on the defensive Thursday. The belly primal lost another $6.41 with the rib primal in the red The wholesale pork trade closed another tough week on Friday by posting another round of substantial softness in carcass value (i.e., faltering by 0.77 with all primals losing ground except the loin). From Friday to Friday, the pork cut-out retreated by $4.08 with the belly primal crashing as much as $31.47.by $2.27. |
| 4) | Although spot wholesale pork prices have been on the defensive, trade sources report that out-front demand seems to be improving. Cold storage stocks have probably reached a seasonal low, and storage levels are set to grow over the next four months, hopefully taking at least a little sting out of the expected hike in late year pork production. | 4) | For the week ending August 22, noncommercial traders were net sellers of lean hog futures, reducing their net long position by 6,300 contracts, which now stands at 53,500. |
OTHER MARKET SENSITIVE NEWS
CATTLE: (kbtx.com) -- With the national beef
herd continuing expansion in 2017, there was some uncertainty among beef
producers as to what beef prices were going to do, but a stronger than
expected demand for beef has generated some optimism. Derrell Peel is a
livestock marketing specialist for Oklahoma State University.
"So in 2014 and 2015 when beef supplies were
very limited and beef prices were at record levels many consumers did
not consume as much beef as they normally would. They got priced out of
the market and I think that there's a residual effect in that now beef
is a little bit cheaper, it's still relatively high, but it's a little
bit cheaper and so we're kind of making up for lost time. We didn't eat
as many steaks during those days and I think we're going back and eating
more of those higher cuts."
Peel says that three years of rebuilding the beef herd and continued expansion this year have brought beef prices down.
"Last fall we did get into a situation in the
fall of 2016 where the market really over corrected to the down side. I
think it was kind of the market coming to grips with the idea that we
had more supplies, not only out there in 2016, but coming ahead of us.
So it took a little while for the market to kind of adjust to that, and
then we've kind of rebounded from that over correction to a little more
balanced level, something that's a little more sustainable going
forward."
Peel says that this year's cattle prices for ranchers so far are better than expected.
"Well, in 2017 I would say that the demand has
pretty well offset the increase in supplies. We are seeing an increase
in beef production in 2017, but as I said we've actually seen stronger
than expected prices and I think you attribute most of that to demand."
Peel expects a relatively stable cattle market
if beef demand remains strong. "As we go forward, we'll see an
additional increase in beef production in 2018, and so again that demand
is going to be key. All else being equal we would expect somewhat lower
prices. Not the dramatic kinds of decreases we've seen at times in the
past 15 or 18 months, but pressure on there probably in the plus or
minus 5 percent range on a year over year basis."
HOGS: (siouxcityjournal.com) -- The first hogs
have been slaughtered at Sioux City's new pork plant as officials
continue to test equipment ahead of a Sept. 5 opening.
Mayor Bob Scott said Seaboard Triumph Foods processed about 100 hogs at the Sioux City plant Wednesday.
"They're going slowly to test their equipment...
the pork producers were in town and we met with them last night and
they said they saw them kill a hundred hogs," Scott told the Journal
editorial board Thursday.
The 925,000-square-foot plant, which will start
with a single shift and up to 900 production workers, will have the
capacity to process about 10,500 hogs per day initially. Two-thirds of
the animals will come from the plant owners, a joint venture between
Guymon, Oklahoma-based Seaboard Foods and St. Joseph, Missouri-based
Triumph Foods. The rest would be purchased on the open market from
independent producers.
The $300 million plant, announced in May 2015,
has been under construction for nearly two years in Sioux City's
Bridgeport West Industrial Park.
"We are testing equipment to make sure that
everything is going smoothly on the line and calibrating equipment,"
Seaboard Triumph Foods spokesperson Tori O'Connell said Thursday. "We
have a lot of state-of-the-art technology in there — a very
technologically advanced facility — (and we're) making sure those
machines are set to proper specs."
O'Connell confirmed commercial production is set to begin on Sept. 5, the day after Labor Day.
To operate its first shift at full capacity, Seaboard Triumph needs about 900 hourly workers, along with 200 office staff.
While metro Sioux City's unemployment rate
remains at historic lows, Scott said he has heard the company has been
making steady progress on the hiring front.
"I had breakfast with Terry Holton and Mark
Campbell — the two CEOs of the parent companies — and they told me that
day, which was three or four weeks ago, that they had 521 or so
employees they were going through the process of getting physicals for,"
Scott told the Journal editorial board.
Company officials have said they intend to start
with a few hundred workers and quickly ramp up to about 1,100 for the
first shift. A second shift, anticipated to begin in late spring or
early summer of 2018, would require hiring an additional 900 production
workers, bumping total employment to around 2,000.
With a second shift, the slaughter capacity would grow to about 21,000 hogs per day, or 6 million per year.
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