Thursday Morning Livestock Market Summary - Meat Futures Staged to Open Moderately Lower

GENERAL COMMENTS:

Cattle-buying interest should start to show a little more life Thursday with preliminary bids of $108 live and $173 to $175 dressed. While nominal asking prices are around $114 to $116 live and $182 to $184 dressed, it goes without saying that the board's bearish struggles have been eating away at country psychology. If futures manage to stabilize to some extent, significant trade volume could easily be delayed until Friday. Live and feeder futures seem likely to open moderately lower, pressured by follow-through selling and worrisome midsummer beef demand.

Expect cash hog buyers to pursue procurement chores Thursday with bids steady to $1 lower. With carcass value declining at about the same rate of the cost of live inventory, processing margins remain uninspiring. Saturday's slaughter is expected to total close to 38,000 head. Lean futures should also open moderately lower, pressured by residual selling and nervousness regarding the accelerating trade war.

	BULL SIDE		BEAR SIDE
1)	The extreme premium status of the feedlot trade coupled with extreme oversold readings of live charts makes the board quite vulnerable to a major rally if outside markets ever let cattle be cattle.	1)	Trump Administration on Tuesday gave official notice for another $200 billion in tariffs on goods imported into the U.S. from China, which could take effect after Labor Day, unless China agrees to U.S. demands to reduce its own trade barriers.
2)	Seasonally, spot August tends to move higher through the month of July.	2)	For the week ending July 7, U.S hatcheries set 232 million eggs in incubators, up 3% from a year ago. At the same time, chicks placed totaled 186 million, up 2% from 2017.
3)	Given the way deferred lean hog futures are imploding, it seems likely that many pork producers may be aggressively scaling back longer-term production plans.	3)	For the second consecutive session, all lean hog futures but spot July tanked with new contract lows.
4)	Furthermore, the extreme heat of summer 2018 could adversely work to significantly compromise conception rates in the swine breeding herd, reducing the size of the fall farrow.	4)	For the week ending July 7, Iowa barrows and gilts averaged 278.4 pounds, .7 pounds heavier than the previous week and .4 pounds more than 2017.

OTHER MARKET SENSITIVE NEWS:

CATTLE: (USDA) -- The U.S. Department of Agriculture (USDA) has announced new procedures for the release of market-affecting crop and livestock reports from the National Agricultural Statistics Service (NASS) and World Agricultural Outlook Board (WAOB) to ensure that all members of the public have access to the information at the same time. Under current "Lockup" procedures, information is released to the public at 12:00 p.m. (Eastern), though the news media are allowed access approximately 90 minutes early, with their reports embargoed until the noon release time. Prompted by inquiries from the public, USDA examined the procedures and determined that technological advancements have afforded recipients of customized media reports a market advantage not enjoyed by members of the general public. The USDA also sought analytical assistance from the Commodity Futures Trading Commission to help inform a policy update to the lockup procedures. As a result, beginning August 1, 2018, USDA will provide media the same access to the NASS and WAOB reports as the public, with the information becoming available to all at 12:00 p.m. on days the reports are released.

"These reports are greatly anticipated each time they are released, and they can have significant market impacts," said U.S. Secretary of Agriculture Sonny Perdue. "Everyone who has interest in the USDA reports should have the same access as anyone else. Modern technology and current trading tactics have made microseconds a factor. This change addresses the 'head start' of a few microseconds that can amount to a market advantage. The new procedures will level the playing field and make the issuance of the reports fair to everyone involved."

USDA produces a number of reports with significant market impacts, such as commodity futures sold on the Chicago Board of Trade. Those reports are prepared by NASS and WAOB staff under special "lockup" conditions at USDA: no electronic transmission devices are permitted into lockup (such as cellular telephones) and once people enter the lockup they cannot leave until the reports are sent out to the public at 12:00 p.m.

The public is allowed to enter lockup at 10:30 a.m. to hear about the lockup facility and to sit in on the data briefing that occurs at approximately 11:45 a.m. Again, no transmission devices are allowed into lockup and the public is not allowed to leave until 12:00 p.m.

Lock up is open to any media outlet that meets a set of strict standards. Currently, six news services participate in lockup and are given pre-access to reports: Associated Press, Dow Jones/Wall Street Journal, Thompson Reuters, Market News Int'l/Deutsche Boerse, Bloomberg News, and DTN/Progressive Farmer.

The media are provided an electronic copy of the report at 10:30 a.m.

The media write their articles and other custom reports between 10:30 a.m. and 12:00 p.m.

The media transmit their information at 12:00 p.m.

It takes USDA data roughly 2 seconds to be transmitted and posted for the public to read. Meanwhile, press organizations have access to high-speed fiber optic lines out of the USDA lockup and advertise paid services to clients that offer 'ultra-low latency' data transmission speed. They have approximately 90 minutes to distill the reports down to their clients' needs.

There is evidence to suggest that there is significant trading activity worth millions of dollars that occurs in the one to two second period immediately following 12:00 p.m., which could not be based on the public reading of USDA data. The inference is that private agents are paying the news agencies for faster data transmission to get a jump on the market.

USDA is requiring the media to participate in lockup in the same way as the public. Media will no longer receive the reports in advance nor can they utilize high-speed transmission cables from within USDA's lockup facility.

HOGS: (agrinews.com) -- The good news for the second quarter U.S. Department of Agriculture hogs and pigs report is that the U.S. pork industry isn't revisiting 1998.

"Let's decide what this is not, and this is not another replay of 1998," said Joe Kerns, president of Kerns and Associates of Ames.

Kerns was one of three pork industry analysts who spoke in a media call sponsored by the Pork Checkoff.

The call followed the release of the USDA's report detailing U.S. pig numbers as of June 1.

And those numbers were large.

With the exception of the highest weight category, 180 pounds and over, and the March-May pigs saved per litter number, the numbers of actual pigs along with actual farrowings and farrowing intentions exceeded pre-report estimates by large percentages.

The 180 pound and over category, at 12.157 million, was up 2.4 percent over a year ago and lower than pre-report expectations of up 2.7 percent.

The March-May pigs saved per litter, at 10.63, was up just eight-tenths of a percent over a year ago and smaller than estimates of up 1.3 percent.

The all hogs and pigs number as of June 1 stood at 73.451 million, 3.4 percent larger than a year ago and larger than pre-report estimates of three percent.

"We're looking at a lot of pigs and coming from a report that's got a pretty good track record. It makes me think the numbers are probably right and the pigs are there," said Ron Plain, professor emeritus and a livestock economist from the University of Missouri at Columbia.

Kerns said while some numbers may give producers who were around in 1998 a sense of déjà vu, the U.S. pork infrastructure has changed.

"The last time we saw an increase of more than 3 percent just happened to be in March of 1998. That's enough to put shivers in anybody, but we have really compressed shackle space capacity relative to animal numbers," he said.

Kerns said the increased pig numbers, along with larger than expected supplies of pork, will put the spotlight on the need to maintain and even increase exports -- as well as stabilize trade relations so that can happen.

"We are going to put pressure on our trading partners in order to trade down to the levels that we are going to have to have in order to clear the meat on the export market," he said.

With Mexico and China being the dominant headlines in U.S. trade news, those two nations also figure prominently in the U.S. pork export market.

"I am giving two huge assumptions -- that that we don't see a further disruption of the NAFTA situation as it impacts Mexico and that we see some normalization of trade with China for some of our variety meats," Kerns said.

Lee Schultz, associate professor at Iowa State University in Ames, said that with the revisions that occur in most reports, the numbers could go even higher.

"Looking at June-August intentions, USDA only increased those by 5,000. I think it's all but certain we're going to see an actual larger sows farrowing for June-August, given the size of this breeding herd. It's a debate of how much larger it's going to be," he said.

Schultz noted that the Iowa State estimate of farrow to finish returns puts returns at breakeven -- for now.

"Given the anticipated larger supplies, how that affects prices, that could affect producers' intentions going forward. Right now, I think the expectations are for a much larger pig crop the next several quarters as those farrowing numbers are going to be much larger," he said.

Kerns added that while the numbers don't spell good news, they don't add up to 1998 either.

"This is not going to be good. I think this is a prolonged downturn, but not a sharp V bottom that we saw in the market in December of 1998," he said.