The cash cattle trade will surface sometime
Friday with both sides running out of time before breaking for the long
Labor Day weekend. Expect opening bids to be around $107 live and $170
dressed. Asking prices should be restated around $111 to $112 live and
$175 plus dressed. Live and feeder futures should open on a mixed basis
thanks to residual buying on one hand and long liquidation on the other.
Look for the cash hog trade to open with
generally steady bids. Packer margins are decent, but so far, country
offerings have been large enough to make greater spending for live
inventory unnecessary. Lean contracts are set to open moderately higher,
supported by late-week short-covering and firming carcass value.
BULL SIDE | BEAR SIDE | ||
1) |
Net beef export sales last week
totaled 20,600 metric tons (MT), unchanged from the previous week, but
up 13% from the prior four-week average. At the same time actual beef
exports totaled 17,800 MT, up 5% from the previous week, but unchanged
from the prior four-week average.
|
1) |
Beef cutouts closed significantly lower Thursday with box demand described as no better than "light."
|
2) |
African swine fever has infected 185
pigs on a farm in Wuhu city in eastern China's Anhui province, the
Ministry of Agriculture and Rural Affairs said on Thursday, in the
country's fifth case of the deadly disease in less than a month.
|
2) |
For the week ending Aug. 19, all
cattle averaged 819 pounds, 1 pounds more than the prior week and 1
pounds below 2017; steers averaged 886 pounds, 5 pounds heavier than the
week before and 2 pounds more than last year. Only heifers were
lighter: 810 pounds, 1 pound smaller than the week before but 4 pounds
more than last year.
|
3) |
???Net pork export sales last week
jumped to 29,100 MT, up 9% from the previous week and 2% from the prior
four-week average. At the same time, actual exports totaled 22,100 MT,
up 6% from the previous week and 17% from the prior four-week average.
|
3) |
Spot October lean hogs took a big
hit on the chin Thursday, closing under $50 for the first time since
Aug. 8. Put another way, the nearby action doesn't suggest much
confidence that a cash market bottom is near.
|
4) |
The pork carcass value exploded with
strength on Thursday, gaining more than $2 thanks to stronger demand
from fresh cuts and bellies.
|
4) |
The short week following Labor Day
will start out loaded with pork. In order to keep channels clear,
further wholesale discounting may be necessary.
|
OTHER MARKET SENSITIVE NEWS
CATTLE: (Rabobank) -- Japan and South Korea beef
imports are on the rise. In 2017, combined imports by Japan and South
Korea were up 9%, and at their highest level since 2002. Along with
improved economies and lower global beef prices, the availability of
beef from Australia and the U.S. is fueling this growth. Australian
exports to Japan and South Korea are up 11% for the YTD (June), while
the US appears to be focusing more on South Korea, with exports up 41%
while up only 6% to Japan. Japan has also granted access for Argentina
to export fresh beef into the country for the first time with the first
shipment, albeit small, arriving in July. This decision would be a
positive indication for Brazil who is also entertaining the prospect of
gaining access to Japan.
At the start of 2018, Rabobank referred to
growing competition and complexity in global markets, and the
opportunities and pressures this could bring to margins along beef
supply chains. Part way through the year we have seen corporate results
reflecting this mix of challenge and opportunity. Some global beef
companies have revised down their earnings expectations, due to a
combination of trade disruptions and ample protein supplies, while
others have credited beef with contributing to high earnings. On
balance, we see more margin pressure looming.
Several outbreaks of African Swine Fever (ASF)
were recorded in China in recent months, which raises the possibility of
China -- the world's largest consumer of pork -- being caught short.
While the extent and timing of any herd liquidation remain uncertain, if
ASF takes hold, it is likely that China will increase imports of pork
-- and other meats such as beef -- in 2019. An associated lift in global
pork prices could also benefit beef supply chains in other regions.
HOGS: (Rabobank) -- The Chinese animal protein
market will continue to be a growth story, but growth will be driven by
value rather than volume. Meat consumption will change in three
dimensions, related to where, what, and how meat is consumed. Meat
companies have three avenues to success -- regionalisation, finding new
markets, and adding value/providing a service.
The sheer size of China's consumer base and its
rising middle class seems to suggest that its animal protein market will
continue to be a strong one, with many growth opportunities. In
reality, China's animal protein consumption has been volatile over the
past two decades, with little evidence of a consistent growth trend. We
forecast that, in the coming years, the average animal protein
consumption growth will markedly slow down.
Changes in Friday's society are having a
remarkable impact on Chinese consumer behaviour. A better understanding
of the current trends helps to predict what will happen in the coming
years. Three changes are most relevant: demographics, trading up or
down, and new retail and foodservice channels.
With all of the changes in the consumer market,
we see three dimensions of change that will take place in animal protein
consumption: where the products are consumed, what product attributes
are preferred, and how these products are eaten.
"While China's population is expected to peak
soon, the demographic dividend will continue to drive value growth in
the meat market," according to senior animal protein analyst Chenjun
Pan. "To capitalise, meat companies need a regionalisation strategy.
They will see greater growth opportunities by expanding into 'new
tier-one' cities and surrounding areas, where the population is
younger." As live hog production will move away from these regions, it
will be even more important to allocate resources to value-added
businesses in these new, densely-populated cities, in order to stay
attuned to the quickly changing consumer needs.
In a massive market like China, a volume-driven
strategy is important. However, given the three dimensions of change
discussed above, volume-driven companies will run into the threat of
their traditional markets shrinking. They need to find new markets
through emerging channels that offer more growth. In combination with
maintaining market share in the traditional market, animal protein
companies need to look into new concepts in retail and foodservice,
which increasingly are taking over the preparation of food from
consumers.
The changes in China's consumer market provide
excellent opportunities for developing a value-driven strategy. Animal
protein companies need to identify what new attributes consumers are
looking for. In our view, traditional products -- such as frozen meat,
hot (just slaughtered) fresh meat, and cooked meat products sold in
traditional agriculture markets -- will likely see a decline, while
branded chilled meats in small packages, meat-based snack food, freshly
cooked convenience food, and meal kits will see strong growth. These
products reflect the new consumer values of convenience, food safety,
freshness, variety, and service. Frozen convenience food and
Chinese-style/western-style meat products may need to broaden their
marketing focus, away from tier-one and tier-two cities to lower-tier
cities and rural areas.
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