Friday Midday Livestock Market Update - Cattle Futures Holding Moderate Trade Ahead of Cattle on Feed Report

GENERAL COMMENTS:

Light to moderate support is still holding in cattle trade although buyers are unable to maintain early morning support at midday. The lack of follow-through interest in the complex is expected to dwindle support thorugh the rest of the complex, potentially limiting overall activity until closing bell Friday afternoon. Hog futures remain firmly lower as fundamental pressure remains the focus of trade. Corn prices are lower in light trade. September corn futures are 2 cents lower. Stock markets are mixed in light trade. The Dow Jones is 56 points higher while Nasdaq is down 4 points.

LIVE CATTLE:

Narrow gains are still holding across live cattle futures with nearby futures giving back triple-digit support, which developed early Friday morning. The ability to keep prices higher has more to do with the overall lack of trade volume in the market late in the week more than any other factor in the complex. Cash cattle activity remains sluggish with just a few handful of trades taking place here and there near $106 through the morning. Bids are seen at $107 live in the North and $105 in the South, although it appears the lion's share of trade seems to be done, even though overall trade volume seems to have been light to moderate at best earlier in the week. Beef cut-outs at midday are mixed, $0.79 higher (select) and down $0.23 per cwt (choice) with moderate movement of 94 total loads reported (48 loads of choice cuts, 13 loads of select cuts, 23 loads of trimmings, 10 loads of ground beef).

FEEDER CATTLE:

Firm gains are holding in several feeder cattle futures, although the ability to sustain early buyer support has quickly eroded. August contracts have given back all of morning support with a 5 cent loss seen at midday. Traders continue to focus on the upcoming cattle on feed report which will be released after the close of the market Friday and is expected to post increased cattle placements as of August 1st. This may create increased strong pressure early next week, but for now, the lack of trade activity seems to be holding buyer support in the market.

LEAN HOGS:

Mixed trade early in the session has been replaced with moderate to firm pressure across the complex as trades have focused on the overall lack of support in cash markets and weakening pork values at the end of the week. The continued pressure in fundamental markets has added even more softness to nearby contracts even though overall trade volume remains extremely light across the complex. Cash prices are lower on the National Direct morning cash hog report. The weighted average price fell $1.52 at $66.34 per cwt with the range from $64.00 to $68.00 on 2,986 head reported sold. Cash prices are lower on the Iowa/Minnesota Direct morning cash hog report. The weighted average price fell $2.11 at $65.88 per cwt with the range from $64.00 to $67.50 on 730 head reported sold. The National Pork Plant Report reported 128 loads selling with prices falling $0.12 per cwt. Lean hog index for 8/23 is at $79.40 down $1.09 with a projected two-day index of $78.23, down $1.17.

Thursday Closing Livestock Market Summary - Meat Futures Bounce Moderately Higher

GENERAL COMMENTS

The fed cattle trade was very light with a few scattered live deals reported in Texas at $106, and scattered dressed trade turned in at $170 basis Iowa and Nebraska. According to the closing report, the national hog base is $1.28 lower ($65-$70, weighted average $67.89). The corn market closed fractionally higher in lackluster trade volume. Major stock indices closed mostly lower with the Dow off 28 points and the Nasdaq down by 7.

LIVE CATTLE

Live futures closed mostly 30 to 92 points higher, supported by short-covering and efforts to correct oversold charts. While not much can be said in terms of technical progress Thursday, October and December did seem to generate better buying interest below their 8-day moving low averages. Some bulls are cautiously optimistic that the market is building new lateral trading ranges that will eventually serve as reliable bottoms. Beef cut-outs: moderately lower, off $0.58 (choice, $191.75) to $0.81 (select, $188.66) with light-to-moderate demand and moderate offerings (75 loads of choice cuts, 30 loads of select cuts, 27 loads of trimmings, 25 loads of ground beef).

FRIDAY'S CASH CATTLE CALL:

Steady/weak with Wednesday's decline. Light-to-moderate trade volume is still possible late in the week, though practical price ranges have probably been established.

FEEDER CATTLE

Feeder issues for the most part closed 27 to 70 higher. Only spot August finished modestly in the red (i.e., $141.60, off 2 points). Imploding feedlot margins are making commercials increasingly cautious buyers in this arena. CME cash feeder index: 08/23: $143.42, up $0.04.

LEAN HOGS

Lean issues settled moderately higher, up 5 points to 57. The token progress seemed nothing more than temporary profit-taking near the tail-end of another tough week. Spot October finally attracted some short-covering after dipping to a new four-month lows. Some technical buying may have been prompted by oversold oscillators, but little more. Carcass value closed moderately lower, pressured by further losses in the belly (off $6.41) and rib (off $2.27) primals. Pork cut-out: $87.18, off $0.75. CME cash lean index for 08/22: $80.49, off $1.04 (DTN Projected lean index for 08/23: $79.40, off $1.09).

FRIDAY'S CASH HOG CALL:

$1 lower. Look for hog buyers to remain on the defensive when country business resumes in the morning.

Thursday Morning Livestock Market Summary - Livestock Futures Seem Set for Further Losses on Opening

GENERAL COMMENTS:

Cautious cattle buying interest should slowly build Thursday and/or Friday. Opening bids Thursday should start out around $106 to $107 in the South and $172 to $173 in the North. Look for asking prices to be restated around $108 to $110 in the South and $175 plus in the North. Live and feeder futures should open moderately lower, pressured by bearish momentum and defensive fundamentals.

Hog buyers should resume work Thursday with bids $1 to $2 lower than Wednesday's close. The country offering remains generous and carcass value continues to struggle. Saturday's kill should be around 132,000 head, pushing the weekly total close to 2.33 million. Lean contracts are expected to begin on the defensive, checked by residual selling pressure and signs of struggling product demand.

	BULL SIDE		BEAR SIDE
1)	Signs of accelerated wholesale beef volume suggests that lower prices are slowly working to reinvigorate demand. Total volume in the comprehensive boxed beef report increased by 400 loads last week to 7,307 loads, up 19% from last year, and was the largest weekly total since the last week of October.	1)	Beef cutout closed significantly lower again at midweek with the choice/select spread continuing to narrow. Box supplies were described as "heavy."
2)	Going forward, the spread between beef and pork at the wholesale level is expected to remain considerably more narrow than is seasonally expected, possibly enticing retailers to switch back to beef features heading into the fall timeframe.	2)	Though the cash cattle trade was not well tested Wednesday, scattered sales were clearly lower (i.e., off $3 live; off $2 to $3 dressed).
3)	Mexico set a record for the single highest June for any country to import product from the U.S. Mexico's June number of 142 million pounds was more than 20% above 2016. Furthermore, Mexican export demand shows no signs of slowing down given domestic production difficulties not able to meet the demands of its growing middle class.	3)	The pork carcass value dropped another buck plus on Wednesday, pressured by further losses in the belly primal (off $6.31).
4)	Resisting the seasonal trend to get heavier, Iowa barrows and gilts averaged just steady with the prior week at 276.6 pounds (still 1.9 lbs. bigger than 2016).	4)	For the week ending Aug. 19, U.S. hatcheries set 226 million eggs in incubators, up 5% from a year ago. At the same time, chicks placed totaled 184 million chicks; up 4% from 2016.

OTHER MARKET SENSITIVE NEWS

CATTLE:(USDA) -- All cattle and calves in the United States and Canada combined totaled 116 million head on July 1, 2017, up 4 percent from the 111 million head on July 1, 2015. All cows and heifers that have calved, at 46.6 million head, were up 5 percent from 2015.

All cattle and calves in the United States as of July 1, 2017, totaled 103 million head, 4 percent above the 98.2 million head on July 1, 2015. All cows and heifers that have calved, at 41.9 million head, were up 5 percent from 2015.

All cattle and calves in Canada as of July 1, 2017, totaled 13.0 million head, up slightly from the 12.9 million head on July 1, 2016. All cows and heifers that have calved, at 4.74 million head, were up 1 percent from a year ago.

HOGS: (USDA) -- United States and Canadian inventory of all hogs and pigs for June 2017 was 85.8 million head. This was up 3 percent from June 2016, and up 7 percent from June 2015. The breeding inventory, at 7.34 million head, was up 1 percent from a year ago and up 2 percent from 2015. Market hog inventory, at 78.4 million head, was up 3 percent from last year and up 7 percent from 2015. The semi-annual pig crop, at 78.5 million head, was up 4 percent from 2016 and up 7 percent from 2015. Sows farrowing during this period totaled 7.34 million head, up 3 percent from last year and up 5 percent from 2015.

United States inventory of all hogs and pigs on June 1, 2017 was 71.7 million head. This was up 3 percent from June 1, 2016 and up 1 percent from March 1, 2017. The breeding inventory, at 6.07 million head, was up 2 percent from last year, and up slightly from the previous quarter. Market hog inventory, at 65.6 million head, was up 4 percent from last year, and up 1 percent from last quarter. The pig crop, at 32.3 million head, was up 4 percent from 2016 and up 9 percent from 2015. Sows farrowing during this period totaled 3.06 million head, up 3 percent from 2016 and up 7 percent from 2015.

Canadian inventory of all hogs and pigs on July 1, 2017 was 14.1 million head. This was up 2 percent from July 1, 2016 and up 6 percent from July 1, 2015. The breeding inventory, at 1.28 million head, was up 1 percent from last year and up 2 percent from 2015. Market hog inventory, at 12.9 million head, was up 2 percent from last year and up 6 percent from 2015. The semi- annual pig crop, at 14.9 million head, was up 3 percent from 2016 and up 5 percent from 2015. Sows farrowing during this period totaled 1.27 million head, up 1 percent from last year and up 2 percent from 2015.

Moderate production boosts outlook

Continued moderate growth in milk production, combined with good domestic sales of butter and cheese and higher dairy exports, should strengthen milk prices.

The USDA released its July 2017 Milk Production report on Aug. 18, estimating total U.S. milk production up about 1.8 percent compared to July 2016. The pace of production growth compared to a year earlier has now been less than 2 percent in four of the last five months.

USDA: July recap

Reviewing the USDA estimates for July 2017 compared to June 2016:

• U.S. milk production: 18.24 billion pounds, up 1.8 percent

• U.S. cow numbers: 9.403 million, up 74,000 head

• U.S. average milk per cow per month: 1,940 pounds, up 20 pounds

• 23-state milk production: 17.19 billion pounds, up 1.9 percent

• 23-state cow numbers: 8.73 million, up 72,000 head

• 23-state average milk per cow per month: 1,969 pounds, up 21 pounds

Cow numbers dip

Nationally, milk cow numbers declined from the previous month for the first time since last October. Based on preliminary July 2017 USDA estimates, U.S. dairy cow numbers were down 1,000 from June, but still 74,000 head more than July 2016 (Table 1).

Compared to a year earlier, largest growth was in Texas (+35,000 head), New Mexico (+19,000 head) and Colorado (+8,000 head). California cow numbers were down 13,000 head, while Pennsylvania, Minnesota and Ohio posted declines of 4,000-5,000 head.

Milk per cow

Year-over-year gains in monthly milk output per cow showed a slight improvement from recent months (Table 2). Texas cows again led all states in achieving year-over-year milk production gains, up 130 pounds from July 2016. Minnesota output was up 70 pounds per cow, while Arizona and Utah were each up 50 pounds compared to a year earlier. Florida, Idaho, New York, Oregon and Washington saw output per cow shrink from a year ago.

Fundamentals, price outlook

After dipping lower in July, milk prices will increase in August, primarily on the strength of Class III milk, according to Bob Cropp, University of Wisconsin-Madison dairy economics professor emeritus. Stronger Chicago Mercantile Exchange (CME) cheddar cheese prices and somewhat stable butter prices in August will offset weakness in nonfat dry milk and dry whey. Improved exports have been aided by an increase in world demand.

Seasonal improvement in butter and cheese sales along with expected continued improvement in exports should add further strength to the Class III price for September and October, reaching into the $17s per cwt, Cropp forecasts. Higher butter prices should keep the Class IV price in the $16s per cwt. These higher milk prices will be supportive if the growth in milk production remains below 2 percent, he warned.

Looking further down the road, Cropp forecasts the Class III price falling back to the mid $16s in the first quarter of 2018.

In their monthly podcast, Cropp and University of Wisconsin-Madison’s Mark Stephenson, director of dairy policy analysis, agree the uncertainty ahead means there’s no need to rush to sign up for 2018 Margin Protection Program for Dairy (MPP-Dairy) margin protection. Although sign-up starts in September at USDA Farm Service Agency offices, it doesn’t close until mid-December, giving farmers time to evaluate market trends before buying coverage.

Affecting margins, recent crop production reports have sent corn and soybean futures lower, offsetting any potential weakness in milk prices. Current Program on Dairy Markets and Policy projections estimate milk income-over-feed cost margins above $10 per cwt through the end of the year before dipping to about $9.50 per cwt in the first quarter of 2018, well above the top $8-per-cwt indemnity payment trigger.

Dairy margins strengthened over the first half of August, in spite of volatile milk prices, according to Commodity & Ingredient Hedging LLC. Lower feed costs more than made up for slight weakness in Class IV milk.

With the U.S. Food and Drug Administration’s decision to use discretion in enforcing labeling on products containing ultrafiltered (UF) milk, it may be more economical to move milk around the country, easing processing capacity struggles in some areas, Stephenson said.