Friday Morning Livestock Market Update

GENERAL COMMENTS:

To call this week's cash cattle market "defensive" seems quite the understatement. Packer bids were lower every time feedlot managers turned around. A few live sales Thursday were as much as $9 lower than last week (i.e., $128 basis Kansas). Is the ugly price erosion done for the week? Trade volume totals look just moderate, suggesting that more business is certainly possible. Yet psychology is so sour, both sides may be sick of negotiating. Positively, packer margins are outstanding and feedlots quite current. Our guess is that late-week asking prices are around $130 to 132 in the South and $210 to 212. Live and feeder futures should open on a mixed basis thanks to both long liquidation and short-covering.

The cash hog trade has been on quite a roll this week, and we really don't expect the ball to stop Friday. Momentum could slow a bit, but we should still watch for opening bids to be $1 higher or more than Thursday's close. If the Saturday slaughter totals close to 50,000 head, this week's hog harvest will amount close to 2.19 million, approximately 2% larger than the same week last year. Lean futures are also set to open with uneven price action with front issues gaining on backs.

	BULL SIDE		BEAR SIDE
1)	Prospects for aggressive grilling and meat clearance over the Father's Day bodes well for better wholesale beef demand next week.	1)	Spot live cattle futures have not yet found the brakes, even though feedlot sales still remain $6 or more above the board. In other words, many believe the country will continue to bleed at least through the end of the month.
2)	Actual beef exports last week totaled 14,502 metric tons, up 17% from the previous week and 6% from the prior four-week average.	2)	For the week ending June 3, carcass weights jumped significantly higher: all cattle averaged, 797 pounds, 6 lbs. heavier than the prior week and 15 lbs. lighter than 2016; steers averaged, 847 lbs., 9 lbs. bigger than the previous week and 17 lbs. smaller than last year; heifers averaged 778 lbs., 6 lbs. greater than the week before and 14 lbs. lighter than 2016.
3)	Cash hog sales once again exploded higher on Thursday as well-margined packers continued to chase smaller offerings. The cash index has now gone premium to spot July, a fact that should discourage further selling interest in nearby futures.	3)	Net pork export sales last week slumped to 12,300 MT, down 46% from the previous week, 29% short of the prior four-week average and representing a marketing-year low.
4)	A higher seasonal trend for cash hog prices is quiet over the next few weeks. Additionally, deferred discounts may already be fully adequate relative to the expansion likely to be confirmed by the pending June inventory.	4)	With the June Hogs & Pigs report slowly rising on the horizon (i.e., due to be released in two weeks on the June 29), most lean futures crashed hard on Wednesday thanks in part to worry over herd expansion and building pork tonnage.

OTHER MARKET SENSITIVE NEWS

CATTLE: (foodmarket.com) -- For Father's Day weekend, beef features took the top spot with 27% of total protein ad volume. Seafood came in second with 24%, while pork claimed 21% of ad space. Chicken features account for 19%.

In the beef complex, steaks average $7.69 per lb. this holiday week, down 4% from a year ago. Steaks like the bone-in rib, bone-in strip, and boneless strip are down at least $1 per lb. from year ago levels on average. In fact, bone-in strips can be picked up for as low as $6.15 per lb. Porterhouse steaks are featured at an average level of $7.73 per lb. this week, down from $9.07 per lb. a year ago. Father's Day is often grocers' opportunity to move premium cuts of steak, and lower average prices this week should prove enticing to shoppers.

80% ground beef is on feature for $3.44 per lb., versus $3.58 per lb. on average last year.

There's been a lot of excitement over the cheap retail pork complex recently, and many wonder if a portion of consumers will opt to purchase pork over more traditional beef and steaks for Father's Day. The rib category averages $2.49 per lb. this week, down 14% from a year ago. Pork chops on average are near year ago levels, with bone-in varieties being featured at levels lower than a year ago, while boneless center cut chops are higher. Shoulder roasts for pulled pork and barbeque applications are $1.46 per lb. on feature this week, down 23% from a year ago.

The CPI for all items declined 0.1% in May, according to the Bureau of Labor Statistics. Over the last 12 months, the all items index rose 1.9%. A decrease in the energy index was the main contributor to the decline.

The food index rose 0.2% in May, its 5th consecutive monthly increase. The index for food at home advanced 0.1%, with the major grocery store food group indexes mixed. The index for meat, poultry, fish, and eggs rose 0.3%, after a 0.6% drop in April. The dairy and related products index also increased 0.3%, as did the index for cereals and bakery products.

The food at home index fell 0.2% over the past year, due in large part to the impact of a 2.1% decline in the index for meats, poultry, fish, and eggs over that time period. The index for food away from home advanced 0.2% in May, and has risen 2.3% over the last year.

HOGS:(farmscape.com) -- The Vice-President Pork Analysis with EMI Analytics says the higher volumes of pork being produced in the U.S. will make access to export markets increasingly important.

High U.S. slaughter hog numbers last fall stretched U.S. pork processing capacity to the limited but, since the fall, slaughter hog numbers and processing capacity have been balanced.

Dr. Steve Meyer, the Vice-President Pork Analysis with EMI Analytics, observes the U.S. has had about three and a half percent more hogs to handle this year than last year but the opening of two new processing plants and the pending opening of two more processing plants have helped absorb those numbers and will provide the capacity to handle the anticipated four percent plus growth in numbers expected in the fourth quarter however the long term concern is with the sheer volume of product than will be produced.

"I think it's going to make exports even more critical. That's been really the thing that's helped the business this year. We've been up 14.6 percent on a carcass weight basis relative to the last year in the first third of the year.

"It's been much better than what we thought it was going to be and now the dollar has weakened pretty substantially and, if we can keep the dollar weaker than it was last year, I think that's going to be very positive for exports and we're going to need it.

"Over the next three years with those new plants full with just one of them double shifted, we'll add about 10 percent to our slaughter capacity.

"If we were to add that many hogs plus another three percent or so for weight, that's 13 percent. That's over four percent per year. That is a robust growth rate.

"I think the highest we've ever had on per capita consumption here was 52.3 or 52.5. That would put us at or above that kind of number with normal growth in exports so exports are critical to take a good portion of this growth over the next three years."

Dr Meyer says there is opportunity to grow exports but the caveat is what will happen in the renegotiation of the NAFTA and with bilateral discussions with former Trans-Pacific Partnership participants, particularly Japan.