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Tuesday, July 31, 2018

Tuesday Closing Livestock Market Summary - Feeder Cattle Futures Hit Hard By Another Leg in Corn Rally

GENERAL COMMENTS
As expected, the cash cattle trade Tuesday remained at a virtual standstill with just a few Northern bids noted at $174 and some showlists priced around $115 live and $182 plus dressed. Additionally, some Southern bids have been reported at $109-$110. According to the closing report, the national hog base is $1.46 lower compared with the Prior Day settlement ($56-$62, weighted average $59.54). The corn market finished another nickel or so higher, supported by sharply higher action in the bean trade. The stock market closed 108 points higher basis the Dow and 41 higher on the Nasdaq.
LIVE CATTLE
Live futures settled on a mixed basis (i.e., up 7 to off 75) with nearby contracts attracting more selling interest than deferreds. Beef cut-outs: mixed, up $0.40 (select: $198.38) to off $0.45 (choice: $204.27) with light to moderate demand and offerings (55 loads of choice cuts, 28 loads of select cuts, 19 loads of trimmings, 15 loads of ground beef).
WEDNESDAY'S CASH CATTLE CALL:
Steady. We could see a few more bids and asking prices surface at midweek, but significant trade volume might be delayed until Thursday or Friday.
FEEDER CATTLE:
Feeder issues settled 25 to 217 lower with the first four months suffering triple-digit losses. Besides the lackluster tone in the live trade, nearby feeders were pressured by another round of considerable strength in the corn market. CME feeder index 07/30: $149.04, off $0.16.
LEAN HOGS:
Lean hog futures closed mostly lower with only Feb through May settling modestly higher. Spot August lost as much as 217 points, motivated by the rather aggressive erosion of the cash index. The carcass value closed moderately lower, mainly pressured by another big loss on the belly primal (i.e., $10.26). Pork cut-out: $74.54, off $2.43. CME cash lean index for 07/27: $72.17, off $1.29 (DTN Projected lean index for 07/30: $70.80, off $1.37).
WEDNESDAY'S CASH HOG CALL:
$1-$2 lower. Look for hog buyers to keep swinging away at midweek, further exploiting large country offerings and undependable pork demand.

Tuesday Midday Livestock Market Summary - Feeder Cattle Futures Tumble on Soybean Gains

GENERAL COMMENTS: 
Feeder cattle futures have posted sharp losses with all contracts holding triple-digit losses at midday. The strong shift higher across the grain complex has quickly added to the selling pressure in not only feeder cattle, but all livestock trade. Corn prices are higher in light trade Tuesday. September corn futures are 3 cents higher. Stock markets are higher in light trade. The Dow Jones is 180 points higher while Nasdaq is up 68 points.
LIVE CATTLE:
Moderate to firm losses have developed across live cattle trade Tuesday morning. The sharp losses in feeder cattle trade has been the main driver of lower live cattle trade, but the bearish market shift has been initially driven by strong gains in corn and soybean markets. Reports that China is willing to reestablish trade talks has caused increased buyer support through the grain complex. August futures have eroded 40 cents per cwt at midday with the rest of the complex holding losses of 50 to 80 cents per cwt. Limited trade volume is likely to be seen through the remaining trading session with traders also focusing on end of the month positioning. Cash cattle markets are undeveloped with bids and asking prices still unavailable. Combined with futures losses, it is expected that little to no cash market developments will be seen until the second half of the week. Boxed Beef cut-outs at midday are higher, $0.94 higher (select) and up $0.24 per cwt (choice) with light movement of 63 total loads reported (34 loads of choice cuts, 19 loads of select cuts, no loads of trimmings, 10 loads of ground beef).
FEEDER CATTLE:
Sharp triple-digit losses have flooded into feeder cattle trade as all nearby contracts are posting losses above $2 per cwt. The overall lack of support in the complex continues to leaver traders looking for protection at the end of the month. August futures are leading the market lower with prices $2.40 per cwt lower as all nearby contracts have pushed below $150 per cwt during the trading session. The sharp rally through the morning in corn and soybean markets is the main driver of the eroding feeder cattle complex. But the end of the month pressure has the potential to quickly spark some increased market weakness through all cattle futures during early August.
LEAN HOGS:
Initial buyer support seen in lean hog futures had a hard time building additional market support. This pushed August futures $1.90 per cwt lower with increased overall selling pressure in most contracts through the morning. Although some buyer support is starting to develop in early 2019 contracts due to traders squaring positions at the end of the month, the tone of the market remains extremely weak. Limited trade is expected to be seen in the hours before closing bell, with increased fundamental pressure likely to develop over the near future that could add even more weakness to the complex in the near future. Cash prices are lower on the National Direct morning cash hog report. The weighted average price is down $1.20 at $59.80 per cwt with the range from $57.00 to $62.00 on 4,965 head reported sold. Cash prices are lower on the Iowa/Minnesota Direct morning cash hog report. The weighted average price is down $1.13 at $59.78 per cwt with the range from $57.00 to $62.00 on 2,478 head reported sold. The National Pork Plant Report posted 192 loads selling with carcass values falling $0.39 per cwt. Lean hog index for 7/27 is at $72.17 down 1.29 with a projected two-day index of $70.80, down 1.37.

Tuesday Morning Livestock Market Update - Hog Futures Likely to Open Lower Tuesday as Fundamentals Stay Stubbornly Bearish

GENERAL COMMENTS:
Market watchers will probably not be stressed Tuesday documenting the limited activity of the cash cattle trade. We expect neither bids nor asking prices to be well defined. Meaningful definition in that regard will likely not surface until Wednesday at the earliest. Given smaller trade volume totals generated last week, we believe cattle buyers are generally short bought, but it's tough to translate that into how business will be timed in the days ahead. Look for live and feeder futures to open on a firm basis thanks to a slow combination of short-covering and long liquidation.
Hog buyers continue to swing a big hammer thanks to plentiful ready supplies of barrows and gilts, and eroding carcass value. Expect cash bids to open $1 to $2 lower as buyers continue to lean into the big offering of market hogs. Lean futures should open at least moderately lower, further checked by bearish fundamentals.
BULL SIDEBEAR SIDE
1)
Although new showlists distributed in feedlot country were mixed (i.e., smaller in the South, larger in Colorado, and about steady in Nebraska), the overall offering appears to be smaller than last week.
1)
Lower cattle futures continued to be oblivious to the premium realities of the cash feedlot trade on Monday, apparently convinced that cash will drop to futures faster than futures will rally towards cash.
2)
Out-front boxed beef demand remains quite strong. Sales with 22-day delivery or more totaled 1,164 loads last week. Such an aggressive pattern of advanced booking in the last three weeks essentially commits packers to aggressive chain speed through much of August.
2)
Most believe that this week's cattle will be at least the same size as last week (640,000), possibly some bigger.
3)
Given the historically larger late-year discounts in lean hog futures, it's very possible that the board already reflects a worst case scenario for the cash market in the last third of 2018.
3)
The pork cutout on Monday crashed and burned, losing nearly $2.50 thanks in large part to a $12.18 drop in the belly primal.
4)
There has not been any additional news of worsening trade situations and the now favorable price points for pork are likely to keep exports moving (though at the expense of producer profitability this fall and winter).
4)
Although chain speed got off to a relatively slow start, many analysts believe this week's hog slaughter could total as much as 2.3 million head. The potential of such tonnage is apt to seriously challenge the already struggling status of the pork carcass value.
OTHER MARKET SENSITIVE NEWS
CATTLE:(Agrinews Publications) -- A convoy of federal bills that would ease the electronic-logging device burden on livestock haulers is continuing to move through Congress.
"We have a lot of things in the mix right now that we are working hard to get done before Sept. 30. I am very aware of the deadline," said Allison Rivera, the executive director of government affairs for the National Cattlemen's Beef Association.
Rivera and the NCBA have been at the forefront of the charge to find a way to exempt livestock haulers and haulers of live animals, including bees.
They are seeking to exempt livestock truckers from the requirement to use ELDs, which electronically record driving time.
Livestock groups received a boost in May when Sen. Ben Sasse, R-Neb., introduced SB 2938, Transporting Livestock Safely Across America.
The legislation would exempt livestock haulers from the hours of service driving time calculation when livestock are being loaded and unloaded.
It would extend the hours of service on-duty maximum hour limit from the current 11 hours to 15 hours.
Rep. Ted Yoho, R-Fla., and Rep. Collin Peterson, D-Minn., introduced a companion bill in the U.S. House, HR 6079.
"NCBA is supportive of the Sasse and Yoho bills. We were pretty instrumental in helping to craft those bills," Rivera said.
On June 12, Sen. John Hoeven, R-N.D., and Sen. Michael Bennet, D-Colo., introduced the "Modernizing Agricultural Transportation Act." The bill calls for the DOT to convene a working group to examine current hours of service and ELD rules.
The group would examine the current regulations to identify obstacles to transporting livestock, insects and "other perishable agricultural commodities," then develop guidelines and recommend regulatory action to overcome the obstacles they identify.
"The idea would be to get everybody together talking with (the Federal Motor Carrier Safety Administration) at the table to try to find a path forward on what flexibilities on hours of service would work for everybody. It's a gathering of the minds and bringing people with very different perspectives on the issue together," Rivera said.
The bill establishes a deadline of one year, after the group is established, for submitting its findings to the U.S. transportation secretary. Then, the secretary is required by the bill to propose changes to the hours of service and ELD regulations within 120 days of receiving the group's recommendations.
A major benefit for livestock haulers would be that the bill would suspend the E LD requirement for livestock and insects and other perishable ag products until the DOT secretary officially proposes changes to those regulations.
Rivera conceded that caveat is not popular among all the groups who might come together under the working group idea.
"The reason we like the bill, the caveat there is that until that group can come to some kind of consensus on moving forward on hours of service, the ELDs wouldn't go into place. Those who like the ELDs are not super supportive of that bill," she said.
The compliance extension for ag commodity haulers to implement ELDs ended as of June 18, although federal ELD exemptions, such as the FMCSA's Agricultural Commodity Exception continue to cover many ag haulers.
The FMCSA announced on July 2 that it was denying a request for exemption by the Owner-Operator Independent Drivers Association. The OOIDA requested at least a five-year exemption for motor carriers that are classified as small businesses.
Rivera said that there has been a flurry of bills being put forth regarding the ELD requirement. That, she said, indicates both a recognition of the need for action on the legislative side and a demand for changes to the ELD requirement, as well as the hours of service rules.
"It's not just agriculture who feels like they want to see changes on ELDs or on hours of service because of the ELDs. There are a lot of truckers out there who want to see something," she said.
Rivera added that it's hard to say if the OOIDA exemption request being declined is indicative of how requests from other groups, including agriculture groups, might be handled by FMCSA in the future.
"It's hard for me to say yes or no. We continue to remind FMCSA that we are the group out there that is not like the others in the fact that we are hauling livestock, we are hauling live animals and we feel like we need flexibility. That's our bottom line with them, and until they make a decision on our petition, we are going to continue to beat that drum," she said.
HOGS: (USDA) -- U.S. Secretary of Agriculture Sonny Perdue Monday celebrated the reintroduction of American pork products to the Argentine market after more than 20 years by slicing a ten pound honey baked ham.
"The U.S. is the world's third largest pork producer and a top exporter," Secretary Perdue said. "This new market is a big victory for American farmers and ranchers. I am confident that once the people of Argentina get a taste of American pork products, they will only want more. This is a great day for our agriculture community and an example of how the Trump Administration is committed to supporting our producers by opening new markets for their products."
The return of U.S. pork products to Argentina was sealed during Vice President Mike Pence's visit to Buenos Aires. Technical staff from the U.S. Department of Agriculture and the Office of the U.S. Trade Representative have been working with Argentina's Ministry on the terms of the agreement that are practical, science-based and consistent with relevant international animal health standards.
As President Trump and President Macri agreed in a Joint Statement in April 2017 in Washington, both countries are committed to further expansion of agricultural trade between the two countries.

Monday, July 30, 2018

Monday Closing Livestock Market Summary - Cattle Paper Opens Week With Moderate Losses

GENERAL COMMENTS
Activity in feedlot country was typically limited to the distribution of new showlists. The fed offering looks mixed, smaller in the South, larger in Colorado and about unchanged in Nebraska. According to the closing report, the national hog base is $1.33 lower compared with the Prior Day settlement ($57-$63.50, weighted average $61.07). The corn market closed generally a nickel higher, supported by a mostly dry forecast for major growing areas over the next week. The stock market closed lower with the Dow off 144 points and the Nasdaq down by 107.
LIVE CATTLE
Apparently, traders of live futures were disappointed by Friday's late country trade, both in terms of price level and volume. Overall, prices settled moderately lower, off 17 to 70. Positively, August through December did manage to finish 40-60 points above session-lows. Beef cut-outs: lower, off $0.29 (select: $197.98) to $0.42 (choice: $204.72) with light demand and light to moderate offerings (44 loads of choice cuts, 20 loads of select cuts, 9 loads of trimmings, 17 loads of ground beef).
TUESDAY'S CASH CATTLE CALL:
Steady. Our hunch is that cash trading will surface earlier than normal this week thanks to small trade volume total last week (yes, we've said that before), but probably not as early as Tuesday. Look for a quiet day with bids and asking prices poorly defined.
FEEDER CATTLE:
While feeders generally followed their counterparts in the live market lower, selling energy here was further fueled by the early week rally in the corn trade. When the final smoke cleared, feeder issues had faltered by 70 to 110. On an estimated run of 5,600 head (up from 4,267 last week and 2,702 in 2017), Oklahoma City sold feeder steers and heifers unevenly steady. Steers and heifers calves were marked $3-$5 higher on a limited test. CME feeder index 07/27: $149.20, off $0.37.
LEAN HOGS:
Ignoring the tall premium status of the cash index, spot August closed 35 points lower. However, the rest of the lean complex settled moderately higher (i.e., up 12 to 62). The pork carcass value continued to implode Monday, especially hammered by a $12.10 drop in the belly primal. Pork cut-out: $74.54, off $2.430. CME cash lean index for 07/26: $73.46, off $0.97 (DTN Projected lean index for 07/27: $72.17, off $1.29).
TUESDAY'S CASH HOG CALL:
$1-$2 lower. Further signs of negative fundamentals will keep hog buyers on the defensive in the morning.

Monday Midday Livestock Market Summary - Continued Pressure Develops Monday

GENERAL COMMENTS: 
Livestock trade has eroded through the morning with cattle and hog futures showing very limited support despite morning gains. Trade activity is expected to remain sluggish through the remainder of the session, although the pressure seen during the morning is likely to hold in all contracts. Corn prices are higher in light trade Monday. September corn futures are 5 cents higher. Stock markets are lower in light trade. The Dow Jones is 127 points lower while Nasdaq is down 129 points.
LIVE CATTLE:
Live cattle futures have quickly backed away from strong morning gains as the depth of buyer support in the market Monday remained very thin. This lack of continued support following the late week bounce Friday is causing many traders to take protection through the end of the month. There may be some additional uncertainty in the complex as traders look for losses of 40 to 90 cents to hold through the end of the session. Gains in grain markets which adds production costs through the next several weeks, is likely to prices shifting in a moderate but volatile trading range. Cash cattle activity remains sluggish with show list distribution and inventory taking the main order of business. The very limited trade seen last week is likely to keep packers short bought, but this may not escalate the cash buying process through the week. Boxed Beef cut-outs at midday are higher, $0.17 higher (select) and up $0.69 per cwt (choice) with light movement of 51 total loads reported (24 loads of choice cuts, 10 loads of select cuts, 5 loads of trimmings, 12 loads of ground beef).
FEEDER CATTLE:
Firm losses early Monday sparked additional market pressure that flooded through the entire cattle market. Feeder cattle futures are holding losses from 50 cents to $1 per cwt lower midday although prices have bounced back from session lows which pushed prices as much as $1.50 per cwt lower. The strong buyer support seen in corn trade as well as lack of overall underlying support in live cattle markets seems to have wiped out any indication of stability in the market over the near future. This could bring some additional volatility to the market through the end of the month.
LEAN HOGS:
Early support that quickly and aggressively moved into the lean hog complex was short lived as prices have moved back to a moderate loss in all contracts. Most nearby contracts are holding losses of 15 to 40 cents per cwt with very limited trade seen through the complex. This may add even more weakness to the market following the strong push lower in cattle trade earlier in the day. The strong pullback in cash and pork values is adding even more uncertainty to the overall weakness in the hog futures which has now fallen over $15 per cwt since mid-June. Cash prices are lower on the National Direct morning cash hog report. The weighted average price is down $1.63 at $60.77 per cwt with the range from $57.00 to $63.50 on 4,621 head reported sold. Cash prices are lower on the Iowa/Minnesota Direct morning cash hog report. The weighted average price is down $2.66 at $60.04 per cwt with the range from $57.00 to $62.25 on 1,726 head reported sold. The National Pork Plant Report posted 120 loads selling with carcass values falling $2.97 per cwt. Lean hog index for 7/26 is at $73.46 down 0.97 with a projected two-day index of $72.17, down 1.29.

Monday Morning Livestock Market Update - Meat Futures to Launch Week With Mixed Prices

GENERAL COMMENTS:
Light to moderate trade finally surfaced in parts of cattle-feeding country late Friday. While most of the business seemed to surface around $112 live and $176 dressed, the lateness of the hour made it very difficult to assess actual country movement. Once again, we stand to learn much when Mandatory publishes summaries later Monday. At this point, we assume the distribution of new showlists will suggest a larger fed offering, probably inflated by a number of unsold steers and heifers carried over. Live and feeder futures should open on a mixed basis with nearbys gaining on deferreds.
Look for cash hog traders to kick off business with bids steady to $1 lower. Offerings remain plentiful and pork demand remains iffy. Assuming that chain speed disruptions no longer plague pork production through the week, hog slaughter should be substantially larger than last week. Lean futures are also set for uneven price action in the opening rounds.
BULL SIDEBEAR SIDE
1)
Given the combination of relatively small trade volume totals and fairly aggressive chain speed last week (i.e., 640,000 head, 5,000 more than the prior week), cattle buyers should start out the week short-bought and very close to the knife.
1)
The extremely slow movement of ready cattle last week probably forced many feedlot managers to carryover a good number of unsold inventory, causing new showlists distributed this week to be much larger.
2)
With a large increase from the long side and larger reductions of shorts, noncommercials increased their net-long positions in the week of July 24 by 10,000 to a total of 52,600.
2)
As more and more pressure is applied on cash hog prices as we move through the third quarter, cattle bulls will find it increasingly difficult to hold feedlot sales steady let alone move them higher.
3)
The pork carcass value managed to close sharply higher on Friday, recovering nearly half of Thursday's crash thanks to recovering demand for loins, picnics and hams.
3)
Despite the fact that last week's hog slaughter collapsed to 1,987,000 head (i.e., down 16.6% below the previous week), the pork cutout still lost $3.89 from Friday to Friday.
4)
For the week ending July 24, noncommercial traders reduced their short position in live cattle futures by 300 contracts, now 23,000 net short. Furthermore, commercial traders reduced their short position by 3,300 contracts, now short 3,000.
4)
Declining cash hog and product values combined with the uncertainties regarding the magnitude of the impact caused by the recent punitive tariffs continues to weigh on lean hog futures. The August and October 2018 contracts posted new life of contract lows on Friday and the remaining issues closed out the week lower.
OTHER MARKET SENSITIVE NEWS
CATTLE:(NCBA) -- Late last week the National Cattlemen's Beef Association (NCBA) and other leading organizations in the animal agriculture industry ("the Barnyard") sent a letter to President Donald J. Trump urging him to ensure the U.S Department of Agriculture (USDA) acts as the primary regulatory authority over lab-grown fake meat products. The Federal Meat Inspection Act (FMIA) designates USDA as the main oversight body for emerging lab-grown products. However, in recent weeks the Food and Drug Administration (FDA) has moved aggressively to assert regulatory jurisdiction over lab-grown fake meat.
"The American people elected President Trump because they trusted him to promote a level playing field for American products around the world," said Kevin Kester, President of NCBA. "Now, the President has the chance to demonstrate his support for free and fair markets right here at home. By supporting USDA oversight of lab-grown fake meat, the President will protect American consumers and ensure that America's farmers and ranchers are not disadvantaged in the marketplace."
In the letter, the Barnyard groups highlight the critical role USDA plays in enforcing the same rigorous food safety and labeling standards for all meat and poultry products.
"Undoubtedly, USDA's exacting standards impose regulatory burdens on meat and poultry producers -- as they should," the groups wrote. "However, if cell-cultured protein companies want the privilege of marketing their products as meat and poultry products to the American public, in order to ensure a fair and competitive marketplace, they should be happy to follow the same rules as everyone else. Consumers expect and deserve nothing less."
The groups also questioned the FDA's "regulatory power grab" and noted that the agency's actions are inconsistent with a recently-released White House government reorganization plan.
HOGS: (Farm Journal) -- The U.S. pork industry has been fortunate. Producers have enjoyed strong demand for pork over the past several years and especially in the past 18 months. Demand for U.S. pork on an international basis in 2017 reached a new record of 1,905,186 MT with a total value of $5.3 billion. Pork variety meat was also at a record volume with 543,973 MT sold to foreign markets in 2017. Variety meat exports were more than $1 billion for the first time in history, with $1.173 billion in sales. The total combined export value was $53.47 per head produced in the U.S. in 2017.
As we read the news about trade tariffs being placed on U.S. pork and pork products, it is important to understand where our product goes.
These five destinations for U.S. pork amounted to 82.3% of all pork exported in 2017:
Mexico 34.5%
Japan 20.1%
Canada 9.9%
China/Hong Kong 9.2%
Korea 8.6%
When looking at pork variety meat, our exports were more concentrated, to China/Hong Kong with 59.0% and Mexico, 26.5%. Exports to these two destinations amounted to 85.5% of total variety products.
The impact has been very clear. Futures contracts continue lower at a time we would expect stronger seasonal markets.
Contract months from December 2018 and beyond have reached contract lifetime lows and continue weaker. The trade's expectation of export losses are dealing a financial blow in the short term for pork markets, and generally for all commodities exported in volume (beans, corn, dairy, poultry and beef are also impacted at various levels).
Fortunately, many of our swine clients have built working capital and equity over the past five years and are in a good position to withstand some adversity. However, when you look at the broader industry and how it has expanded in the past few years, some producers will likely be in a tough position if we don't see some resolve to export issues soon.
Losses for the six months between October 2018 and March 2019 would be $15 to $20 per head based on Monday's futures and normal basis, amounting to $250 per sow. This would pressure some covenants for producers who operate with significant borrowing base debt. For those who have a lot of coverage on hogs, well done. Overall, there is not as much coverage as in the past few years.
For producers with current ratios of less than 1.5:1 and less than 40% equity in the business; it might be necessary to make some changes quickly. What cash-generating or cash-saving opportunities exist for you? Communicate with your lender and develop a strategy to manage through the down cycle.
We all hope trade normalizes before the anticipated impacts affect cash, but we need to prepare accordingly if it drags out for some time.

Friday, July 27, 2018

Friday Closing Livestock Market Summary - Lean Hog Futures Close Defensive Week With New Lows

GENERAL COMMENTS
It appeared that no one wanted to trade cattle this week. Trade volume for the week was extremely light, but we were still waiting for the possibility of light-to-moderate trade to develop late Friday afternoon if one or both sides finally agreed to compromise. Nevertheless, at this late hour, bids and asking prices remained separated by as much as $5 on a live basis. The National hog base closed off $1.22 compared with the Prior Day settlement ($59-$65, weighted average $62.50). From Friday to Friday, livestock futures scored the following changes: Aug LC off $0.30; Oct LC up $0.22; Aug FC off $1.37; Sep FC off $2.38; Aug LH off $2.80; Oct LH off $0.40. Corn futures closed fractionally higher, capping a generally positive week. Next week's weather map doesn't seem especially threatening, but of course forecasts are subject to change. The stock market closed lower with the Dow off 20.76 and the Nasdaq down by 114.
LIVE CATTLE
Futures closed mixed, up 110 to off 27. Late-week action was relatively choppy as traders carefully monitored the country for signs of cash action. At this time, it looks like spot August will start out next week anywhere between $2 and $7 below feedlot cash. In other words, much will depend upon the next step in fed cattle business. Beef cutouts: steady (choice, $205.14, up $0.23; select $198.27, unchanged) on moderate demand and moderate offerings (54 loads of choice cuts, 14 loads of select cuts, 13 loads of trimmings, 14 loads of coarse grinds).
MONDAY'S CASH CATTLE CALL:
Steady. Needless to say, it is tough to call next week's trade when we are not sure where prices will land late this week. Whatever the outcome, activity will probably be limited to the collection of new showlists. If we don't sell any cattle late Friday and/or Saturday, Monday's offering should be larger thanks to unsold cattle carried over.
FEEDER CATTLE:
Futures closed mixed, up 87 to off 62. The mixed trade in feeders obviously copied the indecision and confusion implied by the lack of feedlot business and the uneven trading in the live market. Through much of the week, nearby feeders have been supported by general appreciation of the cash index. CME cash feeder index: 07/26: $149.57, up $0.36.
LEAN HOGS:
Futures closed mostly lower, off 137 to up 27. Bearish fundamentals continued to pressure nearby issues. Indeed, spot August and October once again set new contract lows. This week's weekly slaughter total was only 1,987,000, checked by chain speed problems at Marshalltown and planned down time at most Smithfield plants. It seems like a good bet that next week's kill will be significantly larger. Pork cutout: $76.97 (FOB Plant) up $1.32. CME cash lean 07/25: $74.73, off $0.80 (DTN Projected lean index for 07/26: $73.46, off $0.97.
MONDAY'S CASH HOG CALL:
Steady to $1 lower. Expect hog buyers to resume defensive work on Monday, mindful of plentiful supplies and shaky pork demand.

Friday Midday Livestock Market Summary - Limited Volume Leaves Cattle Futures Mixed

GENERAL COMMENTS: 
Mixed end-of-week market shifts have developed in cattle trade with light support seen in nearby contracts. The early morning pressure that developed in all livestock trade has continued to limit support in deferred contract months. Corn prices are higher in light trade Friday. July corn futures are 1/4 cent higher. Stock markets are lower in light trade. The Dow Jones is 76 points lower while Nasdaq is down 107 points.
LIVE CATTLE:
Mixed trade has developed late morning in live cattle futures with August through December contracts holding moderate support through the complex and could help to draw additional interest through the complex. The gain in these nearby contracts may not be anything more than end-of-week short covering following aggressive market weakness seen through the last few trading sessions. Trade interest remains light Friday and is likely to remain that way early next week as some traders seem to have already closed the book on the month of July, given the market shifts seen over the last few days. Cash cattle trade still remains undeveloped midday Friday, as it appears it will be a mid to late afternoon event. Bids are becoming more readily available, but unable to move significantly from levels seen earlier in the week. Bids are at $109 to $110 live and $174 to $176 dressed. Asking prices have yet to budge in most areas with asking prices seen from $115 to $116 live and $180 to $183 per cwt dressed. Boxed Beef cut-outs at midday are higher, $0.30 higher (select) and up $0.20 per cwt (choice) with light movement of 57 total loads reported (38 loads of choice cuts, 10 loads of select cuts, no loads of trimmings, 9 loads of ground beef).
FEEDER CATTLE:
August and September feeder cattle futures have bounced higher with narrow to moderate buyer support moving into the complex. This has helped to spark some additional support through the entire cattle market as traders look for increased longer-term support that may develop next week. The pullback in prices through the week has quickly shed additional light on the potential that highs set in the middle of the month and may have created significant resistance above these price levels. Nearby contracts have eroded nearly $4 per cwt in the last week and a half. This causes not only fundamental concerns, but may spark some additional technical weakness through early August.
LEAN HOGS:
Firm losses continue to be seen through the entire lean hog complex Friday morning. Although prices have been able to slowly work away from early session lows which posted triple digit losses in most contracts, end of the week activity is adding weakness to the entire complex. August and October contracts have reestablished contract lows, creating additional concern that a weekly close at these levels will offset the potential for additional buyer support in the complex. A close at these levels at the end of the month could also create even more bearish market activity given the overall lack of support in cash markets and general fundamental structure. Cash prices are lower on the National Direct morning cash hog report. The weighted average price is down $0.92 at $62.80 per cwt with the range from $59.00 to $65.00 on 4,915 head reported sold. Cash prices are lower on the Iowa/Minnesota Direct morning cash hog report. The weighted average price is down $0.71 at $63.08 per cwt with the range from $59.00 to $65.00 on 1,660 head reported sold. The National Pork Plant Report posted 160 loads selling with carcass values adding $1.92 per cwt. Lean hog index for 7/24 is at $45.23 down 0.94 with a projected two-day index of $74.43, down 0.80.

Friday Morning Livestock Market Update - Hog Paper Staged For Lower Opening as Fundamentals Continue to Sour

GENERAL COMMENTS:
Cattle buyers and sellers have reached yet another Friday with the seal on order books essentially unbroken. That will have to change sometime over the next few hours. Look for opening bids close to $110 live in the face of firm asking prices around $115 to $116. Live and feeder futures should open on a mixed basis thanks to follow-through selling on one hand and short-covering on the other.
Hog buyers have a long list of reasons to wrap up the week with another round of lower bids. From plentiful market hogs to collapsing carcass value and limited chain speed on Friday (around 350,000 head) and Saturday (around 50,000 head), packers have virtually no need or desire to push higher. Lean hog futures should open at least moderately lower, pressured by follow-through selling and bearish fundamentals.
1)
Once again feedlot managers have forced short-bought packers into the Friday corner, and sellers have been very successful over the last month in applying late-week leverage.
1)
After opening significantly higher, cattle futures came unglued through the second half of the session. Such a dramatic reversal does nothing to gird the loins of feedlot managers holding for higher asking prices.
2)
Beef cutouts closed moderately higher on Thursday with box demand described as "moderate to fairly good."
2)
Net beef export sales last week dropped to a marketing year of 4,700 MT, down 65% from the previous week and 69% from the prior four-week average.
3)
Net pork export sales last week jumped to 21,100 metric ton (MT), up 7% from the previous week and 21% from the prior four-week average.
3)
The pork carcass value crashed more than $3 Thursday, especially hammered by failing demand for bellies, picnics and loins. Such wholesale weakness seems especially discouraging given this week's slow chain speed.
4)
Now that President Trump appears to working out an agreement with the EU, one that would lower tariffs and other trade barriers, some are speculating that his trade bark is worse than his trade bite. Could this mean that trade war worries will turn out to be exaggerated?
4)
Though gaining early, it didn't take long before bearish fundamentals drove lean hog futures sharply lower. Indeed, at one point, spot August notched a new contract low.
OTHER MARKET SENSITIVE NEWS
CATTLE:(foodmarket.com) -- McDonald's Corporation has announced results for the second quarter ended June 30, 2018.
"We're seeing good performance across our business as our customers tell us that they value and appreciate the moves we're making to elevate the McDonald's experience," said McDonald's President and Chief Executive Officer Steve Easterbrook. "We're pleased with the results of our international business and the progress we're making in the U.S. on executing on our Velocity Growth Plan priorities. We've now marked 12 consecutive quarters of positive comparable sales, and we are confident that we're executing the right strategy to achieve long-term, profitable growth."
Second quarter highlights:
Global comparable sales increased 4.0%, reflecting positive comparable sales in all segments
Due to the impact of the Company's strategic refranchising initiative, consolidated revenues decreased 12% (14% in constant currencies)
Systemwide sales increased 5% in constant currencies
Consolidated operating income decreased 1% (4% in constant currencies), primarily due to $92 million of strategic restructuring charges ($85 million related to the previously disclosed restructuring charge for the U.S. business). Excluding these charges, as well as unrelated strategic charges in the prior year, consolidated operating income increased 2% (decreased 1% in constant currencies) Diluted earnings per share of $1.90 increased 12% (9% in constant currencies), reflecting $0.09 per share of strategic restructuring charges. Excluding these charges, diluted earnings per share was $1.99, an increase of 15% (12% in constant currencies) over prior year earnings per share (excluding $0.03 per share of prior year strategic charges)
Returned $2.5 billion to shareholders through share repurchases and dividends In the U.S., second quarter comparable sales increased 2.6% driven by growth in average check resulting from both product mix shifts and menu price increases. Operating income for the quarter decreased 7% primarily due to the strategic restructuring charge. Excluding this charge, operating income increased 1% as higher franchised margin dollars were partly offset by lower Company-operated margin dollars.
Comparable sales for the International Lead segment increased 4.9% for the quarter, reflecting positive results across all markets, primarily driven by the U.K. and France. The segment's operating income increased 15% (9% in constant currencies), fueled by sales-driven improvements in franchised margin dollars.
In the High Growth segment, second quarter comparable sales increased 2.4%, led by strong performance in Italy and positive results across most of the segment, partly offset by continued challenges in South Korea.
In the Foundational markets, second quarter comparable sales rose 6.8%, reflecting positive sales performance across all geographic regions.
Steve Easterbrook concluded, "We remain focused on delivering the most enjoyable experience for every customer, every visit. Whether that is when they visit a modernised restaurant with inviting hospitality or through the convenience of having delicious food delivered to their home, we know that our fundamental day-to-day commitment to our customers is running great restaurants."
HOGS: (porkbusiness.com) -- The pork industry has been one of the hardest hit by retaliatory tariffs by both China and Mexico—the two largest export markets for U.S. pork.
Thursday, as President Donald Trump asked for patience on trade, USDA Secretary Sonny Perdue announced a $12 billion tariff relief package for farmers.
The National Pork Producers Council says it commends President Trump for taking steps to provide much-needed relief to American farmers in the crosshairs of global trade retaliation.
"President Trump has said he has the back of U.S. farmers and Friday demonstrated this commitment with an aid package to sustain American agriculture cut off from critical export markets as his administration works to realign U.S. global trade policy," said Jim Heimerl, NPPC President and a pork producer from Johnstown, Ohio.
"U.S. pork, which began the year in expansion mode to capitalize on unprecedented global demand, now faces punitive tariffs on 40% of its exports. The restrictions we face in critical markets such as Mexico and China -- our top two export markets by volume last year -- have placed American pig farmers and their families in dire financial straits. We thank the president for taking immediate action."
Recent reports say there is renewed hope that a separate trade deal with Mexico could happen by August 2018, as Mexico's president-elect, Andres Manuel Lopez Obrador, said he is ready to start a new stage in U.S.-Mexico relations and seeks a "common path" on trade, migration, economic development and security.
"While we recognize the complexities of resetting U.S. trade policy, we hope that U.S. pork will soon regain the chance to compete on a level playing field in markets around the globe," Heimerl adds. "We have established valuable international trading relationships that have helped offset the U.S. trade deficit and fueled America's rural economy."

Thursday, July 26, 2018

Thursday Closing Livestock Market Summary - Triple-Digit Losses Aggressively Pound Both Cattle and Hog Futures

GENERAL COMMENTS
The cash cattle trade remained untested Thursday with bids and asking prices still separated by a country mile or two (e.g., $110 versus $116 basis the South). According to the closing report, the national hog base is $1.26 lower compared with the Prior Day settlement ($60-$67.99, weighted average $63.75). Corn futures settled several cents higher, further supported by mid-month news of lower ending world stocks in 2018-19. The stock market closed mixed with the Dow up 112 points and the Nasdaq off 80.
LIVE CATTLE
Live issues open higher, encouraged by follow-through buying and general cash optimism. Yet both of these forces soon seemed to sour, inviting sellers to take the bearish reins. The entire price structure began to fall apart around midsession. October and December did bounce off session lows once buying interest rekindled near 100-day moving averages. Beef cut-outs: moderately higher, up $0.27 (choice: $204.91) to $0.69 (select: $198.27) with moderate to fairly good demand and light offerings (51 loads of choice cuts, 18 loads of select cuts, 10 loads of trimmings, 10j loads of ground beef).
FRIDAY'S CASH CATTLE CALL:
Steady to $2 higher. Well, here we go again. If tomorrow is Friday, it must be time to trade cattle. Look for moderate trade volume to surface sometime between late morning and midafternoon at steady/firm prices.
FEEDER CATTLE:
Feeder issues closed 117 to 160 lower, responding in part to the fading target of deferred live contracts. While spot August did settle below its 8-day moving average low on the close, it did recover some thanks to support near the 40-day moving average. CME feeder index 07/25: $149.21, up $1.04.
LEAN HOGS:
Ignoring both the tall premium of the cash index and early session buying interest, lean hogs collapsed late in the trading day to settle in the red by as much as 60 to 180 points. Most contracts settled near session lows, troubled by the darkening forces of both supply and demand. The carcass market imploded, ripped by sharp losses in bellies (off $9.50), picnics (off $5.25), hams (off $2.13) and loins (off $1.72). Pork cut-out: $75.65, off $3.02. CME cash lean index for 07/24: $75.23, off $0.94 (DTN Projected lean index for 07/25: $74.43, off $0.80).
FRIDAY'S CASH HOG CALL:
Steady to $1 lower. Hog buyers are expected to remain on the defensive just before the weekend break with further selling fueled by the steep drop in carcass value and limited Saturday kill plans.

Thursday Midday Livestock Market Summary - Active Pressure Sweeps Through Cattle Trade

GENERAL COMMENTS: 
Strong losses have quickly developed at midday across all livestock trade. Cattle markets are leading the market lower with triple-digit losses seen in all contract months. The feeder cattle futures are leading the market lower as prices are $2 to $3 per cwt lower. Corn prices are higher in light trade Thursday. July corn futures are 3 cents higher. Stock markets are mixed in light trade. The Dow Jones is 128 points higher while Nasdaq is down 74 points.
LIVE CATTLE:
Triple-digit losses have replaced the strong gains which quickly moved into the market early Thursday morning. Nearby futures are holding losses of $1 to $1.65 per cwt lower at midday following aggressive losses in all livestock markets and overall concerns of eroding export levels. The early buyer support was focused on the potential of a trade deal reached with the EU, but the concern that the overall trade deficit continues to widen in June has more immediate implications to all markets. It is uncertain just how much trade is developing due to the recent market turn lower, but the concern that traders may continue to liquidate positions is causing widespread concern Thursday. Cash cattle activity remains sluggish with bids redeveloping Thursday morning in the same range as seen earlier in the week. Live bids are seen at $108 to $110 with the higher bids seen in the South. Dressed bids are at $176 per cwt. This still remains well below asking prices of $115 and higher live and $183 dressed. It is likely to be sometime Friday before any active trade develops. Boxed Beef cut-outs at midday are higher, $1.07 higher (select) and up $0.82 per cwt (choice) with active movement of 52 total loads reported (32 loads of choice cuts, 9 loads of select cuts, 8 loads of trimmings, 3 loads of ground beef).
FEEDER CATTLE:
Feeder cattle futures have tumbled sharply lower in moderate to active trade following the lack of consistency of morning buyer support that initially moved into the market. Traders are concerned with follow through pressure following the commerce department's report which posted the U.S. Trade deficit widened through the month of June following reduced overall exports. This has caused most commodities to quickly back away from session highs seen early Thursday, but is creating additional caution through the livestock complex. All feeder cattle futures are trading $2 per cwt lower at midday as limited support is expected to develop in order to curb losses before the end of the session.
LEAN HOGS:
Early triple-digit support seen in lean hog futures has quickly eroded as initial buy orders were cleared but limited additional market support was able to move back into the market. This pullback from early support is likely to create some additional market uncertainty as traders focus on the still weak fundamental market shifts taking place, while overall long-term export demand still remains one of the main concerns for traders. The volatility through the morning could spark some late-day buying to move back into the market with the up and down shifts likely to continue to develop across the complex through the upcoming days. Cash prices are lower on the National Direct morning cash hog report. The weighted average price is down $1.49 at $63.52 per cwt with the range from $61.00 to $65.25 on 3,764 head reported sold. Cash prices are lower on the Iowa/Minnesota Direct morning cash hog report. The weighted average price is down $1.48 at $63.74 per cwt with the range from $61.00 to $65.25 on 1,153 head reported sold. The National Pork Plant Report posted 137 loads selling with carcass values falling $2.63 per cwt. Lean hog index for 7/24 is at $45.23 down 0.94 with a projected two-day index of $74.43, down 0.80.

Thursday Morning Livestock Market Update - Lean Hog Contracts Set to Open at Least Moderately Higher

GENERAL COMMENTS:
Cattle buyers and sellers should resume fighting positions in the early going with bids of $110 live/$175 to $177 dressed on one hand and asking prices of $115 to $116 live/$183 plus dressed on the other. It's certainly possible that significant trade volume will be delayed until Friday. Live and feeder futures are expected to open with mixed prices tied to residual buying and long liquidation.
The cash hog trade seems geared to open with bids steady to $1 lower. Several dark plants caused Wednesday's kill to total no more than 381,000 head. Saturday's kill estimate has been pulled back to 55,000. The weekly kill will now certainly total under 2 million. Lean futures should open at least moderately higher, supported by follow-through buying and the stubborn premium of the cash index.
BULL SIDEBEAR SIDE
1)
Spot August live cattle surged back over $109 at midweek, an impressive vote of confidence regarding the strength and potential of late-week cash.
1)
With the large placements the past couple of months, fed cattle slaughter levels may duplicate the pattern of the past two years, with beef production increasing counter-seasonally from the third quarter into the fourth quarter.
2)
The beef rib complex could chop sideways for another week or so, but should shift intoa better demand period as retailers and food managers begin to shop for the Labor Day holiday period.
2)
For the week ending July 21, U.S. hatcheries set 229 million eggs in incubators, up 1% from a year ago. At the same time, chicks placed by broiler growers totaled 185 million, up 2% from 2017.
3)
Despite the slippage in the cash market, lean hog futures ended Wednesday session higher, with both the October and December issues posting the largest gains on the day. The nearly $9 premium of the cash index is probably working to pull nearby futures higher.
3)
For the week ending July 21, Iowa barrows and gilts averaged 276.6 pounds, 0.1 pound more than the prior week and 0.9 pounds more than 2017.
4)
If producers are sending market hogs to town a bit early that should help stabilize country prices in a few weeks if packers find themselves requiring hogs prior to the Labor Day holiday period.
4)
Although the pork carcass value caught a modest bounce Wednesday, the cutout is forecast successively lower the next two months along with the cash hog markets.
OTHER MARKET SENSITIVE NEWS
CATTLE:(NCBA) -- Kent Bacus, Director of International Trade for the National Cattlemen's Beef Association, released the following statement in response to the Trump Administration's announcement of trade aid for U.S. farmers and ranchers:
"NCBA looks forward to reviewing the details of the Trump Administration's trade retaliation relief package. Trade agreements and trade enforcement are the most effective long-term solutions to the challenges faced by U.S. beef producers. For many years, U.S. beef has been a target of high tariffs and restrictive trade policies from notorious actors like China and the European Union. We support a vigorous approach to tearing down trade barriers, including non-tariff barriers that are not based on science.
"Removing China's highly-restrictive barriers on U.S. beef exports could unlock the full potential of that market and result in $4 billion in annual sales. Here at home, beef producers need relief from onerous federal regulations that undermine their businesses. Let's start by fixing the restrictive hours-of-service rules for livestock haulers, modernizing the Endangered Species Act, and ending the 2015 Waters of the United States rule once-and-for-all."
HOGS: (Western Producer) -- For more than two weeks, China has imposed a tariff of 62 percent on pork imports from the United States.
At that punitive rate it's possible that no U.S. pork is moving into China, a country of 1.4 billion where the average person consumes 40 kilograms of pork per year, the highest rate in the world after Brazil.
The tariffs are now at 62 percent because of the trade war between the U.S. and China, which unofficially began in April.
"China announced a new 25 percent tariff in response to U.S. action," the U.S. National Pork Producers Council said July 6.
"That tariff is on top of the 25 percent punitive duty levied by China in early April... U.S. pork already had a 12 percent tariff on exports to China."
On top the Chinese tariffs, Mexico is now collecting a 20 percent duty on U.S. pork.
The tariffs are a response to U.S. action. This spring, President Donald Trump hit Mexico, Canada and many other nations with tariffs on steel and aluminum. As of July 6, the U.S. began collecting tariffs on $50 billion worth of Chinese goods.
The battle is part of Trump's war against unfair trade practices, as he has repeatedly said that the U.S. loses on trade with Europe, China, Mexico and Canada.
Canadian hog producers compete with U.S. farmers in the Chinese market, but it's hard to know if Canada's pork industry is benefitting from the trade war or not.
"It's a bit too soon to really understand the impact. We have no … current data released as to whether there is any sort of bump, specifically in the Chinese market," said Gary Sturdy, the Canadian Pork Council's director of government and corporate affairs.
"The last (data) we have is April."
In 2017, Canada exported about $570 million worth of pork to China, the third largest export destination after the U.S. and Japan. The Chinese market is particularly significant for offal. Canada sold $178 million in organ meats and intestines to China in 2017, compared to $20 million to Japan.
While it's possible that Chinese buyers are turning to Canadian pork suppliers, it's unlikely that pork exporters are seeing a boom in sales because China increased its pork production in recent years.
"The Chinese domestic price was going to be lower (in 2018)," Stordy said.
"That puts a downward pressure on imports (into China)."
Plus, Canadian hog farmers cannot press a switch and suddenly produce more pork for the Chinese market. Other countries and domestic customers also need pork from the approximately 22 million pigs slaughtered in Canada annually.
"We kind of go, 'whoa, this (trade war) is going to be great. Canada is going to be able to sell a whole bunch more pork (to China),'" Stordy said.
"In theory that sounds good ... (but) a lot of what we're already shipping that could go to China is already going to China, and the increased demand isn't going to make (that) much of a difference."
In the short term, Canada may not see a boom in pork sales to China, but if the China-U.S. trade war drags on for months, it's possible Canada could grab a larger share of the Chinese pork market for three, four or five years at the expense of U.S. producers.
Leaders of American farm groups have been saying for months that it will be difficult for exporters of pork, soybeans and other ag commodities to regain the trust of Chinese clients.
"Once you lose a market, it is really hard to get it back," said Minnesota Farm Bureau president Kevin Paap, as reported by Agri-Pulse.
Canada's ag industry learned that lesson the hard way in South Korea.
In 2011, Canada exported about $1 billion worth of food to South Korea. By 2014, that figure was cut in half, thanks to South Korea signing free trade deals with the European Union, the U.S. and Australia.
"Canadian pork had a strong presence in the Korean market. On average it was about $250 million in sales," Stordy said.
"The United States got ahead of Canada with its FTA (free trade agreement) ... and that market shrunk by about 60 percent."
Canada's free trade agreement with South Korea took affect Jan. 1, 2015, but the damage and loss of market share for Canadian exporters still lingers.
"To get that back you have to invest time and energy ... making the connections and demonstrating you do have that product available and (that it's) cost competitive," Stordy said.
"It's only now that we're becoming more competitive (in Korea)."
In 2017, Canada sold $133 million worth of pork to South Korea.