Friday Morning Livestock Market Update

GENERAL COMMENTS:

Although a limited amount of clean-up trade is possible Friday, we suspect that the cash cattle trade is essentially done for the week. Cattle remaining on showlists are priced around $122 to $123 in the South and $192 to $193 plus in the North. Live and feeder futures should open on a mixed basis thanks to a slow combination of residual buying and pre-weekend profit-taking. Spot June is set to expire at high noon.

Hog buyers are expected to resume work Friday with bids steady to $1 high. The June 1 Hogs & Pigs report contained few surprises. Herd expansion seems to be securely in place. The summer and fall farrowing intentions were marginally smaller than expected. Yet "intentions" are soft numbers to begin with so we don't think there's much here to hang your hat on. Lean futures are staged to begin with uneven price action tied to bull spreading and profit-taking.

	BULL SIDE		BEAR SIDE
1)	Once again, live and feeder futures ignored bearish beef demand news by closing solidly higher on Thursday, further underscoring the potential significance of Wednesday's reversal off last week's lows.	1)	The wholesale beef trade continued to implode on Thursday with cutouts quoted sharply lower again (i.e., choice and select off $2.80 and $2.51, respectively) and box supplies described as "heavy." From Thursday to Thursday, the choice and select box lost a staggering $16.33 and $6.76, respectively.
2)	Beef exports last week totaled 14,900 metric tons, up 9% from the previous week and 8% from the prior four-week average.	2)	For the week ending June 17, cattle carcass weights took a big jump: all cattle averaged 803 pounds, 7 lbs greater than the prior week but 13 lbs below 2016; steers averaged 855 lbs, 8 lbs heavier than the week before and 12 lbs lighter than last year; heifers averaged 782 lbs, 5 lbs bigger than the previous week and 12 lbs smaller than the year before.
3)	Spot July lean hog futures posted another new life of contract highs, settling at $89.48, still nearly a 220-point discount to Wednesday's two-day CME settlement index.	3)	The pork carcass value faltered by more than a buck on Thursday with all major primal contributing except the belly.
4)	Net pork export sales last week jumped to 26,200 MT, up 6% from the previous week and 43% from the prior four-week average.	4)	Though generally well anticipated, the spring pig crop, at 32.3 million head, was documented historically huge. Specifically, it is the second largest March-May pig crop since estimates began in 1970.

OTHER MARKET SENSITIVE NEWS

CATTLE: (foodmarket.com) -- Pork and beef feature volume are nearly neck and neck heading into the Fourth of July holiday weekend. Beef features account for 26.6% of total protein features, while pork claims 25.6%. Seafood just barely misses the second spot with 25.3%, and chicken accounts for 17.2%. Question is -- which protein will dominate front page ad space?

Burgers and dogs are Fourth of July staples in American backyard cookouts. While retail beef prices have come down and have generally hovered around 3-year lows to date in 2017, average ground beef prices on 80% lean are still up $0.66 per lb. from the low set in April of this year. This week, 80% lean averages $3.36 per lb. on feature, however, it's worth noting that several large supermarket chains are offering prices at sub-$2 levels. Ground beef featured in the area of $1.79 per lb. has debuted on holiday front page ads this week, and will certainly command attention at the meat case.

Rounding out the beef complex, top round London Broil is on feature for $3.60 per lb., on par with year ago levels. The steak complex averages $7.80 per lb., which is slightly higher than Father's Day feature levels just a few weeks ago. Some chains are discounting more than others for Independence Day, with prices on T-bone steaks ranging anywhere from $6.99 to $9.99 per lb. on average.

One thing is for sure—it's hard to compete with the availability and cheap prices of pork this summer. Boneless, center-cut pork chops average $2.95 per lb. on feature this week, down roughly 50 cents per lb. from a year ago. Back ribs run $3.26 per lb. on average this week, but run as low as $1.77 per lb. in some areas. Pork shoulder, a hard to beat item at the meat case in terms of value and its ability to feed a crowd, ranges from $1.00 to $1.99 per lb. this week. Pork, in its various forms, has won top front page real estate throughout many ads this holiday as a competitively priced grilling item.

While boneless skinless chicken breasts might be pricing themselves out of the competition this holiday at an average $4.07 per lb., the dark meat complex ranges from $0.94 to $2.89 per lb. and could claim some space on the grill among poultry fans. Ground turkey averages about $3.60 per lb. this week.

For the seafood lovers out there from coast to coast, cooked shrimp runs $8.43 on average depending on count size. Tilapia averages $4.91 per lb., down 5% from a year ago. Cod fillets run $7.99 per lb., up 25% from a year ago. Atlantic salmon boneless fillets are featured at $9.66 per lb., compared to $7.85 a year ago.

HOGS: (National Hog Farmer) -- America's pig farmers are producing more pork with a 3% jump in production this year. As the U.S. pork industry produces more it is reasonable to expect prices to drag, explains Dermot Hayes, Ph.D., Iowa State University economist, to an audience at 2017 World Pork Expo.

Yet, hog prices this year are still decent, and the main reason is strong pork demand. Looking at second quarter numbers, Hayes points out that pork production climbs 3.4% whereas pork demand is a net increase of 4%. The growth in pork demand is not domestically as it remains relatively flat in 2017. Exports account for the majority of the increase in pork demand so far into the year.

"As of April this year, exports are up 15%. So, when you have 15% increase in a market that's responsible for almost one-third of your production that can explain why prices are high when production is high also, " states Hayes. "It is as if we added 4-5% more pork-consuming Americans to the base."

Looking at the big export picture, the United States is shipping more pork this year to its international markets except for China, which remains unchanged. Canada, on the other hand, is only up 5% from the previous year. Canada is exporting so much to China, up 123%, that all its other international marketplaces show negative gain from 2016.

China imported additional 3 million tons by the end of April 2017, making it the No. 1 pork importer last year. As a result, Hayes says it kept the European Union and Canada busy while the United States backfilled pork to the remaining countries. "We (U.S.) are getting the benefits of China without actually shipping a whole lot of product there," notes Hayes.

Turning to the European Union, the growth in Spanish pork exports is often overlooked. Hayes says Spain's pork exports to France and Italy are flat to down, but it is shipping substantially more to China. Currently, it is exporting 2,000 20-ton shipping containers to China monthly. Similar, Germany's pork shipments are up for China, but down to its other traditional markets.

Hayes presents global hog production benchmarking data from a collaborative international project (accounting for exchange rates). With the exception of Mato Grosso, Brazil, the U.S. hog production costs are lowest, especially for finishing hogs. Although Mato Grosso production costs calculate lower, the country has less access to international markets due to foot-and-mouth issues. In comparison, Canada beats the United States for sow costs, but the importing of grain to finish hogs drives its overall production costs higher.

China's much higher production costs are a result of expensive feed costs. Also, productivity is less as biosecurity is challenging with a greater density of sows in a geographic area. Examining the data, Hayes explains even with the extra transportation costs and import fees, it is cheaper to bring in pork from the United States. However, ractopamine-produced pork continues as a barrier.

As for sow numbers, South America and North America are trending higher while China and the European Union show a decline presently.

Although China and the European Union appear to be on a downward trend for sow numbers, the decline in sow numbers is the reflection of removing unproductive sows from the herd. Early in year reports from China indicating expansion mode was starting, however, Hayes presents a statement release from China from two weeks ago that states the opposite.

"Implementations of strict environmental regulations will further constrain China's sow herd recovery in 2017. Post is decreasing its 2017 sow estimates by 12% to 38 million head. This reduction will impact the 2017 pig crop, decreasing domestic pork production to 51 million metric tons."

Hayes explains this pencils to 6 million reduction in China's future sow numbers.

Hayes confirms that Ireland, Great Britain and Spain are adding sows to their herds.

"The one thing that might concern you is if all Americas are expanding then we better have a market for all this product. You don't often see all the countries expanding at once," notes Hayes.

Overall, U.S. hog farmers are extremely competitive with low production costs and superior efficiencies. As reflected in the USDA long-term projection for pork exports by country, the United States is an excellent position for export growth.

Thursday Closing Livestock Market Summary

GENERAL COMMENTS

Light-to-moderate cash trading surfaced in most feeding states Thursday at lower prices. Live sales in the South were marked at $119, mostly $3 lower than last week. On the other hand, the lion's share of dressed biz in the North took placed at $189, $4-$5 lower. According to the closing report, the national hog base is $1.57 higher ($81.00-$89.50, weighted average $87.12). Corn futures finished generally 3 cents higher, boosted by spillover support from wheat and suggestions the drought in the northwestern Plains may be moving into parts of Nebraska and Oklahoma. The stock market closed lower with the Dow off 168 points and the Nasdaq down by 90.

LIVE CATTLE

Soon-to-expire spot June finished 5 points higher. Yet the balance of the market closed with respectable price progress (i.e., up 87 to 132). Once again, the board seemed to ignoring discouraging noise coming out of the wholesale trade. Furthermore, it was positive see the board build on Wednesday's bounce off last week's lows. Beef cut-outs: sharply lower, off $2.51(select, $210.16) to $2.88 (choice, $226.55) with light-to-moderate demand and heavy offerings (90 loads of choice cuts, 36 loads of select cuts, five loads of trimmings, 22 loads of ground beef).

FRIDAY'S CASH CATTLE CALL:

Steady with Thursday. Late-week business will probably be limited with some feedlots deciding to carry unsold steers and heifers into next week.

FEEDER CATTLE

Feeder issues settled 77 to 217 higher with Sep through May 2018 surging by triple digits. Deferred buying was clearly cheered on by solid progress scored in deferred live cattle. CME cash feeder index: 06/28: $148.70, up $1.84.

LEAN HOGS

Despite the traditional uncertainties surrounding H&P reports, bulls seemed to throw caution to the wind and proceed with the steady program of buying, especially in nearby contracts. Prices settled 32 to 155 higher with spot July setting a new contract high. The June 1 hog inventory tuned out to be generally neutral, fitting reasonably well with trade expectations: total hogs, up 3%; kept for breeding, up 2%; kept for marketing, up 4%. The carcass value stumbled more than a buck lower, pressured off $1.22. CME cash lean index for 06/27: $91.50, up $0.40 (DTN Projected lean index for 06/28: $91.66, up $0.16).

FRIDAY'S CASH HOG CALL

Steady to $1 higher. Look for cash hog buyers to conclude pre-holiday activity with a short round of steady/firm bids.

Thursday Midday Livestock Market Summary

GENERAL COMMENTS: 

Firm buyer support is seen across livestock trade Thursday as traders focus on aggressive nearby gains in the lean hog complex. This support in July lean hog futures continues to set contract highs with the focus on aggressive pork cutout values and firming cash markets leading traders to push nearby futures higher. Cattle trade has moved higher, although narrow trading ranges have held Thursday, which is a shift from the wild triple digit swings seen earlier in the week. Corn prices are higher in light trade. July corn futures are 3 cents higher. Stock markets are lower in light trade. The Dow Jones is 162 points lower while Nasdaq is down 99 points.

LIVE CATTLE:

Early mixed futures trade has been replaced by firming buyer support that has moved into the live cattle futures. June futures remain lightly traded with 12 cent gains, while August through December contracts have gained additional strong support with buyers quickly moving back into the market. This pushed prices 50 to 80 cents per cwt higher as traders rallied higher midday focusing on the potential to move away from support levels set last week. The ability to create a summer low through the middle of June and draw additional trade interest back into the complex through the next several weeks. Cash cattle is starting to develop with light activity starting to be seen in the South with prices seen at $119. This is generally $2 per cwt lower than last week's price levels, although at this point, trade remains extremely light and not enough volume to establish a full market trend. Bids are redeveloping in the North at $118 to $120 live and $188 to $190 dressed basis. These bids are steady to weak with where light trade was seen Wednesday. More active trade is expected to develop either late Thursday afternoon, or Friday. Even though both sides would desire to wrap things up early before the holiday weekend, active trade may push into late Friday. Beef cut-outs at midday are lower, $1.35 lower (select) and down $2.16 per cwt (choice) with light movement of 77 total loads reported (44 loads of choice cuts, 18 loads of select cuts, 1 load of trimmings, 14 loads of ground beef).

FEEDER CATTLE:

Lean hog futures have moved higher in a narrow range after traders have allowed prices to bounce higher and lower through the morning. Very little direction is being seen through the complex Thursday, which is a significant shift from the wide ranging triple-digit price swings seen each of the market sessions earlier this week. But the ability for markets to close higher midweek and hold these recent gains, is showing a renewed sense of market stability in both live cattle and feeder cattle trade, which could bring additional commercial support back to the market.

LEAN HOGS:

Strong nearby gains seen in July and August futures contracts have helped set the tone for the entire complex Thursday as firm commercial support has swept through all contract, replacing early pressure in deferred contracts. This lack of pressure through the market is offsetting the upcoming hogs and pigs report which is expected to post increased hog numbers and general expansionary tones through the market. The focus in nearby summer contracts continues to be driven by the aggressive fundamental support seen over the last few weeks as traders focus on firm cash market support and aggressive recent moves in pork values. Cash prices are lower on the National Direct morning cash hog report. The weighted average price fell $1.43 at $84.12 per cwt with the range from $81.00 to $84.23 on 2,496 head reported sold. Cash prices are unreported due to confidentiality on the Iowa/Minnesota Direct morning cash hog report. The National Pork Plant Report reported 101 loads selling with prices falling $1.05 per cwt. Lean hog index for 6/26 is at $91.10 up $0.48 with a projected two-day index of $91.50 up $0.40.

Thursday Morning Livestock Market Summary

GENERAL COMMENTS:

Light to moderate trade surfaced in the northern tier of cattle feeding country. Dressed sales were mostly married at $190 to $191, $3 to $5 lower than last week. Once futures bounced higher off last week's lows, country selling interest seemed to dry up. Asking prices Thursday should start out around $122 to $123 in the South and $193 plus in the North. Live and feeder futures were moderately higher thanks to residual buying interest and short-covering.

The cash hog trade seems staged to open with bids steady to $1 higher. Look for the June 1 Hogs & Pigs report to be released Thursday afternoon. Average trade guesses call for all hogs to be 3% to 5% larger with the sow herd up by 2% to 3%. Lean futures should open on a mixed basis as the board positions ahead of the new quarterly inventory.

	BULL SIDE		BEAR SIDE
1)	Live and feeder futures staged impressive reversals Wednesday with all contracts settling 150 to 350 plus above session lows. The action was all the more impressive given defensive signs from the wholesale trade.	1)	Though Wednesday's cash cattle trade was not widely tested, dressed sales in the North were as much as $4 to $5 lower than last week. This crack seems wide enough to poison the well of the greater cash trade set †o surface Thursday and/or Friday.
2)	Wednesday's major divergence between lower beef cutouts on one hand and higher futures on the other may be a sign of increasing bottom-picking activity.	2)	Beef cutouts continued to dive bomb on Wednesday with the choice box losing more than $4 for the second consecutive session. Box supplies were described as "moderate to heavy."
3)	The pork carcass kept on its bullish roll at midweek and made new highs. The rally was powered mostly by stronger demand for ribs, picnics and bellies.	3)	For the week ending June 24, U.S. hatcheries set 224 million eggs in incubators, up 2% from a year ago. At the same time, chicks placed totaled 183 million chicks; up 2% from 2016.
4)	Nearby lean hog futures closed with impressive progress on Wednesday with spot July set a new contract high. Also, for the week ending June 24, Iowa barrows and gilts average 276.9 pounds, .6 lbs lighter than the week before and .9 lbs below 2016.	4)	Long liquidation and commercial selling in lean futures prior to Thursday's release of the June 1 Hogs & Pigs report seems to be the most prudent behavior among traders.

OTHER MARKET SENSITIVE NEWS

CATTLE: (Business Insider) -- ABC News and Beef Products Inc. reached a settlement in a $5.7 billion lawsuit that claimed a story ABC ran in 2012 misled viewers and caused hundreds of layoffs.

On Wednesday, ABC announced it had reached an "amicable resolution" with BPI. The terms of the settlement are confidential, the Sioux City Journal reported.

BPI's attorney, Dan Webb, said that the settlement "vindicates" the company and its production of "lean finely textured beef," the product that ABC dubbed "pink slime" in its 2012 reports, Sioux City Journal's Nick Hytrek reported.

"Although we have concluded that continued litigation of this case is not in the Company's interests, we remain committed to the vigorous pursuit of truth and the consumer's right to know about the products they purchase," ABC said in a statement.

The news comes less than a month after lawyers made their opening statements in a trial that could have resulted in a verdict of as much as $5.7 billion if BPI had won.

In the suit, BPI alleged that ABC misled viewers by calling "lean finely textured beef" (LFTB) "pink slime." LFTB is a commonly used ingredient in beef products and is safe to eat, which ABC noted in its report. However, even with assurances that the ingredient, which is made from the trimmings of a cow and treated with ammonia to kill bacteria, wasn't dangerous, the phrase "pink slime" allegedly turned off customers.

"They ignored the proper name," BPI's lawyer, Dan Webb, said in his opening argument, according to the Hollywood Reporter. "When you have a major news organization that is calling the product 'slime,' witnesses will say they can't imagine anything worse. It connotes something disgusting, inedible."

BPI said it had to close three plants and lay off 700 workers due to "pink slime" backlash.

Meanwhile, ABC's attorney argued that the "pink slime" reports brought light to the fact that BPI and other ground beef producers had been using an mostly-unknown beef product that most shoppers and customers were unaware they were eating.

HOGS: (Wallaces Farmer) -- The new $300 million pork processing plant being built at Sioux City is set to open in September, giving hog farmers in northwest Iowa and bordering states a new market. Officials of Seaboard Triumph Foods outlined their plans at a press conference at the recent World Pork Expo in Des Moines.

"We're still on schedule and getting close to opening," says Mark Porter, CEO of Seaboard Triumph. "We are planning to begin operations no later than the first week of September." The Sioux City plant is an equal partnership between Seaboard Foods and Triumph Foods.

Company officials say the Sioux City location gives them good access to a supply of market-ready hogs. The plant has access to transportation, an experienced workforce and a pro-business environment. "We're very happy to be in Sioux City," says Terry Holton, president of Seaboard Foods.

The facility is initially set to process about 10,000 hogs per day in a single shift. Seaboard Triumph officials say they plan to expand to a second shift next year, raising daily processing capacity to 21,000 hogs.

Seaboard and Triumph will each supply one-third of the hogs for the packing plant from producers who already contract to sell to each company. The remaining one-third of the hogs will be purchased from independent producers. The companies have been actively seeking production contracts with local farmers in recent months, preparing for the plant's opening.

"One of the questions we get is what impact will the plant have on hog prices?" says Holton. "It will probably raise them, because we have new capacity and it will add to the demand for hogs. That's how the market works."

Seaboard Triumph plans to slowly ramp up production this fall as it trains new employees. The plant will create 1,100 new jobs, accounting for $48 million in payroll initially. The starting wage for production workers is expected to be $15. Holton says the majority of the jobs will be filled by local residents, adding to wages in a region that already has a relatively low unemployment rate. Sioux City's unemployment rate has been running slightly below Iowa's 3.1% unemployment rate.

Seaboard Triumph is also working with city and state leaders to assist immigrant refugees who are in need of jobs to fill some positions, says Porter. While the plant will initially employ 1,100 workers, officials expect to add an additional 1,000 workers by next summer, when it begins operating a second shift. Filling the 2,100 Iowa jobs may be tough, considering there are competing livestock and poultry processing plants in the area.

In addition to recruiting workers regionally, Seaboard Triumph is working with the state of Iowa to make Sioux City a primary refugee resettlement location. The company has also talked with government agencies about supplying workers through a federal visa program.

"If we create the right working environment for people and offer fair benefits and wages, we believe we can attract the workers we need," says Holton.

Another pork processing plant is under construction in northern Iowa. Prestage Foods, headquartered in North Carolina, is building a $240 million pork processing plant that's expected to open in 2019. This plant, in Wright County in north-central Iowa, is expected to initially employ 920 workers.