Friday Morning Livestock Market Summary - Livestock Futures Staged for Firm, Late-Week Opening

GENERAL COMMENTS:

Cattle buyers are running out of time to start/complete procurement chores before adjourning for the week. Most sense that live inventory is going to cost more with "how much more" the only real question. Indeed, if today's business turns out to be no better than steady, it will be seen as a major disappointment. Look for open bids around $111 in the South and $174-175 in the North, well below asking prices of $116-118/$180-185. Look for at least moderate trade volume to surface sometime between late morning and mid afternoon. CME officials announced no delivery activity on Thursday. Live and feeder futures should open moderately higher thanks to following buying and cash optimism.

While October's cash hog rally continued this week, it definitely slowed. Indeed, yesterday's business averaged somewhat lower. We don't think opening bids this morning will be any better than steady. Saturday's kill is estimated at 201,000 head. If this guess is close, the weekly slaughter total could notch a new record around 2.54 million head. Lean futures also appear ready to open some higher, supported by spillover buying and late week short covering.

	BULL SIDE		BEAR SIDE
1)	Live cattle premiums went from "real fat" to "near obese" on Thursday as the first four contracts soared with triple digit gains (Feb and Apr once again notched new contract highs. Given such a tall wall, feedlot asking prices should have all the rigidity of steel wrapped in concrete.	1)	Given the dangerously combination of the $9 plus Dec premium, cheap feed, and feedlot red ink, a serious decay in feedlot currentness and leverage over the next 30 days seems inevitable.
2)	Net beef export sales last week jumped to 16,900 MT, up 25 percent from the previous week and 7 percent from the prior four-week average.	2)	Although out-front boxed beef sales popped nicely last week, forward sales had been dropping in the preceding two to three weeks. If slaughter levels pick up once again in November, packers will need to get more volumes across the sales categories.
3)	Net pork export sales last week jumped to 18,100 MT, up 58 percent from the previous week (but down 15 percent from the prior four-week average). At the same time, actual exports totaled 23,000 MT, up 9 percent from the previous week and 10 percent from the prior four-week average.	3)	While spillover buying from the cattle complex has lifted deferred lean hog futures to new contracts highs, concerns linger whether domestic and export pork interest will be able to clear the anticipated large hog supplies in the months ahead.
4)	The pork carcass value popped more than a dollar higher on Thursday, supported by better demand for processing items and fresh cuts.	4)	Lean hog futures are seriously overbought with oscillators at multi-month highs. For example, June hogs closed yesterday with an RSI reading of 77 (the overbought threshold is 70).

OTHER MARKET SENSITIVE NEWS 

CATTLE: (foodmarket.com) -- The seasonal transition in retail meat features is moving along more briskly as cooler temperatures are arriving and likely here to stay.

The change in focus from grilling cuts to more roasts and heavier meals has been underway for a few weeks but is now more evident in the weekly advertisements.

Portions of the Midwest had the first frost of the season midweek, and several inches of snow are even predicted for the upper Midwest today and overnight into Friday. The colder temperatures are forecast to move eastward with frost and even some freeze warnings seen for portions of the Mid-Atlantic region as the week draws to a close, according to the National Weather Service.

Cooler temperatures typically result in a boost in sales of roasts and other items making up heavier meals that are usually prepared in the oven, crock pots or slow cookers. As the opportunities for backyard grilling decline, many of the gas and charcoal grills will be stored away for the winter.

For those who are willing to brave the colder temperatures and extend the grilling season, there could be some late-season bargains for steaks, ribs and pork chops as grocers may need to move the extra inventories.

Beef was again the leader in the number of items featured this week with the category capturing 28.1% of the protein items advertised, according to the Urner Barry Retail Activity Index. Seafood snuck past pork and chicken for second place at 23.1%, followed by pork at 20.9% and poultry close behind at 20.6%.

This week's Urner Barry retail beef index was $5.82 per pound, up from $5.66 last week. Pork came in at $3.65 versus $3.86 last week, while chicken was at $2.71 this week, down slightly from $2.75 a week ago.

The advertisements for next week's beginning of the month features are expected to have a wide selection of meat and poultry cuts likely again led by beef. The average retail price for beef roasts overall this week was $4.85 a pound, up from $4.67 a year ago. Pork roasts averaged $2.43 a pound, slightly below the year-ago figure of $2.45.

HOGS: (agriculture.com) -- The U.S. pork industry will likely expand through 2025, but growth hinges on increasing exports, according to a recent report from Rabobank.

Senior Analyst Sterling Liddell said in the report that he expects the industry to grow "steadily" and see increased efficiencies with rising carcass weights and pigs-per-female as key drivers of the expansion.

The hog and pork sectors in the past decade moved from sluggish output and tight margins to a production recovery phase that was incentivized by positive margins, Rabobank said. Contributing to this was the rise and fall of feed costs, the breakout of Porcine Epidemic Diarrhea virus (PEDv), the ensuing recovery and the aftermath, increased consumption, and the rise in global demand.

Increased processing capacity and efficiency "removes a bottleneck that periodically limits the flow of pork to consumers," Liddell said.

Expansion in the industry will be based broadly on pork exports from the U.S., which need to increase by 400,000 metric tons to remain in a profitable expansion mode, as domestic consumption per-capita is expected to only grow slightly, he said.

Rabobank said in the report it expects exports to China will increase by 100,000 tons by 2025 and shipments to Mexico to rise by 200,000 tons.

"The challenge will be to find an additional 100,000 tonnes of export in the global market," the bank said.

Thursday Closing Livestock Market Summary - Nearby Live Cattle Contracts Surge Forward With Triple-Digit Gains

GENERAL COMMENTS

Cattle buying inquiry improved some Thursday, at least in terms of numbers of bids thrown on the table. Still, these token bids were never in any danger of provoking selling interest. For example, common live bids of $111 were at least $5 below most asking prices. According to the closing report, the national hog base is $0.42 lower ($59-$66.50, weighted average $65.14). Corn futures settled fractionally lower as traders pretty much ignored the threat of adverse harvest weather. Equities closed mixed with the Dow up 71 points and the Nasdaq off by 7.

LIVE CATTLE

Live contracts closed sharply higher with the first four months scoring triple-digit gains. February and April once again notched new contract highs. The bullish activity was powered by fund-buying, aggressive short-covering and cash optimism. Beef cut-outs: mixed, up $202.37 (choice: $202.37) to off $0.48 (select: $191.91) with moderate to good demand and offerings (85 loads of choice cuts, 26 loads of select cuts, 3 loads of trimmings, 21 loads of ground beef).

FRIDAY'S CASH CATTLE CALL:

$1-$3 higher. Higher bids are expected to surface sometime before the weekend break, at least long enough for packers to cover short-term slaughter needs.

FEEDER CATTLE:

Following the bullish lead of their live counterparts, feeder futures advanced by 42 to 122 points. The mounting premiums of deferred live contracts as well as the listless behavior of the corn market as it plows through the harvest period clearly worked to excite commercial buying interest here. CME cash feeder index: 10/25: $154.40, off $0.18.

LEAN HOGS:

Supported by follow-through buying and export optimism, lean issues settled 15 to 92 higher. For the second consecutive session, February through June won new contract highs. Spot December scored its highest close since July 7. The carcass value bolted more than a buck higher, supported by both processing items and fresh cuts. Pork cut-out: $76.35, off $0.11. CME cash lean index for 10/24: $67.32, up $1.22 (DTN Projected lean index for 10/25: $68.28, up $0.96).

FRIDAY'S CASH HOG CALL:

Steady. Opening bids in the morning should be near steady since packers seem to be reasonable covered in terms of Saturday and early week kill needs.

Thursday Midday Livestock Market Summary - Live Cattle Futures Lead Complex Higher

GENERAL COMMENTS: 

Strong market support is seen in nearby live cattle futures. This is helping to draw additional trade volume to the complex. Light but firm support is seen in both feeder cattle and lean hog markets as traders try to keep pace with the rest of the livestock complex as it moves higher. Corn prices are steady to higher in light trade. December corn futures are 1/4 cent per bushel higher. Stock markets are mixed in light trade. Dow Jones is 73 points higher while Nasdaq is down 2 points.

LIVE CATTLE:

Strong triple-digit gains have developed across the live cattle futures complex with the main focus on October through February contracts. This is helping to spark additional commercial buyer support through the entire market although traders focus on December futures moving above $120 per cwt. This may have additional implications to the rest of the complex as the December futures take over as spot month contracts following the expiration of October futures. Cash cattle activity is starting to become more focused with bids becoming evident in all areas. Bids are seen at $111 live basis and $174 dressed basis. There is very little interest by feeders to aggressively move into the market at this point, potentially delaying trade until late Friday. Asking prices are seen at $116 and higher live basis in the South and $180 and higher in the North. Beef cut-outs at midday are mixed, $0.18 lower (select) and up $2.25 per cwt (choice) with active movement of 101 total loads reported (69 loads of choice cuts, 18 loads of select cuts, no loads of trimmings, 14 loads of ground beef).

FEEDER CATTLE:

Firm buyer support continues to be seen in feeder cattle futures at midday with gains holding 60 to 80 cents per cwt. This is a abrupt change from the narrowly mixed market structure seen early in the session. Strong triple-digit gains seen in live cattle futures has helped to bring renewed support back to the feeder cattle complex, although at this point, most buyer activity remains sluggish at best.

LEAN HOGS:

Lean hog futures have broken out of the narrowly mixed trading ranges seen over the last couple of hours with firm buyer support developing in nearby contracts. This is helping to draw additional price support into the complex with nearby futures trading 40 to 60 cents per cwt higher at midday. Deferred futures remain more sluggish with prices 10 to 20 cents per cwt higher. Additional uncertainty may develop surrounding the pressure in morning cash price levels. Cash prices are lower on the National Direct morning cash hog report. The weighted average price fell $0.19 at $65.37 per cwt with the range from $59.00 to $66.50 on 4,332 head reported sold. Cash prices are lower on the Iowa/Minnesota Direct morning cash hog report. The weighted average price fell $0.13 at $65.61 per cwt with the range from $63.50 to $66.50 on 1,925 head reported sold. The National Pork Plant Report reported 111 loads selling with prices gaining $1.23 per cwt. Lean hog index for 10/24 is at $67.32 up $1.22 with a projected two-day index of $68.28, up $0.96.

Thursday Morning Livestock Market Update - Look for Cattle and Hog Futures Seem Set This Morning to Open With Mixed Prices

GENERAL COMMENTS:

Cattle buying interest should gradually start to improve with opening bids around $111 in the South and $175 in the North. Asking prices should be stated around $116 in the South and $180-plus in the North. Unless we see an early narrowing between bids and asking prices, significant trade volume will probably be delayed until Friday. CME officials announced on Wednesday 10 loads retendered against October at $1 (all at West Point). These 10 loaded were reclaimed. Live and feeder futures should open on a mixed basis as specs and commercial slowly position ahead of the development of cash business.

Hog buyers should resume work this morning with bids steady to $1 higher. The spread between the pork cut-outs and the nation lean base is just shy of $11, implying packer profits close to $15 per head, That's smaller than early fall margins but still decent. Saturday's kill should total close to 200,000 head. Lean futures seem likely to open mixed as well with nearby probably outperforming deferreds.

	BULL SIDE		BEAR SIDE
1)	Though nearby live contracts lost some ground on Wednesday, they easily held on the lion's share of Tuesday's surge, Furthermore, the unrelenting premium of December will certainly encourage bullish feedlot managers to dig in their heels in terms of higher asking prices.	1)	Although the aggressive fed cattle harvest levels of late September likely tempered the expected seasonal increase on carcass weights, weights are expected to continue increasing throughout October.
2)	Open interest in live cattle futures have jumped to the highest level seen since late September, underscoring the bullish significance of recent technical progress.	2)	For the week ending October 21, U.S. hatcheries set 215 million eggs in incubators, up 2 percent from a year ago. At the same time, chicks placed totaled 172 million chicks; up 2 percent from 2016.
3)	Lean hog contracts issues to barrel higher at midweek with Feb through Jun actually setting new contract highs. Between accelerating kill capacity and strong domestic and foreign demand, the trade seems confident about new year's market to handle increasing tonnage.	3)	If we hit a record hog slaughter this week (even though it was boosted by the unusual Sunday kill), boosted the total over 2.54 million head, it could pressure the wholesale pork trade next week.
4)	For the week ending October 21, Iowa barrows and gilts averaged 281.7pounds, 0.3 pound lighter than the previous week and 0.1 pound smaller than 2016	4)	Furthermore, there's a good chance that early December hog kill could reach as high as 2.6 million head.

OTHER MARKET SENSITIVE NEWS 

CATTLE: (Bloomberg News) -- McDonald's is preparing to up the ante in the fast-food price wars. The world's largest restaurant chain, facing heavy competition in the U.S., will launch a new value-priced menu nationally next year. The lineup will offer items for $1, $2 and $3, the company said on Tuesday.

The rollout will provide a long-awaited replacement to the Dollar Menu, which was popular with customers but less so with McDonald's franchisees. The company has experimented with various discounts -- including McPick 2 for $5, which let customers choose two items -- in a bid to find something that wasn't too hard on the profit margins of restaurant operators.

Almost 100 percent of franchisees have signed up to participate in the new value program, McDonald's said. The stakes are high to get the formula right. Wendy's and Burger King, McDonald's closest competitors, have heavily promoted their discounted menus. And many U.S. consumers have retained a thrifty attitude in the years since the last recession.

But McDonald's is adding the new menu from a position of strength. It has seen U.S. restaurant traffic grow for two consecutive quarters, following years of declines. With the new value lineup, the company is trying to lock in those gains, said Michael Halen, an analyst at Bloomberg Intelligence.

"You have to have some everyday value because a decent portion of that business is very price-sensitive," he said.

HOGS: (Bloomberg News) -- After years of fighting for an Obama-era rule that would help farmers sue the mammoth companies they work for, advocacy groups for America's small poultry, pork, and beef growers may have been dealt a final blow by the U.S. Department of Agriculture.

The fight was about whether small farmers can sue if they feel they've been mistreated by big companies. Poultry farmers, for example, often get their chicks and feed from big meat producers, which in turn pay the farmer for the full-grown product. If a farmer wants to sue a company for retaliating against him because he complained about his contract—say, by sending him sick chicks or bad feed—the farmer needs to show the company's actions hurt not only him, but the entire industry.

Under President Obama, that high bar would have been lowered. Under the interim final rule, a showing of harm to only one farmer would suffice to support a claim. The Trump administration last week threw out the Obama-era rule in a move hailed by lobbyists for the big agriculture companies.

"I can't tell you how disappointed I am," says Mike Weaver, a West Virginia poultry farmer and president of the Organization for Competitive Markets, who voted for Donald Trump. "Rural America came out and supported the president, and if it weren't for us, he wouldn't be where he is now. What they did was wrong, and it shouldn't have happened that way."

Farmer groups—including the National Farmers Union, Rural Advancement Foundation International-USA, Farm Aid, R-CALF USA, the U.S. Cattlemen's Association, and the Organization for Competitive Markets—supported the Obama-era rule. Many farmers and ranchers thought Trump would allow it to take effect, citing his support for small business and rural Americans. Industry lobbyists, such as the National Cattlemen's Beef Association, the National Pork Producers Council, and the North American Meat Institute, hoped the Republican president would undo the rule, citing fears over increased litigation from farmers. They also thought they'd found a champion for their cause in Trump, who had vowed to cut federal regulation.

"When Trump was coming in with the mantra of reduced regulation," says Jeremy Scott, a protein research analyst at Mizuho Securities USA LLC, "there was relief." In the end it was industry, not farmers, that guessed correctly. National Chicken Council President Mike Brown publicly praised the USDA decision.

Meanwhile, farmers and ranchers are left with few options to challenge huge companies over allegedly anti-competitive behavior. "This gives the meatpacking industry the ability to do whatever they wish in terms of retaliation against an individual," says Jay Platt, a cow-calf rancher in Arizona, who also voted for Trump. "It leaves the cattle producer absolutely punchless."

In addition to Democrats on Capitol Hill, at least one member of Trump's own party sees it that way, too. "They're just pandering to big corporations. They don't care about family farms," Senator Chuck Grassley, an Iowa Republican, told reporters upon hearing the news of the USDA decision. "This is an example of a swamp being refilled."

Although the Trump administration has faced litigation opposing other attempts to undo Obama-era regulations, lawsuits are unlikely to succeed in this case because the USDA took public comment on the possibility of withdrawing the rule, which itself was based on an interpretation of existing federal law, before doing so.

"If there's some ambiguity, the agency responsible for carrying out the rule is given deference," says Cary Coglianese, a law professor at the University of Pennsylvania and director of the Penn Program on Regulation. "It may have been reasonable to interpret the statute the way the Obama administration did, but that doesn't mean the Trump administration's isn't reasonable."

For now, farmer groups are looking at other avenues. Weaver has sent a letter asking Trump to issue an executive order reversing the USDA's decision. He still lays part of the blame, however, with the Obama administration, whose rural agenda was largely stymied by Congress.

"Obama had the opportunity to do the right thing, and he didn't," says Weaver. "He made a lot of promises to the farmers about the things he was gonna do and never followed through on them."