While trade volume totals look no better than moderate, we suspect cash cattle trading is done for the week. While scattered clean-up business is possible here and there, prices are unlikely to be any better than Thursday's trade (e.g., $120 live). The June 1 Cattle on Feed report will be released Friday afternoon at 2:00 p.m. CDT. Average trade guesses look like this: on feed, up 2% to 3%; placed in May, up 10% to 11%; marketed in May, up 9% to 10%. Live and feeder futures should open on a mixed basis as traders take profits, engage in further long liquidation, and position ahead of on feed news.
With immediate slaughter needs essentially covered, look for hog buyers to begin work Friday with bids steady to $1 lower. If Saturday's hog kill turned out to be zero as expected, the weekly slaughter could be no more than 2.13 million head, only about 1.5% above last year. This could possibly be the lowest, non-holiday slaughter level for the calendar year. Lean futures should open mixed tied to residual selling and short-covering.
| BULL SIDE | | BEAR SIDE |
| 1) | Net beef export sales last week totaled 16,600 metric tons, up 96% from the previous week and 60% from the prior four-week average. | 1) | Beef cutouts closed significantly lower on Thursday with box movement called no better than "light to moderate." With the last major beef holiday of the season sitting on the horizon and bigger dogs of summer still barking in the wings, beef demand is now set to weaken before it gets better. |
| 2) | Frozen beef stocks as of the end of May totaled 412.9 million pounds, down 9.9% from April, 10.6% below 2016 and 10% short of the five-year average. | 2) | Live and feeder remain on the defensive with promise of technical support (e.g., 100-day moving averages) still $2 to $3 below Thursday closes. Additionally, live cattle open interest remains historically large, possibly fueling extended selling. |
| 3) | Net pork export sales last week jumped to 24,700 MT, up significantly from the previous week and up 49% from the prior four-week average. | 3) | The pork carcass value broke lower Thursday, suddenly reversing red-hot appreciation earlier in the week. Does this suggest that we are close to a top in seasonal demand? |
| 4) | Between long-term seasonal supplies trends and the likelihood that the best of bacon demand is still ahead of us, it's a good bet that positive supply and demand fundamentals will support the hog/pork for at least another 30 days. | 4) | Nearby lean futures closed sharply lower on Thursday despite the tall premium of the cash index and this week's impressive package of positive fundamentals. Traders are already nervous about the next shoe to drop (e.g., a bearish June 1 Hogs & Pigs report; a shift back toward larger weekly slaughters).
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CATTLE: (Omaha World Herald) -- Tyson Foods has sent a shipment of beef to China, making it the second meatpacker with operations in Nebraska to say it has done so under new trade rules.
The company shipped the meat last week, a Tyson spokeswoman told The World-Herald on Wednesday. Tyson's Lexington, Nebraska, plant is one of four U.S. meat processing locations approved to send beef to China under the rules.
Tyson declined to give details about the timing, the size or the destination of the shipment, or its future plans for exporting beef to China.
Tyson joins Greater Omaha Packing, which said it made the country's first shipment of beef to China when it sent steaks by air on June 14. Before the new trade rules took effect, China had been closed to U.S. beef since 2003.
Two other operations, Creekstone Farms Premium Beef in Arkansas City, Kansas, and a JBS plant in Omaha, also are now approved for China shipments, according to the USDA. Information about any shipments wasn't immediately available Wednesday from those firms.
Tyson Foods, based in Arkansas, is the nation's biggest beef processor. Beef exports generated about $2 billion in sales for the company in its 2016 fiscal year, out of $14.5 billion in total beef sales and a total of $36.9 billion in sales.
HOGS: (foodmarket.com) -- The addition to U.S. hog processing capacity this spring and summer could begin to have some regional impact on the cash market and boost competition among packers for the animals by autumn.
The first and smallest of three new U.S. pork plants to come on board this year is Prime Pork, located in Windom, MN. The original planned opening date was in December. However, the owners found additional upgrades that were needed to the plant which were made during the winter and early spring, and the plant opened in late April. The Prime Pork facility plans to process about 6,000 head a day by July. Glen Taylor, owner of the Minnesota Timberwolves, partnered with Minnesota hog producer Greg Strobel, to form Prime Pork.
The Seaboard -Triumph Foods plant located in Sioux City, Iowa, is scheduled to open in July and will be able to process 10,000 to 12,000 hogs a day. The plant will operate on one shift for nearly a year then plans to add a second shift by May of 2018 which boost daily production to around 20,000 head.
In September, the new Clemens Food Group plant in Coldwater, Michigan will begin operating. When up to speed, the facility will be able to process about 10,000 head per day
Training workers and attaining full speed on all operations in a new plant can take several weeks to a few months to accomplish. If these three new plants all meet their schedules for opening, the industry's daily processing capacity should rise from around 450,000 head as of May 1 to about 476,000 head sometime during the fourth quarter. If all goes well, about 75% or more of the additional 26,000 head capacity may be realized by late September to early October and the balance could come on stream by early November.
The timing of the added processing capacity is good for hog producers because slaughter-ready supplies are typically the largest in the late fall and early winter.
The increase in processing ability means packers will likely compete more aggressively for the hogs, that is unless production expands at an equal rate as the increase in slaughter capacity. Producers did boost output in anticipation of the additional plants coming on stream, and that resulted in an excess of hogs this spring that drove down prices by more than 25% from mid February through late April. Producer returns dropped by more than $43 per head during that period.
Based on the March 1 quarterly hogs and pigs report, supplies are projected to be larger this fall but not quite as much as processing capacity is expected to increase, so that could result in more stable hog prices during the second half of the year.
While pork output is expected to be at record levels throughout the year and hold down wholesale prices overall, the additional plants could result in reduced operating margins for processors and improved returns for producers compared with what they would have been otherwise.
In 2018, the addition of a second shift to the Seaboard-Triumph plant scheduled for May will boost U.S. daily hog processing capacity by about 10,000 more head. The startup of the Prestage Farms' facility being built in Wright County, Iowa, planned for late 2018 or early 2019, will add another 10,000 or more, which would raise the daily total to nearly 500,000 head.
