July 6, 2020
Beef- Drought like conditions continue to escalate into the early summer months, with dryness expanding deeper into the Central Plains, but also emerging throughout parts of the Northern Plains. USDA estimated that approximately 23% of the US cow herd is in an area experiencing drought, with 10% of those cattle in an area noted as experiencing severe or more intense drought conditions. Not only has the drought expanded, but the severity has worsened, as well, with increasing levels of extreme drought (and even instances of exceptional drought) conditions expanding from Texas well into Kansas, with Colorado also showing 25% of their cattle inventory in extreme drought. While the recent COVID-19 related packing plant slowdowns stymied some of the expected beef cow movement from pasture to slaughter, beef cow harvest levels have accelerated sharply following the Memorial Day week and are up 9% throughout the three actual reported weeks of June. Weighted average fed cattle carcass weights in 2020 have been above 2019 and the five year average every week so far. Through the first quarter of 2020, the weighted average ran 2.4% above 2019 but in the first half of the second quarter gains amounted to 4.5% above last year. Summer cow slaughter may run a little below last year, but will increase seasonally into the fall and expected to run above last year through some further modest liquidation of the beef cow inventory. Domestic 90s are expected to weaken going forward, as meat block costs continue to run well above the recent lower levels on the grinds. The rebound in steer and heifer harvest, along with significantly heavier carcass weights on a year over year basis, now has production of beef 50s above year ago levels. Beef 50s continued to weaken this week, into the mid and upper $50s. The fat trim may stay in the $50s through July and into early August. Grinds are expected to move sideways to somewhat firmer, with perhaps some lift in August in front of Labor Day.
Pork- Hog availability in the first quarter was 8% over the prior year with the harvest level reflecting that. Hog availability for the second quarter 2020 was just over 3% but obviously not realized on plant closures and an inability to accomplish those harvests in full. With hogs carried over, the third quarter is expected to show an availability over the prior year by more than 5%, with a substantial increase in pork product to clear now that harvest levels are normalizing. The hog harvest for 2021 still is being drawn, but if farrowing reductions for these next two quarters are even partially realized, hog harvest for first quarter 2021 could be down more than 5% from 2020, but still likely larger than first quarter 2019 in absolute terms. The contraction has begun in the hog herd and commercial pork production in the US, but by how much and for how long is still yet to be determined. Retail is just now putting bacon in the ads, but pricing is not necessarily exceptional just yet. Look for bellies to be soft for another week or so, with slow lift through July on plants expected to slowly wake back up to process for product. The robust supply of animals coupled with weak food service demand expected in July will help to mute the price increases. Spareribs strengthened during the start of the week, on fresh buys that were still intended for the Independence Day holiday weekend. As product could no longer make it in time for the long holiday weekend price started to pull back as expected. Price should ease consistently this week, though not aggressive as spares and St louis style ribs were in the ads. There will be replacement of product and acceptable movement for the remainder of the summer.
Poultry- According to the most recent USDA Cold Storage report, broiler meat stocks ended May at 857 million pounds. The total was 77 million pounds lower (or down 8%) from April levels, although still up 3% over May 2019. Harvest during May was 732 million head, which was down 8% compared with last year and down 3% versus April. May chick hatchings were 807 million head, down 50 million head compared with a year ago (down 6%) while rising 34 million over April (up 4%). The lower planned chicken placement for May set up the lower harvest head count experienced in June. The harvest for the week of June 27 was 165 million head, up three million pounds from last week and down 11 million pounds (or 7%) from 2019. With broiler weights continuing to be significantly higher than last year at 6.4 pounds (due to the skew to big birds in the live production mix as discussed in featured analysis), ready-to-cook broiler meat production was down just 4%. Average weekly prices slipped below $1.20for boneless skinless breasts, as anticipated pre-Independence Day retail feature support did not materialize, and foodservice re-openings have yet to reach demand critical mass. Poultry operations have managed to keep current market needs supplied despite COVID-19 plant associate infections and absenteeism. Big bird plant deboning line time is keeping customer needs met while foodservice demand lags availability. Small and medium bird parts are trading at a significant premium over jumbo. Restaurant traffic is improving but, with rapidly emerging hot spots, local and state government are stepping back to phase one social distancing guidelines, again putting any economic recovery timetable in jeopardy. Boneless/skinless breast fluctuates day to day with average price reported down $0.04 to $1.19 per pound by USDA for the holiday-shortened production week. As we learned from last weeks USDA cold storage report, there was still plenty of breast meat languishing as freezer stock when the month began. The boneless/skinless breast meat price averaged $0.04 higher this week than in 2019. expected. Assured supply remains a risk nearby as the COVID-19 infections continue to disrupt staffing and pose temporary closings. The impact of this would be the risk upside price volatility. Tenders prices rose $0.03 to $1.34 but the tires appear to be spinning in loose gravel some $0.44 below the comparable year-ago week. Restaurant traffic recovery is key to tender usage and demand recovery. Wing prices moved up $0.02 this week averaging $1.82. Although this weeks price was $0.11 below a year ago, wing demand is firm. Upside price risk is contingent on access to dining rooms and reinstatement of live televised sporting events. Downside price risk on wings lies in a fall resurgence of COVID-19, reclosing closures of restaurants, and accelerated harvest headcount addback.
Seafood- The Canadian snow crab fishing season is entering its final stages after a COVID-19 delayed start. As of June 29th , 81% of the Newfoundland quota had been landed. Both the Newfoundland and Gulf of St. Lawrence snow crab quotas are higher this year and slack food service activity is tempering demand. Still relatively limited snow crab supplies are anticipated to persist. Salmon filets currently selling at a discount to 2019 prices. Imported shrimp pricing steady. In general seafood pricing expected to remain at or below prior year levels as food service accounts for a large share of seafood demand and does not easily transition to retail.
Dairy- The CME cheese block and barrel markets remain historically inflated. The butter markets have been softening. Per the USDA, May 31st U.S. cheese inventories were up 5% compared to the previous year. Butter stocks at the end of May were up 21.2% (y/y). Anticipate cheese prices to correct lower due in part to lessening exports and solid production. Long term contracting should be on hold. The butter markets could experience some modest declines from here but prices usually firm during the summer as cream supplies become seasonally tight. Some long-term buying for your butter needs may be deemed.
Grains - Corn and soybean pricing remains under pressure as weather forecasts currently indicate good yields and large production. The possibility of dry conditions in some winter and spring wheat regions could affect output, but strong international wheat exports will keep pressure on our domestic prices.
Produce- Weather during this time of year can bring added volatility to the produce markets. The roma tomato markets are priced above a year ago due in part to hot temperatures, which may be challenging production. Tomato prices usually fade during July but rise in August. Avocado prices remain well below year ago levels on adequate supplies and soft food service demand. Hass avocado prices since 2015 have averaged 9.3% higher in July compared to June. Potato supplies are tight due in part to last years light harvest which will support prices.