MARKET BRIEF - NORTH AMERICAN BEEF & PORK 5/14/18

Good Morning – I hope you had a good weekend; Long weekend preparations are on in full effect and the recent weather and retail flyer activity is starting to “smell a lot like BBQ”! Box movement out of the major packers continues to chug along as most packers find themselves in extremely well sold positions through the 4th week of May – Is it a surprise this is the week leading into the Memorial Day? I doubt that is a coincidence. The opportunity at current time lies in that time frame beyond the Memorial Day weekend in which packers are not as well sold; Primarily due to higher asking prices through the LH of April and the FH of May. Export business continues to grow on a YR/YR basis on both beef and pork into Asia and LATAM with beef taking the lead in terms of YR/YR increases – This is simply due to the fact that the US had become too expensive of a market for export markets to source their product out of. New export destinations for US beef and pork have provided a runway for the US industry to market the YR/YR increases in production: Colombia, Guatemala, Chile, and Peru are amongst the top (New-er) export destination in LATAM while S. Korea and Japan continue to be the shinning stars in the far east. From a futures perspective, the lean hogs and fed cattle both finished off the week looking well supported – Particularly on the nearby contracts. There continues to be a looming fear of prices falling; however based on the levels at which business is getting established at we feel that we are now at a range in which both beef and pork are moving quite well.

The Ads for the current week are starting to feel like that Justin Timberlake song “It’s gonna be Me (May)”. Promotional activity on “grilling” items is on in full effect and the retailers have come out swinging with beef tenderloins for mom. Extremely aggressive front page retails ($6.99/LB for SEL/AA & $7.99/LB for CH/AAA $USD) has got to have restaurants wondering whether they would be able to compete with the at home chefs that would rather cook for mom than take out mom. That is the name of the game in terms of the current merchandising focus for the retail meat programs – How can we retailers gain back some market share from the food service trade? Retail has the opportunity to capitalize on lower costing by moving retails on the turn of a dime – An advantage that the food service business may likely never have due to the flow of their business. From a planning perspective, anything beyond the week of May 25th is up for grabs as the packers have yet to establish a significant enough position out front to hold or raise prices from current spot market – Try and resist buying into the “hype. The best bang for your buck in this week’s cutout is the boneless picnics. Sausage business is certainly here and the pork picnics continue to be trading well below their historical values as well as last year’s levels. The sausage category can be a great way to drive business through the spring and summer periods – Almost as valuable as the beef grinds (Certainly higher margin these days). Based on current raw material costing there is nothing but margin to be made at current spot market levels. Pork grinding material will continue to be readily available through the summer and your offerings on sausage should reflect this – Pile em’ high and watch em’ fly!

On the beef side, cracks in the packers armor are starting to show as offers by weeks end appeared to be geared exclusively to promoting business in that last week of May and forward. Offerings on middle and rib cuts across the SEL and CH grades are a clear indication that there is cattle available and the packers have a desire to harvest them as fast as they are ready – Astronomical margins will certainly drive that behavior. Buyers are not interested at current levels; the cutout has exploded on middle and rib cuts and the buyers who missed out on that forward sales book have had to pay handsomely for their goods. There continues to be lots of beef in the secondary market, wholesalers across the US and CAD have been loading up on middle meats for some time now and if buyers find themselves short and they are able to use a bit of age then there is deal to be had. This type of forward sales activity aftermath is something that typically comes back to haunt the packers efforts at continuing to push markets higher. Out front planning should be focused on round and chucks (Grinds included) as middle and rib cuts pricing ideas are still in outer space.

On the pork side, major packers continue to be well sold through the month of May. Similar to what has happened in the beef market there are a lot of pork retail cuts in the secondary market that were waiting for the cutout to explode. While I would not call the cutouts move on retail cuts an explosion by any means, the strength in the butts and ribs have certainly provided an opportunity for any put-away business to start looking a little better than what we had previously thought. That being said, there are enough wholesalers and major users of ribs and butts that have product put away well back of today’s spot market. If I were to compare frozen inventories between ribs and butts I would argue there are a lot more ribs than butts in freezers –Butts have gone overseas a lot more than ribs have (Ribs get eaten at home). I can honestly say I am impressed by the levels at which the butt complex has traded at over the past 5 weeks: Who would have thought a B.I butt would command a $.15/LB premium over a CC boneless pork loin… I feel like we have finally figured out where the flavor has been hiding this whole time! Speaking of the loins, the back ribs appear to continue to be the only reason the packers are deboning the loins and that will likely continue to be the case through June and into July 4th.

23-27 hams continue to trade sideways just above that $50 mark. The scheduling at the packer level has shifted to include more boneless product as that market continues to try and break away from that $1/LB mark… Without much success. Export business on boneless rollout hams into LATAM has been cannibalized by the sirloins and cushions – particularly as It pertains to the retail buyer. The scheduling shift to boneless will have the packers in the market with more meat to move domestically as the buyers abroad are not quite interested at boneless hams over the $1/LB mark. Trimmings appear to be slowly but surely catching a bit of speed; Freezer stocks will also come back to haunt the spot market as buyers have bought up lots of trim for the spring run up and as of yet we have not seen this materialize to their favour. Export interest out of Central America on 72s is a clear indication that prices are cheap enough to get the business done; for now anyways. The hams should continue to move sideways to higher and any opportunity to book hams out front at current levels should be seen as good value.

Food For Thought…

Will we see a setback in middle meats post memorial day?