MARKET BRIEF - NORTH AMERICAN BEEF & PORK 6/4/18

Good Morning – Hope you had a good weekend; business over the memorial day (Official BBQ Kick Off) long weekend in the US was nothing short of spectacular - Good Weather + Long Weekend = Grilling time! Product movement through the short week was good as it pertained to boxes of beef and pork. FW sold position for beef and pork packers was in good shape (pork more than beef) and this week the packers were able to cash in on this via fill in business. Packer position beyond next week appears to be quickly deteriorating and out front prices are starting to finally get to a level that will incent some buyers to book up some product. Out front pork pricing appears to be slightly more competitive than beef prices – Loins, Loins, and more loins. Beef and pork continue to get merchandised aggressively at retail as retailers are benefiting from sales and margin growth in a category that had been relatively stagnant over the past couple of years. From a futures perspective, the lean hogs and fed cattle continue to imply what almost everybody knows – The supply of hogs and cattle will continue to post YR/YR increases and this will continue to keep the futures under pressure. It’s in times like these, when everyone appears to think the market will continue to head lower where we tend to get surprised the most – Have you married yourself to a buying strategy for the balance of the year? If not, would this be something worth looking at?

Retail Ads for the current week continue to scream “value” – Pork ribs, pork chops, poultry, and CHEAP beef grinds. Hard to believe we are already in June - Seems like the middle meats have come and gone (peaks are behind us) and we expect the retailers to continue to take advantage of competitive pricing out of the packers on these through the balance of the summer. That being said, pork packers are in dire need to position themselves on the loin complex once again and it will be extremely hard for a beef middle meat to come in between a $1.05/LB USD FOB CC boneless loin… Back ribs and tenders are certainly helping the packer bring back some money onto the loin complex however it appears like the boneless pork loins continue to be weakest link – Opportunity for the retailer and food service operator! Beef round and chuck items will certainly be more competitive to the pork complex; retailers should be spending their negotiating efforts on these primals rather than try to bang heads with the packer over the value of middle and rib cuts – These will come to a happy median for the retailer and packer alike – We are not there yet. The best bang for your buck in this week’s cutout is the CH chuck roll; Chuck rolls are a great item for the retailer to play with year round; they are not merchandised in Canada nearly enough (I may be biased; this is one of my fav cuts) and I believe based on current price levels the chuck rolls would deliver a greater value punch than any other cut on the carcass. Steaks, grinds, roasts, fast fry – Chuck Rolls deliver!

On the beef side, packers continue to move prices lower as they are able to buy cattle cheaper and desperately try to hang onto their sold position – Margins continue to be extremely healthy for the packer and while round pricing has come down I believe there is still lots of downside left on the round and chucks (to a lesser degree). There is currently good availability across the carcass, across all grades. Cattle continues to grade out extremely well and the availability in the spot market is a reflection of this. Lower retail prices on beef cuts will certainly continue to push the market lower; buyers will certainly be looking at this as the new reality and the bids they would be willing to buy product at would be reflective of this. Thin meats are all of a sudden “cheap” once again and in my opinion an opportunity for the domestic market to continue to merchandise these items which had traditionally been export centric items. Chuck short ribs, sirloin flap meat, skirts, and chuck flaps are all items that were virtually unknown a few years ago - How aggressively are you merchandising these items through your business? I believe it would be a missed opportunity for these items to not be as aggressively merchandised as a beef middle or round cut. Opportunity to diversify and make margin = Win/Win.

On the pork side, retail cuts appear to be unravelling after hitting their summer highs the week leading into Memorial Day. The run ribs and butts went on was nothing short of impressive and I would argue it could be the most sizable increases we will see across the hog carcass through the balance of the year. Pork prices typically don’t move up or down as hard as beef prices do (except for the belly); However, the butts and ribs defeated all odds and saw increases of close to 30% in value from their winter “lows” to the recently posted summer “highs”. That is a far greater return than any bank or stock would provide if you were to have put down some product through the winter months!! Pork loin complex and its credit items will continue to be the opportunity going forward in regards to the retailer; Ribs and butts have some way to go (down) still before they start garnishing some interest once again.

23-27 hams finished off the week looking well supported; hams have found themselves a good home in the grinder and that has helped the packers push up the prices on the BI. Processor business is on in full effect and the boneless ham prices are reflecting this – trim however still appears to be underpinned by large deboning activity. Export interest continues to be very good as it pertains to the boneless hams and sirloins/cushions. The packers will need to start working on thanksgiving business through the middle of the summer and the levels that business gets done at should provide a backbone for the ham market through the second half of the year. Look for hams to trade sideways to slightly higher with the risk to the downside coming in the way of cheap sirloins or cushions. 

FOOD FOR THOUGHT ?

How much innovation have you brought to your meat category during the current year? Natural? Free Range? Organic? Grass Fed?