THE MEAT MARKET - APRIL 6.2020

Good Morning – I hope you had a good weekend; a combination between a slowdown in domestic retail demand and a relentless harvest schedule has taken a toll on cutout values. Beef was able to hang onto its value much better than pork; retail fresh meat business lends a greater support to the beef cutout than the pork cutout – This may have been the reason there continues to be beef demand while it appears as if pork demand got shut off through the middle part of last week. Canadian and US packers continued to heavily discount fresh product in Combos; this typically gets Mexico in a buying frenzy however this past week things appeared to be a bit less fluid – Even after some steep discounts. From a labour perspective; the US and CAD packers remain vulnerable to employees either getting sick with COVID or not showing up to work due to fears of getting the virus. We now have multiple plants across the US and CAD where this situations Is happening on a daily basis (Hence discounts on combos). Similar to crude oil; if the US and CAD (primarily the US) do not stop producing 2.79M+ head x week then we shall have this type of market around us for some time – consequently; last week’s harvest came in lower than expected at an estimated 2.67M. The lean hog and fed cattle futures suffered sizeable losses this past week allowing the packer to continue harvesting animals at a projected positive margin based on current cutout levels. This holds particularly true for pork as the May contract is trading at $45cwt while the cutout will open up the week at $62cwt on a carcass basis – there is little incentive for the packers to slow down. From an export standpoint, we continue to see big increases in shipments reported to China, Chile and Mexico this past week – This was business booked through the first half of Q1. I expect export volumes to grow as pork prices in North America continue to erode. Lastly, I am starting to feel like some of the prices we are seeing across certain pork, beef and poultry cuts are overdone to the downside. In normal times, we would likely never again see prices like the ones we have today on items like beef tenderloins, pork bellies, pork BI Hams, and boneless skinless chicken breast.

Retail Ads for the current week are starting to feel a lot like Easter; retailers in both the US and CAD have come out with aggressive pricing on smoke/spiraled hams, beef tenderloins, prime ribs, and turkeys. I imagine retailers may be a bit concerned with clearance of items like turkeys and hams – family staples during the holidays. Store traffic was good throughout the week and although the majority of retailers are bought up there continues to be a higher than normal # of shoppers across grocery stores in Canada and the US - This is very positive for meat movement. Retailers have an opportunity to capitalize on the ongoing price meltdown we are seeing across major beef and pork cuts – Will these savings be passed on to the consumer or simply help boost the margin? From an out front planning standpoint, there should be no shortage of options for the N. American retailers. Packers will be motivated to get some meat sold out front based on this week’s cutout performance along with the ongoing slide in future values for lean hogs and fed cattle. Pork spare ribs and butts come to mind as go-to items based on the levels at which they traded at this past week – We will likely test October (possibly record) “lows” on these items throughout the next 2-3 weeks. It is also worth noting that there is a great opportunity to merchandise some of the more traditional processor-type items through the retail case; hams, bellies, and trimmings could become great items within the fresh meat department arsenal. These pork items are already staples in ethnic type grocery stores providing the conventional N. American retailer an even greater opportunity to also cater these items to certain demographics which may have traditionally not shopped your store for those cuts. Also, who doesn’t love pork belly?

On the beef side, the cutout unraveled throughout the week. Beef continues to be well supported by N. American retail with ground beef business providing a backbone to the cutout during these difficult times – Prices were just so high to begin with. There is no shortage of opportunities across the thin meats, rib, and loin cuts – Choice PSMO Tenderloins are trading at white fat cow levels! Over on the processor side, the fat trimmings (50%) have reached historically low levels as well making it a no-brainer for put away business into the upcoming spring/summer season. Unlike beef tenderloins, I imagine burgers/wieners will become very popular items during the upcoming summer season in N. America providing a $.35/LBish… 50% fresh trim market a great upside from here on in. Over to the loin and rib side, if the price erosion we have seen across the PSMO Tenderloin is any indication of what is to come for the Ribeyes, Striploins, and Top Butts then we have some record low middle meat prices coming at us – How will you capitalize on this? In this type of market, is it worth thinking about putting away product? Liquidity has to be of concern in today’s world and unless it is an absolute no-brainer I would be hesitant to do a lot of this. The reality of lower beef prices in the near future should keep buyers short bought and the spot market always long or short of something – Demand continues to be the biggest unknown.

On the pork side, appears as if prices fell faster than the packers were able to get the product sold – This sent the cutout into a downward spiral. Pork prices eroded to the tune of (-$16)cwt on a carcass basis; the losses were led by the hams, bellies, ribs, and butts. It appears as if the only strength left in the carcass is found in the loin primal; there is a good # of boneless loin, back ribs, and tenderloins Ads on the street this week which may just be the reason as to why the loin continues to be firmer than firm. Record low prices across the ham and belly primals are almost too good to pass up; or are they? Liquidity continues to remain a challenge (This is putting it lightly) in every market except the US and CAD. Let’s not forget the US and CAD have been exporting pork at record levels through Q1 and unfortunately the COVID-19 quarantines/social distancing orders have left a good amount of this product in the queue. Export business into China should continue to exceed expectations as the price of pork in that market continues to eclipse anything else being able to be achieved in any other market. The risk to these low prices is a snap back up as fast as they came down; How could you ensure capitalizing on this before it turns? I would love to discuss some strategies around this together with you.

FOOD FOR THOUGHT?

Have US and CAD pork belly and hams reach oversold levels?

Out Front & Spot Buying Opportunities

** PRICING – INQUIRE VIA EMAIL/PHONE**

Beef Trimmings 50%

Beef Trimmings 65%

Beef Chuck Flaps CH

Beef Tenderloins CH

Pork Spare Ribs Combos 

Pork Butts BI Combos

Pork BI Hams – 23/27 Fresh

Pork Bellies Combos – Various Sizes

Pork Fat – Cutting

Have A Great Week,

Luis A. Londo?o