THE MEAT MARKET - JUNE 22.2020

Good Morning – I hope you are doing well; a relentless production schedule on behalf of the packer has continued to keep availabilities plentiful and prices on the defensive. Export interest out of LATAM has begun to increase as well in a direct response to sharper prices along with an uptick in local demand. The big news this week however was all around the resurgence of COVID in China; particularly in the city of Beijing. The rumor mill has been churning nonstop as it pertains to how/when/where this new strain of COVID was identified – Salmon appears to be paying the price for it at current time. Increase inspection/testing methodology for inbound loads has been put into place. In times like this, with legislation moving ahead of science we can expect this to somehow have an effect on prices/availabilities of perishable food products that flow into that market – Basically everything. From a futures perspective; there continues to be very little correlation between the value of the futures and the price of beef and pork. Shackle space demand went from elastic to inelastic as weeks of ongoing plant closures backed up enough livestock to keep all plants of all species running at capacity. In this type of environment, there is very little leverage that the producer has over the packer; therefore, futures should remain “cheap” relative to the price of meat cuts which will keep the packer thirsty to continue putting blood on the floor. Demand continues to be the biggest unknown at this point in time however after the news of COVID resurging in Beijing I am doubtful the demand story will be a straight line up. Lastly, the closure of a major European pork plant towards end of last week has the potential to send domestic EU prices soaring high at a time when demand is coming back in line – Just another sprinkle of volatility in case we needed it !

Retail Ads for the current week had a common theme; beef steaks for all of the father’s out there. Father’s day weekend in the US and CAD is the single biggest middle meat feature week of the year; after all, I have not met the first father who doesn’t like steak (Although I am sure there are plenty ??). Retail prices on these steaks are what surprised me the most; retailers have taken meat prices higher across the case and the new “normal’ on the front page is what could have likely been their regular prices last year. This will be tough for demand moving forward as consumers will likely have less money to spend making high priced beef cuts a “treat” vs the everyday value of pork and poultry. Speaking of value, it is all about the retail-centric pork cuts at current time. As of last week’s close, the bone in and boneless pork loins were trading at close to historical low levels – in some cases, historically low. The further processed meat category continues to see some growth in retail as certainty around pricing and inventory availability has driven this category through spring and early summer. While there are no shortage of “buys” out there; the bulk of the CAD and US retailers are booked through July and unless prices become too good to pass up they are set on their items and pricing – in most cases, these out front commitments are in place at levels well above the current spot market. The best bang for your buck in this week’s beef and pork markets comes out of the pork category in the way of pork loins; bone in. The BI pork loins have been discounted to the point where they have reached historical low levels and with the loin credit items still trading at considerable premiums to the value of the BI Pork Loin combo value we expect these combo BI pork loins price levels to quickly fade.

On the beef side; similar story to previous week with North American prices continuing to fall with no signs of a backstop moving forward – at least not for now anyways. Interestingly enough the packer margin remains historically strong; this coupled along with a plentiful market ready fed cattle supply should keep beef prices under pressure moving forward. Further to this, beef was the protein which suffered the most demand destruction into the near future In terms of forward sales. Pork and poultry have a good amount of the Canadian and US retail promotional space through July and that could put incremental pressure onto beef prices as export markets are not an outlet for the packer. From an imported beef offering standpoint, offers out of South America, Mexico and EU have all of a sudden turned plentiful once again with prices well back of previous year. Foodservice demand across the globe continues to suffer, packers are looking at a cattle supply that may quickly become burdensome if they do not get ahead of it – How will they get ahead of it? Via price discounts . How could we capitalize on this? If we were to look at this current market opportunity as a potential hedge to your out-front needs then how much would you be comfortable “hedging”?  One thing is for sure, anything is possible in this type of market and anything that looks and feels good moving forward should be locked in.

On the pork side, similar story to beef in which production #s continued to move higher while prices were pushed lower. Export demand has started to come alive once again out of markets like LATAM and parts of Asia. Uncertainties around China continue to loom over the industry with the bulk of sales efforts being currently diverted away from PRC and into other destinations – This is a great opportunity for buyers who had been overlooked due to China consistently outbidding them. A general slowdown in exports along with poor out front domestic sales has brought on some great “buy” opportunities. The pork loin primal strikes me as an area in we should focus; the BI and Bnls pork loins went from trading at historically high levels - down to what will soon be historically low levels in the span of 5 weeks.  The extreme lows we are currently seeing will soon correct themselves and therefore strategic buy decisions should be considered around these items. Trim continues to be the star of the cutout with both 72s and 42s carrying their value through last week much better than I would have anticipated. The strength across the trim is keeping offerings to a minimum along with strong prices on items like rollout hams, 3 PC hams, cushion, boneless cushion out picnics. How long can demand and the packer work in unison at maintaining these type of prices on the trim when items like boneless pork loins, pork sirloins, and soon to be pork cushions will all trade at a discount to current 72% level? Ongoing strength on the trim can be a friend as well; In the case of boneless pork loins as an example, current trim returns to the deboning efforts allow for a cheaper cost on the boneless loin.

FOOD FOR THOUGHT?

Will pork ribs replace beef steaks across the front page of North American retail flyers through July?

Out Front & Spot Buying Opportunities

** PRICING – INQUIRE VIA EMAIL/PHONE**

BI Hams – Fresh Combos

Pork Tenderloins – Fresh/Frozen

Pork Cushion Meat – COV 

42% Trim – Fresh 

72% Trim – Fresh 

Beef Chuck Rolls CH 

Beef Top Butts  XT CH 

Beef Briskets  CH 

Have A Great Week,

Luis