Business Insights

July Market Outlook

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Beef

General Comments

The choice/select spread is collapsing seasonally. Currently it is near $11, but expected to be $5 by late July, bottoming in tandem with the seasonal low in the choice cutout. July is ‘hamburger’ month and end cuts, trim and the select carcass in general all benefit.

Canada announced a final list of items targeted for retaliation over U.S. steel and aluminum tariffs, hitting U.S. beef, agricultural chemicals and whiskey, as well as a large number of steel and aluminum products. The $12.6 billion of tariffs will go into effect on July 1. Items will be subject to taxes of 10% or 25%. “We will not escalate and we will not back down,” Canadian Foreign Minister Chrystia Freeland said, according to the Associated Press. “This is a perfectly reciprocal action. It is a dollar-for-dollar response.” This, along with other trade disputes, is potentially very bearish for prices.

Loins

Top Butts: Prices dipped lower as we got to the middle of last week. Butts are typically well-supported through August, but supplies are large and increasing. Short Term: Mixed pricing.

Strips: Choice Strips continue retreat from their lofty levels in June. Selects remain steady-firm as a lower percentage of the cow is grading Select – keep supplies tight. Expectations are for prices to move lower throughout the summer. Short Term: Steady to weaker pricing.

Tenderloins: Tenderloins bounced back higher last week on price-point demand. Expectations are for prices to move lower through August; however, current levels are well below last year’s price and the 5-year average that may encourage buyers. Short Term: Steady to lower pricing.

Tri-Tips: Both Choice and Select prices moved lower last week and may have put in their seasonal top. Expectations are for prices to migrate lower throughout the summer. Short Term: Steady to lower pricing.

Ribs

Ribeyes: Choice Ribeyes continue to fall, as seasonally expected. Selects were firm on tighter supplies with a smaller percentage of the cow making that grade. Seasonally, look for both grades to move lower; however, the downside may be limited given price declines already experienced the last 7 weeks. Short-Term: Steady to lower pricing.

Chucks

Chuck Rolls: Chuck Rolls were steady with a weak undertone. Seasonally, this item moves higher through September; however, prices are already historically high which may deter buyers. Short Term: Steady to firm pricing.

Teres Majors: This market continues to be weak. Prices have been is a steady downtrend since late-April. Seasonally, this market moves lower through the summer, but the downside may be limited with major declines already occurring. Short-Term: Steady to softer pricing.

Briskets: Briskets continued lower last week as the large demand period of comes to an end. Further declines are expected in July. Short Term: Lower pricing.

Thin Meats

Ball Tips: Prices were softer last week as supplies outweighed demand. Seasonally, this market migrates lower through the summer, but prices are at attractive levels in comparison to last year and the 5-year average. The downside may be limited. Short-Term: Steady pricing.

Flap Meat: Choice prices were lower last week while Selects firmed up of relatively tighter supplies. This item typically migrates lower from now until October. Short Term: Steady to lower pricing.

Skirt Meat: Outside skirt prices are holding steady despite increasing production. Demand has been excellent. Insides were slightly lower last week. Skirts typically fall as the summer progresses, but the past couple of years have not been typical for skirt prices. Short Term: Steady pricing.

Flank: Choice Flanks moved higher last week on solid demand; Choice prices were steady with a weak undertone. Expectations are for this item to migrate lower throughout the summer. Short Term: Steady-lower pricing.

Rounds

Peeled Knuckles: Prices continue to march higher, bouncing back from their mid-June low. There is plenty of upside price risk as Knuckles typically rally from now until mid-August and prices are currently well-below last year’s levels and the 5-year average. Short Term: Neutral to firm pricing.

Inside Rounds: Prices are stabilizing after 6 weeks of decline. Some forward bookings in recent weeks suggest we may see more retail feature activity soon. Processors have also been using rounds in ground beef formulations. Seasonality favors a price rally from now until mid-August. Short Term: Steady to firmer pricing.

Bottom Round Flats: Flats were steady-firm last week, holding their recent gains. This item typically rallies from now until October with a small setback in late August. Prices are well below their 5-year average, enticing buyers. Short Term: Steady to firm pricing.

Eye of Rounds: Prices continue to be firm, bouncing back from lows not experienced since September of 2016. Both seasonality and price-point demand are expected to support this item the next few months. Short Term: Steady to firm pricing.

Grinds

Fresh 50s bounced back higher last week on solid, price-point demand. Prices are at the second lowest level for this corresponding week in 10 years (only 2012 saw lower pricing). Seasonally, Fresh 50s continue lower throughout the summer, but the magnitude of the price risk to the downside is shrinking. Prices on Fresh 90s continue to be steady. Demand has been much better than expected. Overall, larger output and continued competition from pork and chicken is keeping ground beef prices subdued. This is a great feature opportunity for food service. Short Term: Steady to lower pricing on 50s; Steady pricing on 90s.

Poultry

General Comments

Weekly ready-to-cook production for June 23 was up 4.2% from a year ago at 780 million pounds. The number of broilers processed was up 0.9% from a year ago at 165 million head. Broiler weights were up 3.3% from a year ago at 6.21 pounds. This is the first weekly increase in nearly 3 months. Small production increases (1%) should continue due to the increase in egg set numbers for this time period. The USDA is calling for July through December chicken production to be 2% better than last year.

Broiler meat in publicly available cold storage facilities continues to run well above year ago levels. The last time cold storage inventories reached these levels was in 2006, prior to the recession. Small-sized whole bird/cut-up chicken supplies have been better as hot weather in the chicken belt reduces weight gains. Prices are easing off record levels. Demand for wings should pick up in the coming weeks. Dark meat prices are uncertain as export markets may be drastically affected by proposed, scheduled tariffs ready to be imposed.

Wogs

Whole Bird and WOG markets were weaker this past week. Despite the softening of the overall Whole Bird and WOG market, smaller sized birds and WOGs remain strong and are expected to maintain their strength as production levels remain flat. Short Term: Steady to soft on larger birds, firm pricing on smaller birds.

Breast Meat & Tenderloins

Breast and Tenderloin markets continue to gain strength, but the overall strength is expected to be short term due to increased production in the coming weeks. Short Term: Steady to firm pricing.

Wings

Wing markets continued to find strength this week despite adequate supply levels. The wing market is expected to continue to hold its strength, as QSR features have boosted demand for jumbo wings. Medium and smaller wings are more available, but are still at premiums to jumbos. Short Term: Firm pricing.

Thighs

The market for thighs and dark meat softened this week due to trade uncertainties. Short Term: Steady to decreasing pricing.

Turkey Whole Birds

This market is steady, but demand has been described as slow. Pricing for deferred shipments continues to be firm with declines in production across the industry. Short Term: Steady pricing.

Turkey Breast Meat

Breast meat prices have risen recently, getting a boost in demand from consumers turning to more summer deli-type items. Recent declines in production are also contributing to price increases. Expectations are for continued firm pricing as retailers will probably bring turkey back to their feature activity now that Independence Day has past. Short Term: Steady to firm pricing.

Pork

General Comments

Total pork production for the week ending June 30, 2018 was estimated at 471.3 million lbs. This was 2.9 percent over the previous week and 3.7 percent over last year. According to the USDA, pork production this summer is likely to be 4.2% more than last year. This should keep pork prices at bay. Pork demand has been strong, as expected. However, look for consumers to switch to lighter meal options as the summer heat curbs appetites.

Concerned U.S. pork producers are facing a second round of hefty retaliatory tariffs from China and Mexico. Executives say the pork industry has been expanding in recent years, in part on the expectation of export opportunities that would continue to support growth. One in 4 hogs raised in the U.S. is sold overseas, and the Chinese are the world’s top consumers of pork. Mexico imposed a 10 percent tariff on chilled and frozen pork muscle cuts effective June 5, and that import tax is set to double to 20 percent on July 5th. In addition, China is scheduled to start collecting an additional 25 percent import duty on American pork products, starting July 6th. If these trade disputes are not resolved or tariffs rescinded, it is potentially very bearish for prices.

Loins

Loin prices were steady with a weak undertone. There are plenty of bone-in supplies and a shortage of boneless as labor shortages continue to plague the industry, especially in the summer. Seasonally, Loins rally through July, but supplies are sufficient and competitively priced alternative proteins provide a hurdle for prices. Short Term: Steady pricing.

Tenders

Prices continue to be firm. Seasonally, Tenders top out around this time of year and move lower through August. However, prices are already at their lowest level for this corresponding week in 5 years. Short Term: Steady to lower pricing.

Butts

Prices were steady with a weak undertone. Prices typically move lower from now until September; however, consumer shifts in demand for BBQ and pulled pork may provide a larger than normal demand and support prices. Short Term: Steady pricing.

Belly

Bellies continue to trend higher, as expected. Demand from retail and foodservice has been excellent. Processors are having difficulty keeping up with demand for fresh product, but more ample supplies in cold storage “should” temper any severe rallies. Short-Term: Steady to firm pricing.

Ribs

As the number of days left in July decreases, so do rib prices. The rib complex was lower with Spareribs experiencing more severe declines. Backribs, all things considered, held up well. The rib market typically moves lower in July; however, shifts in consumer taste for BBQ may keep prices. Short Term: Steady to lower pricing.

Hams

Ham prices retreated lower last week. There is plenty of uncertainty with the Mexican ham tariffs due to increase on July 5th. Seasonally, prices move lower through July and August. However, with price being at their lowest level for this week in 5 years, many retailers look to feature this item, which may provide support. Short Term: Steady and uncertain pricing.

Dairy

Butter

In general, throughout the country, the demand for butter varies from steady to weak as summer heat increases. Cream volumes remain available for butter churning even during the peak of ice cream making. However, in the East, the demand for cream is strong and is reducing churning production schedules in some processing plants. Conversely, in the west region, some manufacturers are willing to sell off some cream spot loads to ice cream makers in lieu of making butter. Nationwide, butter stocks are steady to building. As of the end of May 2018, butter stocks reached 338.8 million pounds, an increase of 8 percent compared to last year, according to the most recent NASS Cold Storage report. Short Term: Steady to lower pricing.

Cheese

The current cheese market conditions have market participants uncertain where cheese prices and demand will go. The overall market tone is unsettled due to three main reasons: trade concerns, cold storage data and inconsistent barrel demand. A few contacts report that some overseas customers are cancelling contractual orders, forcing sellers to adjust their prices downward to maintain current contracts. Cheese demand is sluggish overall except for Italian cheeses, which are meeting seasonal expectation. Cheese production is strong as cheese vats take in near to capacity milk loads in an attempt to manage heavy milk supplies. Some cheesemakers have shifted production into other varieties, such as barrels-to-blocks and Italian cheeses, to prevent increasing supplies. Short Term: Steady to lower pricing.

Shell Eggs

The larger sizes of eggs are in extremely short supply, resulting in price increases. Many farmers who put their flocks out to molt are now having supply shortages to meet demand. The expected hot weather in the coming weeks will also crimp supplies because chickens lay fewer eggs when stressed by heat. Expectations are for continued firm pricing. Short-Term: Steady to firm pricing.

Milk & Cream

Milk output is fairly heavy in the Northeast, Midwest and Mountain states. However, in some of the regions’ areas, milk production is dropping off some as warmer temperatures emerge. Mid-Atlantic and California milk production is generally flat. Milk production in the Southeast region, Arizona, Florida and New Mexico states are declining as hotter weather contributes to a slowdown in production levels. Class I sales in the Northeast are a tad lower as some facilities canceled milk loads. Midwest milk bottlers are slow to receive loads with schools on break. Fluid demand increased in California due to Independence Day. Class I sales in some Southeastern and Western areas are steady to flat and there are reports of milk supplies being in balance with current demand. Short Term: Mixed pricing.

The cream market is steady and stable as many ice cream and frozen confection mix plants are competing for available supplies. Short Term: Steady to firm pricing.

Seafood

Shellfish & Shrimp

Shrimp: The import market remains steady with a weaker undertone; however we may see the market begin to firm as replacement challenges and sustained buying interest persist. The domestic market is also steady, but faces upward pressure due to ongoing seasonal production.

Farmed White: Willingness to discount white shrimp has decreased as sellers have begun reconciling on-hand supplies with geographic supply deficiencies.

Farmed Black Tiger: The market is unchanged since last week, and discounted offerings are still available where White Shrimp alternatives exist.

Wild, Gulf of Mexico: Expansion of seasonal production has put downward pressure on the market. There were discounted offerings for 36-40 count HLSO shrimp available, but offerings for domestic shrimp remain competitive.

North American Lobster: The market is softening as Maine Lobster Season ramps up. Current prices are lower than they were last year at this time. Short Term: Steady to softer pricing.

Warm Water Lobster Tails: The market is expected to remain stable to firm as new season out of Brazil continues this month. The reason for potential firming is buyers’ substitution of North Atlantic Lobster for cheaper Warm Water Lobster. Short Term: Steady to firm pricing.

Live Lobster: Market prices adjusted higher across the board, and the undertone of the market is firm as production remains limited for hard shell lobsters. Short Term: Steady to firm pricing.

Scallops: Prices continue to adjust lower as the result of newly opened restricted areas, an increase in overall quota, and adequate supply in all price. Short Term: Neutral to decreasing.

King Crab: Supply on smaller sizes, especially on 14/17 ct, 16/20 ct, and 20/+ ct, remains very tight, and relief is not expected for at least 5-7 weeks. Short Term: Firm pricing.

Snow Crab: The market remains unchanged as the global shortage is expected to continue into the Canadian season. Short Term: Firm pricing.

Crab Meat: The blue and red swimming crab markets continue unchanged, and the undertone remains full steady with higher replacement costs overseas. Short Term: Steady to firm pricing.

Finfish

Salmon: The West Coast Whole Fish market adjusted lower on 4-6 lb fish, and remains soft on smaller fish as they continue to dominate harvests. The Northeast Whole Fish market remains largely unchanged as supplies on larger fish are adequate. Both the European Whole Fish and Chilean Whole Fish markets remain unchanged. Short Term: Steady to weaker pricing on smaller fish, steady pricing on larger fish.

Atlantic Cod: Price is firming on 1x frozen cod loins are firming because of the announcement of a 25% quota reduction out of Newfoundland and Labrador regions in Canada. Prices on 2x frozen Atlantic cod remains because of the supply shortage. Short term: Firm pricing.

Pacific Cod: Certain Alaskan fishing grounds have implemented heavy restrictions on total allowable catch causing the price of raw materials to surpass the price of Alaskan cod. Consequently, prices for Alaskan are expected to appreciate. Short Term: Steady to firm pricing.

Pollock: The market remains steady as we move further into the summer season. There is some potential for price firming as cod users substitute to Pollock. Short Term: Steady pricing.

Basa: Demand is excellent. The U.S. imported 19,375 metric tons of basa – which is almost exclusively sourced from Vietnam – during the first three months of 2018, a 26% decrease from the first three months of 2017 and an eight-year low for the fish during that period, based on an analysis of trade data made available by the US National Oceanic and Atmospheric Administration. Short Term: Firm pricing.

Catfish: The prices for imported catfish are steady; however, the future is uncertain with the political climate and inspection programs. On the domestic side, production is picking up and there is a good amount of inventory in the country. Larger fillets are getting tight, but it will just be a matter of time before the fish grow to get to 9-11 and 11-up sizes. Expectations are for large supplies in 2018. Short Term: Neutral pricing.

Whole Fish Tilapia: Prices remain elevated as supplies are barely adequate for average demand. Short Term: Firm Pricing.

Mahi Mahi Fillets: Quotations for frozen fillets adjusted lower this week due to improved inventory. Market undertone remains steady, and product movement is average. Short Term: Steady Pricing.

Grains & Oils

Grain & Crop Summary

U.S. tariffs are set to take effect tomorrow on $34 billion of Chinese goods and President Trump has threatened additional tariffs if China retaliates. China’s custom agency has said that China will implement tariffs, to take effect immediately, on U.S. goods and soybeans are likely to be included.

China’s ambitious plans to go to a nationwide 10% ethanol blend by 2020 are being questioned as only 1 planned new ethanol plant has been approved to begin construction, while three other planned major expansions have stalled as the government has yet to provide approvals. Some feel the drawn- out approval processes may be a sign that officials are rethinking their plans.

Corn and soybeans found stability following early week weakness, while wheat rebounded to post solid gains after the early week’s notable weakness. Not much has changed with the overall U.S. weather forecast, while corn, soybean and spring wheat crop conditions remain quite strong. The market will remain laser-focused on any headlines related to the pending implementation of U.S. and Chinese trade tariffs on Friday, although news on the topic has been rather quiet of late.

Soybean Oil

USDA reported May U.S. soybean oil production was 1.967 billion pounds vs 1.965 billion in April and 1.839 billion last year May, as the average soybean oil yield dropped to 11.40 pounds/bushel from 11.45 in April and remains well below last year, which was 11.64 in May. End May soybean oil stocks were reported at 2.374 billion pounds, which was below average market expectations of 2.462 billion and the range of ideas of 2.420-2.521 billion. However, regarding the trade ideas for soybean oil stocks, the average estimate clearly appeared to be too high as it reflected U.S.-wide stocks nearly 33% larger than previously-reported NOPA-member stocks, which was a degree of difference not seen since last October. Trade is watching China-US tariff discussions closely. This is neutral for soybean oil prices.

Canola

Statistics Canada estimated this year’s Canadian canola area at 22.740 million acres, a bit above the average trade estimate of 22.4 million acres (21.5 to 23.7 million acre range), up from 21.383 million acres estimated in April, and now only marginally below last year’s 23.0 million. Friday’s acreage report continued to weigh on the market. Canola is looking quite expensive relative to other oilseeds. Losses in Malaysian palm oil also dragged on prices. However, a few regions of Western Canada, primarily in Alberta and Saskatchewan, remain too dry. This is neutral for canola oil prices.

Palm Oil

Widely-followed palm oil analyst Dorab Mistry sees palm oil prices continuing to slide over the next two months on rising production expectations, with 2,100 ringgit/ton ($521.00) viewed as a target vs current benchmark September futures trading at 2,343 ringgit/ton ($581.00). Weaker import demand by India, following their notable increase in import taxes, is expected to continue to weigh on demand for palm oil, as well. This is neutral for palm oil prices.

Produce

Brussels Sprouts

  • Ready-Set-Serve (RSS) Brussels Sprouts and RSS Brussels Sprout Halves are limited
  • Mexican supplies continue to diminish, shifting demand to California
  • Washington’s harvest will start in early September; the new crop Mexican season begins in late October
  • Expect high prices through the summer

Celery

  • Markon First Crop (MFC) Celery is available in Salinas, California
  • Growers are in transition, shifting demand to California
  • Production will ramp up in Michigan and Eastern Canada by mid- to late July
  • Expect elevated markets for the next two to three weeks

Lemons

  • MFC and Markon Essentials Lemons are limited; packer label is being substituted as needed
  • Stocks will remain extremely limited through the summer
  • High temperatures are forecast in the coastal growing region, increasing plant maturity and shortening the growing season
  • Prices will continue climbing through the summer

Highlights

  • Markon First Crop® (MFC) Premium Romaine weights are higher on average than the rest of the industry (37 to 40 pounds compared with 35 to 38 pounds).
  • High temperatures are expected in California and may cause quality issues in strawberries such as bleeding, bruising, and softness.
  • Markon is proud to offer Ready-Set-Serve® (RSS) Aromatic Herbs & Tender Greens in a 2/2-pound pack size with a 15-day shelf-life.

Produce Highlights

Asparagus

  • Mexican asparagus supplies are limited, causing prices to rise.
  • Several consecutive days of rain in Central Mexico’s growing regions have reduced availability.

Lemons

  • Supplies will be extremely limited through the summer.
  • Strong demand and limited availability will drive up prices.

Onions

  • Fresh-run MFC Yellow Onions are available in California and New Mexico.
  • MFC Red Onions will remain limited over the next two weeks.

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