Business Insights

Late-June Market Outlook

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Beef

General Comments

The North American Meat Institute applauds USDA’s diligent efforts to secure approval for an additional 20 U.S. facilities that are now eligible to export beef to China. Beef exports to China/Hong Kong have increased 23 percent in volume and 51 percent in value since last year, with good potential for further growth in 2018. Unfortunately, because of escalating trade friction with China, U.S. beef suppliers may not be able to reach their true export potential in the Chinese market. To avoid the adverse consequences that come from such disagreements, the Meat Institute is urging the US and China to work diligently to resolve any differences and to do so as soon as possible as this is hugely positive for the industry.

Boxed beef prices are softening seasonally, with choice at its lowest level since late April. Year-to-date beef output is up 4% but prices have remained high enough to keep all segments of the industry profitable. Better demand, both domestic and foreign, is credited for this success. U.S. beef exports during April were up 16.2% from last year and were a record for the month. Continued solid exports could temper the seasonal price weakness that usually occurs from Father’s Day through the end of July.

Loins

Top Butts: Choice prices migrated lower while Selects remained firm. Other than some Independence Day purchasing, this market will probably make its way lower throughout the summer. Short Term: Mixed pricing.

Strips: Choice moved lower while Selects stayed firm. Large volumes of strips were sold forward at sharp discounts to the current market. Prices should still trend lower, but could find some support from Fourth of July. Short Term: Steady to weaker pricing.

Tenderloins: Choice Tenderloins continued to move lower. Selects were steady. Typically, the summer downtrend about this week as production ramps up and demand declines. Short Term: Steady to lower pricing.

Tri-Tips: Choice was steady while Selects moved a bit lower. Demand has been exceptional. Expectations are for another week or two of higher pricing, and then a seasonal top may be in place. Short Term: Steady pricing.

Ribs

Ribeyes: Choice ribeyes moved lower last week; Selects continue to chop sideways. Many retailers started looking for July 4th feature prices last week and they were able to book bone-in ribeyes for future delivery at a 15% discount to the current market. Short-Term: Steady to lower pricing.

Chucks

Chuck Rolls: Both Choice and Select moved higher, as expected. This item typically moves higher through September, but prices are already historically high. Short Term: Steady to firm pricing.

Teres Majors: This market rebounded last week on price point demand. Buyers liked the fact that prices were 38% lower than just 7 weeks earlier. Look for additional declines through the summer. Short-Term: Steady to softer pricing.

Briskets: Briskets were slightly lower last week. Most expect strength through Fourth of July purchasing, then a decline. Short Term: Firm pricing.

Thin Meats

Ball Tips: Choice prices were about steady for most of the week; Selects were slightly lower. Expectations are for price strength until the first week of July. There is lots of upside potential with current values being well below the 5-year average. Short-Term: Steady to firm pricing.

Flap Meat: Flap meat moved higher last week. This item may see another week or two of increases, but many expect prices to decline throughout the summer. Short Term: Steady to lower pricing.

Skirt Meat: Outside skirts have started to show some weakness on increasing production. Whether demand responds and prices bounce back higher as they have all year remains to be seen. Insides were steady to firm last week. Skirts typically fall as the summer progresses and production outpaces demand. Short Term: Steady pricing.

Flank: Flanks, both Choice and Select, moved lower as expected. Some further weakness is expected throughout the summer. Short Term: Steady-lower pricing.

Rounds

Peeled Knuckles: Prices migrated lower, again last week. Knuckles are well below last year’s levels and the 5-year average, offering great value. Expectations are for a seasonal rally to take place in July, fueled by price-point demand. Short Term: Neutral to firm pricing.

Inside Rounds: Prices continue to disappoint sellers. Lack of forward sales since April paints a bleak picture; however, we feel the downside is limited. Most of the price risk is to the upside. Seasonality favors a price rally from now until mid-August. Short Term: Steady to firmer pricing.

Bottom Round Flats: Flats bounced back last week. Current price levels offer great opportunity. Expectations are for firmer pricing throughout the summer. Short Term: Steady to firm pricing.

Eye of Rounds: Prices continue to migrate lower; however, the downside risk should be limited. Both seasonality and price-point demand should lift prices the next few months. Short Term: Steady to firm pricing.

Grinds

Fresh 50s continue to move lower, as expected. With the exception of some Fourth of July purchasing, demand for this item will not meet supply increases. Expectations are for this item to continue lower throughout the summer. Prices on Fresh 90s were steady with a weak undertone. Prices should be stable the next month or so. Short Term: Steady to lower pricing on 50s; Steady pricing on 90s.

Poultry

General Comments

Broiler-Type Eggs Set in the United States Up 3 Percent – Hatcheries in the United States weekly program set 231 million eggs in incubators during the week ending June 16, 2018, up 3 percent from a year ago.

Broiler-Type Chicks Placed in the United States Up 2 Percent – Broiler growers in the United States weekly program placed 188 million chicks for meat production during the week ending June 16, 2018, up 2 percent from a year ago. Cumulative placements from the week ending January 6, 2018 through June 16, 2018 for the United States were 4.40 billion up 1 percent from the same period a year earlier.

Production forecasts by the USDA were increased last week for both 2018 and 2019. Chicken production is expected to increase by 119 million lbs. in 2018 and is now expected to be 1.9% larger than last year. 2019 chicken output is estimated to increase another 2% over this past year. Most feel these production schedules will temper any significant rallies. On the other hand, chicken exports during April were up 22.3% from 2017 and were the biggest for the month since 2013. If strong exports endure, it may provide added support to chicken leg meat prices which typically happens in July.

Wogs

Whole bird and WOG prices migrated lower as the week progressed. Supplies are sufficient for a decent demand. Smaller birds are in demand and production is not overwhelming. Short-Term: Steady pricing.

Breast Meat & Tenderloins

Breast meat and tenderloin prices firmed up quite a bit last week. Foodservice and QSR demand has increased with consumers preferring to eat out in the summer. Many production areas are experiencing extreme heat which is impacting bird weights. Short-Term: Steady to firm pricing.

Wings

Prices firmed up a bit last week. The drop in price over the past 10 months has put US wings in competition with world prices; the result should be increased exports. Seasonality and promotions should keep prices steady to firm the next few weeks. Cold storage inventories will probably temper any significant rallies. Short-Term: Steady to firm pricing.

Thighs

Leg quarters moved lower last week on slower exports, while boneless/skinless thighs moved higher on shorter supplies. Lack of deboning labor is causing an issue. There continues to be concerns over trade tariffs and deal re-negotiations. Short-Term: Mixed pricing.

Turkey Whole Birds

Whole turkey prices are higher for forward months, but spot pricing is mostly steady. Short-Term: Steady pricing.

Turkey Breast Meat

Seasonal demand increases from the deli counter have helped support prices. This is expected to continue. Short-Term: Steady-firm pricing.

Pork

General Comments

U.S. producers of pork, already saddled with duties enacted in an earlier round of the escalating trade dispute with China, are bracing for further pain after the implementation of additional tariffs due to come into effect next month. China implemented a 25 percent duty on most U.S. pork items on April 2 and a second round of tariffs to be imposed on July 6. Pork now faces cumulative import duties of 71 percent, not including value added tax, according to a formula published on the website of China’s finance ministry last week. The United States shipped $489 million worth of pork to China last year, and had the biggest share of import volumes in the first quarter of 2018, at about 117,000 tonnes, according to Chinese customs. With the new duties on U.S. pork, Chinese buyers will turn to other suppliers in Europe and Brazil. If tariffs are fully implemented, it will be bearish for domestic prices.

Total pork production for the week ending June 16, 2018 was estimated at 470.4 million lbs. This was 2.7 percent lower than the previous week and yet 3.8 percent over last year. Average live weights, at 284 pounds, were a pound less than last week and 5 pounds higher than last year.

The seasonal slowdown in hog numbers is playing out as expected. Packers are scrambling to find enough hogs to fill production schedules. Tighter supplies appear to have launched most pork meat prices onto an uptrend, as they typically do this time of year.

Loins

Loins, both bone-in and boneless, were steady last week, hanging onto recent gains. Loins typically are steady-firm through mid-July; however, competition from alternative proteins may add downward pressure. Prices are currently well below last year’s levels, offering great value. Short Term: Steady pricing.

Tenders

Tenders continue to move higher on strong retail demand. Independence Day promotional activity will be supportive the next week or so. Short Term: Neutral to firm pricing.

Butts

Prices have continued soft the past couple of weeks. Retail features and consumer demand for BBQ should continue to somewhat support this market through July. Export demand remains soft, but is expected to pick up during Q4. Short Term: Steady to softer pricing.

Belly

Since putting in a seasonal low the first week of May, prices have climbed steadily. Bellies have seen a 70% increase in just 7 weeks. There is still upside potential given that current price levels are still below their 5-year average and well below last year’s price. With a seasonal slowdown in production and strong summer demand from consumers, expectations are for firm to higher prices through July. Short-Term: Firm pricing.

Ribs

With retailers preparing for Independence Day, the rib complex is moving higher. Backribs were firm while spareribs experienced large gains. This trend should keep prices buoyant through the first week of July. Supplies should increase in Q3 2018 to temper any significant rallies. Short Term: Steady to firm pricing.

Hams

Hams are drifting lower despite the historical trends moving higher often seen through July. The weakness can be related to uncertainty created by Mexican tariffs casting a shadow on future price trends. Mexico is a significant purchaser of U.S. hams. The 10% over quota tariff changes to 20% on July 5th. Prices are currently at relatively low levels. Deli demand has been good. Seasonality favors prices to the upside. Short Term: Steady-uncertain pricing.

Dairy

Butter

Butter churning varies across the country. In the West, production has been driven by ample amounts of affordable cream, while some processors begin to sell off some cream in the spot market. In the Central region, butter making varies by plant as some manufacturers continue microfixing, while others are taking on heavier loads of cream in large volumes. In the East, butter operators report steady output, but cream supplies are reported as becoming less accessible. Nationwide, retail and food service buying interest is mostly fair/good. Short Term: Mixed pricing.

Cheese

Cheese production nationwide varies depending on the region and the type of cheese being produced. The overall cheese production is steady to decreasing, as mentioned from last week, in order to avoid overproduction. As result, some plants in the Central region report reducing production from five days to four. However, Italian and cheese curd production are steady and strong, as milk supplies are readily available. Cheese inventories are balanced to increasing. The cheese demand is mixed, oscillating from week to week. Some cheesemakers in the Central region expressed concerns about the trade dispute. Meanwhile, a few sellers in the West have started feeling the impact of the tariff regulations. The U.S. cheese market tone is steady to decreasing, as steady cheese prices on the CME dropped later in the week. Short Term: Steady to lower pricing.

Shell Eggs

Shell egg prices continued higher last week. Retail demand has been spurred by some promotional activity. Supplies of larger sizes are tighter and sellers are more confident holding their goods. Short-Term: Steady to firm pricing.

Milk & Cream

Milk output remains robust in the East and Midwest. In parts of the Southwest and West, milk yields are beginning the summer decline. Milk output in the mountain states of Idaho, Utah and Colorado is heavy. As schools are out or in their wrap -up stages nationally, milk handlers are looking to relocate milk loads.

Ice cream manufacturers are dipping into the cream pool this week, as cream supplies are tightening. That said, both ice cream makers and butter producers in the Central U.S. relayed taking on fairly heavy and available cream supplies this week. Short Term: Steady to firm pricing.

Dairy farm employment issues are being discussed throughout the country, as some Central region contacts have suggested that dwindling employee numbers on dairy farms are expected to lead to a growing number of farmers using robotic milking systems in the near future.

Seafood

Shellfish & Shrimp

The import market stabilized last week, while domestic shrimp is experiencing some downside pressure.

Farmed White: Replacement costs are starting to rise and procurement is becoming a bit more difficult. Headless shell-on shrimp from Latin origins are seeing price increases. Indonesian and Indian prices have firmed due to a slowdown in production. Movement of product continues to be solid. Prices of 21-25 and 26-30 count HLSO shrimp have firmed, especially in Latin America. However, some sellers are willing to discount cooked and P&D shrimp. Demand for head-on shrimp is strong.

Farmed Black Tiger: The market was basically steady; however, in regions where a white shrimp alternative exists, there is some downward pressure.

Wild, Gulf of Mexico: Seasonal increases in production have added downward pressure on prices. Softness is seen in the 16-20 and smaller count headless shell-on shrimp, and across-the-board on PUD’s and P&D’s.

North American Lobster: The season for North Atlantic lobsters formally began May 1st out of Canada. Many expected costs to soften as supply became more readily available; however, the harvest to date has yielded the predominantly smaller sizes of 3/4 and 4/5 with limited offerings of the 5/6 tails and larger. This, in addition to poor weather and the recent announcement of 10 fishing zones being closed to preserve the right whale, has now put pressure on supply as the Canadian fishing season wraps up on June 30. Once closed we will need to wait at best 4-6 weeks before the Maine season resumes in the US. Short-Term: Steady to firm pricing.

Warm Water Lobster Tails: Costs have softened some on the smaller sizes but supply remains adequate. Expect new season arrivals in late June early July. Short Term: Steady pricing.

Live Lobster: Market unsettled as all participants digest the announcement of the proposed 25% Chinese tariff on American lobster that is schedule to take effect July 6th. There is no clear direction on how this will play out. However, demand is picking up ahead of the July 4th holiday. Production out of Canada remains strong however fishing will slow down as LFA zones begin to close on June 20th and LFA 20-26 closes on June 30th. Maine landings are limited. Prices are steady. Short Term: Steady, but uncertain pricing.

Scallops: Premiums have developed on U/10 and 10/20 count sized U.S. origin sea scallops. The balance of the market remains steady; however, traders are noting a diminishing supply of 20/30 count sized processed scallops. Short Term: Steady to firm pricing.

King Crab: King crab supply is very short to none of the USA production. Most at the moment is being imported from Russia. The live trade from Russia to China is impacting the Russian cost. For now, costs remain elevated overall with supply adequate. Short Term: Neutral to firm pricing.

Snow Crab: The market remains steady with a firm undertone on all sizes out of both Newfoundland and the Gulf. Movement is slow. Short Term: Steady to firm pricing.

Crab Meat: Blue swimming crab pricing is firm again and prices are incredibly high. Production is way down due to poor weather and smallsized catches. There are growing concerns that seasonal demand will create a much larger issue. Red swimming crab pricing was also higher last week. Supplies are scarce and will probably remain that way all summer. The Venezuelan fresh crab meat market is unchanged. Short Term: Steady to firm pricing.

Finfish

Salmon: The West Coast whole fish market continues to be soft with the smaller sized fish experiencing declines. Supplies are more than ample for a slow demand. Larger fish (14-ups) are a different story; supplies are barely adequate for a solid demand; prices are steady-firm. The West Coast fillet is about steady. Smaller sized fish in the Northeast whole fish market are steady, while larger 12-up fish are firm. Supplies of smaller fish are more plentiful than the larger sizes. Demand on bigger fish is strong. The European whole fish market is weak out of Norway; all sizes adjusted lower. Supplies are more than sufficient for a quiet demand. The balance of the whole fish market out of Europe is steady. The Chilean whole fish market is unchanged; supplies are reported to be light. The Chilean fillet market is steady with a weak undertone. Short Term: Steady to weaker pricing, firm on larger sizes.

Atlantic Cod: Fishing in Northern Europe has concluded. Total catch this season is poor and raw material is in short supply for 2018 until early 2019 when fishing resumes. Short Term: Neutral-firm pricing.

Pacific Cod: There are heavy restrictions on total allowable catch in certain Alaskan fishing grounds. Raw material is now more expensive than Atlantic cod and expected to firm continuously for all of 2018. Short Term: Firm pricing.

Pollock: Prices are firming up, as expected. Some cod users are switching to Pollock, increasing demand. Short Term: Steady to firmer 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 are steady; movement is slow as prices remain elevated. Short Term: Neutral to firm pricing.

Mahi Mahi Fillets: Demand for imported mahi is strong. Prices are firm. Short Term: Steady to firm pricing.

Grains & Oils

Grain & Crop Summary

President Trump threatened on Monday to impose a 10 percent tariff on $200 billion of Chinese goods, escalating a tit-for-tat trade war with Beijing. In a statement, Trump said he had asked U.S. Trade Representative Robert Lighthizer to identify the Chinese products to be subject to the new tariffs. He said the move was in retaliation for China’s decision to raise tariffs on $50 billion in U.S. goods. “After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced,” Trump said. This creates continued uncertainty and potential volatility in grain markets particularly for soybeans.

Soybean Oil

Soybean oil was under notable pressure today following the USDA’s solid increase in old crop and new crop ending stocks ideas, which were prompted largely by the increase in soybean crush, but also due to mostly static demand ideas. The 25 million bushel old crop crush increase raised 2017/18 soybean oil production by 265 million pounds, while imports were also raised 15 million pounds, resulting in a 280 million pound increase in total supplies. While exports were raised 100 million pounds, as needed, non-biodiesel domestic was lowered by 100 million pounds as an offset. Accordingly, the entire 280 million pound supply increase carried through to ending stocks with USDA pushing them sharply higher to 2.176 billion pounds and now reflecting the highest U.S. soybean oil ending stocks since 2011/12 and a 465 million pound increase from last year. With no new crop demand changes, USDA also raised 2018/19 soybean oil ending stocks by 340 million pounds (60 million pound increase in production) to 2.176 billion pounds, as well. This is neutral/negative for soybean oil prices.

Canola

Canola is facing a slew of uncertainty right now, as political turmoil in international trade and a looming report from Statistics Canada keep traders guessing where the market is headed. The ongoing war of words and imposition of tariffs between China and the U.S. have cast a chill over agricultural markets with some traders stepping to the sidelines. Commodity funds have moved to the short side of the market after the selloff earlier this week. Still, there are some positives from which canola can draw strength. The Canadian dollar continues to weaken. As a result, there has definitely been some Chinese buying in our market, whether its canola oil or seed they’ve been slowly extending coverage. Slow farmer selling has also underpinned the market. This is neutral for canola oil prices.

Palm Oil

As a result of India raising their import tax on palm oil to 44% in March from 30% previously (54% on refined vs. 40% previously), imports have plunged in recent months with May palm oil imports of 496k tons being the lowest monthly imports since February 2014 and down 38% from last year’s May imports. Total vegetable oil imports for the month of 1.25 million metric tons (MMT) were down 7% from last year as imports of soybean oil and sunflower oil have risen notably to offset the reduced palm oil imports. This is neutral/negative for palm oil prices.

Produce

Onions

Markon First Crop (MFC) Red and Yellow Onions are available in California and New Mexico.

California/New Mexico

  • Fresh-run MFC Yellow Onions are readily available in California and New Mexico.
  • MFC Red Onions will be limited over the next several weeks; a supply gap is developing between varieties planted in the fall and those planted in February/March.
  • Fresh-run onions will have feathery skins and light color/exterior skins compared to Northwest storage onions.

Texas

  • Texas-grown MFC Onions are depleted.
  • Limited supplies of packer label red and yellow onions will be available through the end of this week.

Washington

  • The MFC Washington red and yellow onion storage crop seasons have ended.

Highlights

  • Markon First Crop® (MFC) Premium Romaine Lettuce weights are higher on average than the rest of the industry (37 to 39 pounds compared with 35 to 37 pounds).
  • Ready-Set-Serve® (RSS) Brussels Sprouts and RSS Brussels Sprout Halves are limited. Heat has decreased yields in the growing regions of Mexico, but California’s supply will be sufficient to cover orders. Expect limited stocks and elevated prices during the summer months.
  • Ongoing rain in Mexico will tighten lime stocks and decrease shelf-life in the coming weeks.

Produce Highlights

Asparagus

  • Prices have jumped.
  • Mexican supplies are tight due to excessive heat followed by rain.

Iceberg Lettuce

  • Head weights are lower than in the past several weeks, causing the market to spike.
  • Yields are lower throughout the industry.

Potatoes

  • The Burbank variety will be shipped until new crop, field-run Norkotahs become available in early to midAugust.
  • Size profile is dominated by the small and large end of the spectrum; 50- to 80-count stocks require more lead-time to produce.

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