Cattle buyers aggressively chased ready steers and heifers on Thursday like they were on the endangered species list. Live spending reached as high as $138 to $140 with dressed deals as tall as $217 to $219. Trade volume was quite active in most areas, and we suspect that most business is done for the week. Whatever remains on showlists are probably picked around $140 in the South and $220 plus in the North. Live and feeder futures seem staged to open solidly higher, supported by residual buying interest and new feedlot premiums.
Expect the cash hog trade to resume Friday with bids steady to $1 lower. With the cost of live inventory expanding this week at a faster rate than carcass value, pork processing margins have certainly narrowed. Lean futures should open with a firm undertone, helped by follow-through buying and spillover psychology from the runaway cattle complex.
| BULL SIDE | BEAR SIDE | ||
| 1) | The cash cattle market exploded higher with live sales marked as high as $138 to $140, as much as $6 to $8 higher than last week. Clearly, feedlot managers continue to enjoy plentiful leverage in terms of tight fed supplies. | 1) | The beef carcass value may be fighting a losing battle in terms of keeping up with the exploding cost of slaughter cattle. Processing margins will slump significantly lower this week, perhaps eventually forcing packers to regain country leverage by slashing late-spring chain speed. |
| 2) |
Net beef export sales last week totaled 21,200 metric tons, up 8% from the previous week and 30% from the prior four-week average. Increases were reported for Japan (6,700 MT, including decreases of 3,700 MT), South Korea (4,100 MT, including decreases of 200 MT), Mexico (3,800 MT, including decreases of 100 MT), Chile (1,200 MT), and Taiwan (1,200 MT).
| 2) | The early buzz among private analysts is that April placement will also be eventually confirmed to be as much as 5% to 10% greater than 2016. |
| 3) | Actual pork exports last week totaled 20,500 MT, up 17% from the previous week. | 3) | Net pork export sales last week cooled to 23,000 metric tons, down 37% from the previous week and 11% from the prior four-week average. |
| 4) | Cash hogs continued to climb higher on Thursday. This week's positive pattern seems quite promising in terms of turning the seasonal corner toward more constructive fundamentals through midsummer. | 4) | Despite this week's progress in lean hog futures, June futures are still trading below the low point of trading over the most recent five-year average. |
CATTLE:(foodmarket.com)-- Circular themes this week are largely centered around the "Get Grilling" theme, with features for ribs, burgers, and barbeques placed strategically in flyers. Buns, ketchup, cheese, and chips can all be found clustered among grill-centric ad items, appealing to consumer excitement for summer -- despite being a month outside of the unofficial Memorial Day kickoff.
Looking at ground beef, 80% lean is featured at $3.10 per lb. on average, which is a multi-year low for the period. Following the record highs seen in 2015 and the first part of 2016, ground beef is positioned to make a huge comeback in 2017 as consumers enjoy lower prices on the beloved burger.
The beef complex in general is lower than a year ago, with the weekly retail beef feature index currently at $5.77 per lb., nearly at 2014 levels. Steaks average $7.41 per lb., compared to $7.66 per lb. a year ago. Roasts, certainly nearing the end of peak usage as the weather warms up, are currently down nearly 10% from a year ago.
Looking at pork, ribs average $2.78 per lb., nearly on par with year ago levels. Back ribs average about 10 cents higher than year ago at $3.68, while spareribs run about $2.25, down 53 cents per lb. from this week last year. Boneless center-cut pork chops average $2.97 per lb., down 16% from a year ago. Shoulder roasts, ideal for pulled pork, are on feature for $1.59 per lb. on average, down from $2.16 last year.
Ground beef as well as numerous pork items are in solid position to grab consumer dollars away from the chicken segment. Boneless skinless chicken breasts average $4.32 per lb. this week, up from year ago levels. Tenders run $5.10 per lb. on average, up over $1 per lb. from last year. The dark meat complex, however, is poised to lure shoppers with feature prices near the $1 mark for leg quarters, and under $2 for drumsticks and thighs.
HOGS: (Butterfield Advocate)-- Windom's new Prime Pork plant is buzzing with excitement this week as the staff gets set to process hogs. "We will start operations on the processing floor on Wednesday," said Wayne Kies, chief operating officer for Prime Pork. "The slaughter operation will start Monday."
This plant's start-up is no doubt being watched closely by processors around the country. To say it is a state-of-the-art operation may be an understatement. It is widely known as the most highly-technical pork processing plant in the country. However, right now Kies says the focus is squarely on the plant's 130 employees. By mid-July, Kies hopes to have 350 employees, including management and maintenance staff. That number is up by 25 to 50 workers from the original plan.
It will be a slow ramp-up to full production at Prime Pork. On Monday, the plant had 130 workers on site for the first day of orientation. The following day, the plant's owner, Glen Taylor, was on hand to speak to the employees. Kies said another 60 workers will be added next week and 60 more the following week. "We are in the process of hiring and going through applications right now," Kies said. The plant will open with one shift operating five days per week. In the early going, there will be lots of training time, particularly in connection with automation. "We will start out with one truck (bringing hogs to the plant) and build up to 33 trailers per day," Kies said. "We will continue to ramp up and if all goes well we could get to maximum capacity by mid-July, which is 6,000 head per day." Kies said pork products will be shipped out of the plant within 24 to 48 hours of when hogs arrive. At this point, he estimates that up to 33 trucks will leave the facility with pork products each day. He added that product sales have gone extremely well. All of the pork scheduled for production has already been sold.
Friday's plant opening marks the end of a long and winding road to production. There was a time when Prime Pork officials were saying that the plant could open in the fall of 2016. To be fair, that initial estimate occurred in early 2016, not long after Taylor had purchased the former PM Beef processing plant. Company officials had barely started retrofitting the plant. Eventually, the opening date was pushed back to early-January and then rescheduled once again. The big keys to the delay had to do with automation and facility preparation. "We were dealing with some issues in an older building that we didn't know were there," Kies said. "We wanted to fix it and rectify the issues and do it correctly. That was part of the reason we were delayed. "We also had delays in getting part of the automation equipment here." What's more, the plan has been adjusted since the project began. "We increased the amount of automation we are doing in the facility from what we had planned," Kies said. "We went with a fully automated plant. We will be one of the most automated facilities in the U.S., according to one of our vendors. This is one of Mr. Taylor's passions, to ensure that automation is integrated into his facilities. "So there has been a huge change from where we thought we would be to where we ended up."
One thing that has not changed is Prime Pork's focus on quality. The plan is to bring in high quality Duroc pork from Prime Pork's farms, or producers that follow the company's requirements related to things like animal health care and quality feed. The plant's footprint has grown from 300,000 square feet, at the time of Taylor's purchase, to 329,000 square feet. However, Kies pointed out that a chunk of the building was torn down and rebuilt.
Taylor likely stressed the value of all employees during his comments to workers on Tuesday. That is something he has stressed from the outset. And, it is something that is often repeated by Kies and other Prime Pork leaders. "The thought process is about the 350 team members we employ," Kies said. "That is our compass and our goal. "We try to keep the 350 team members we employ in a facility that is comfortable and ensure that they are able to work safely and correctly. That is one of our main points of emphasis." Kies said many Prime Pork workers are former PM Beef employees who did not leave the area after the PM plant closed in December 2015. They arrived to find that the plant's interior is vastly improved. "Almost everything has been replaced here except for the external walls," Kies said. "As far as electrical, plumbing, the boilers, refrigeration room and major components, all have been rebuilt,or are brand new." A few community residents have seen the interior of the plant. Kies said the reaction was positive. "The thing people are most amazed about when they come through the facility is how clean and new this older building appears to be inside," Kies said. During his address to the Windom Area Chamber of Commerce in October, Taylor said he expected the Prime Pork plant cost to hit $75 million once remodeling costs were figured in. Kies said Monday that Taylor's estimate is "real close" to being right on target. "Glen regularly visits the facility and he is ready to get the operation up and running," Kies said. "He pushes the philosophy of taking care of our team and that we are all one. We are all pushing together to achieve the same goal." That goal is to produce the highest quality Duroc pork on the market-- and to do it the right way.
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