We really thought it would take packers some long and hard thinking this week before they aggressively moved to secure short-term slaughter. Given Wednesday's wild spending party, they must have been much hungrier than we thought. Storm-stressed cattle may have worked to some degree in making market-ready steers and heifers even tighter than expected. Yet packers remained stuck on the tight supply treadmill, forcing them to pay $7 to $8 more for live cattle in the South and $12 to $13 more for dressed cattle in the North. While light trade volume remains possible either Thursday or Friday, the lion's share of the cash trade appears to be generally completed. The balance of showlists are probably priced around $148 in the South and $232 plus in the North. Live and feeder futures should open significantly lower, supported by residual buying interest and cash premiums.
The cash hog market should open with a firm undertone with bids steady to $1 higher. Market hog supplies seem to be slowly tightening, forcing buyers to stretch higher. Expect the Saturday kill to total close to 118,000 head. Lean futures are set to open moderately higher thanks to spillover buying and bull-spreading interest.
| BULL SIDE | BEAR SIDE | ||
| 1) | Short-bought cattle buyers went on another major spending spree on Wednesday, proving once again how much spring demand is overwhelming spring fed supplies. | 1) | No matter howmuch the live cattle board runs higher, it can keep pace with the cash market. As long as the basis stays so extraordinarily strong, cash stays extremely vulnerable at that inevitable time when seasonal forces run out of gas and packer bids collapse. |
| 2) | Beef cutouts continued to roll higher at midweek with box movement described as "moderate to fairly good." | 2) | Live and feeder futures are technically overbought and due for at least a short-term correction. The pending index roll could add additional weigh on spot June live. |
| 3) | For the week ending April 29, Iowa barrows and gilts averaged 284.5 pounds, .4 lbs lighter than the prior week. Seasonally, weights should be consistently smaller from now through midsummer. | 3) | For the week ending April 29, U.S. hatcheries set 223 million broiler eggs in incubators; up 3% from a year ago. At the same time, chicks placed in the totaled 181 million chicks; up 2% from 2016. |
| 4) | The pork carcass value closed moderately higher Wednesday with all primals helping the cause of appreciation except the ham. | 4) | Pork processing margins are narrowing with the cost of live inventory advancing at a faster rate than carcass value. Slower chain speed delays the positive price impact of tighter supplies waiting in June and July. |
CATTLE: (foodmarket.com) -- The first 100 days of the Trump administration has been nothing short on excitement. The US beef industry, on the other hand, is returning to a somewhat 'more normal' state. While the new administration still has the ability to impact the US beef market - things appear to be settling down from a market perspective.
That is, the domestic 90CL price in the US is following a similar trend to last year, and while below the five-year average (which has been influenced by the high years in 2013 and 2014), it is consistent with the five-year trend.
From an Australian producer point of view, although the US import prices are not at the record levels experienced in 2014 and 2015, they are returning to a more normal trend.
So far this year, the imported cow meat 90CL price in US dollars has tracked very close to the five-year trend, just above USD2.00/lb (USD4.40/kg). Based on the five-year average, prices could be expected to remain relatively steady through to July and then increase to USD2.20/lb for the remainder of the year.
Much better than the lows of USD1.80/lb experienced late last year and some comfort to processors and exporters. Even given the ongoing high Australian cow prices, at these import prices the margin between the two price series is returning to levels seen in 2012 -- in part, due to a more favourable exchange rate.
There are couple of things that are influencing the US prices at the moment.
US cattle numbers have returned to previous levels above 90 million head. Increasing cattle availability has eased the need for feedyards to drive production through weight gain. The average carcase weights for fed cattle are now 13 kilograms lighter than one year ago. A spin-off from this, is that much of this weight loss is in the form of fat, so the production of US fat trimmings has fallen. With lower fat trimmings there is a reduced need for lean trimming to blend with them.
Another result of the increased cattle inventory is the higher US cow slaughter, supporting domestic production of lean beef. Cow slaughter numbers are not showing herd liquidation levels but rather just increased volumes of cattle in the system. In addition, increased US imports from New Zealand, Uruguay, Argentina and Brazil are offsetting the decline in imports from Australia.
While US beef demand is looking good, a key challenge for Australia in this market will be outcompeting the other suppliers, as our production volumes gradually recover.
HOGS: (BizWest Media LLC) -- Beef, lamb and pork processor JBS USA Food Co. said Tuesday it has closed the deal announced in March to acquire Danish Crown A/S' U.S.-based bacon, ham and deli meat business, Plumrose USA, for $230 million.
Greeley-based JBS USA, a wholly owned subsidiary of JBS SA in Brazil, acquires five prepared foods facilities, including one in Elkhart, Ind., two in Council Bluffs, Iowa, one in Booneville, Miss., and one in Swanton, Vt., plus two distribution centers in South Bend, Ind., and Tupelo, Miss. Plumrose's 1,250 employees are expected to join JBS USA.
Plumrose offers branded, prepared foods including bacon, hams, sliced deli meats and cooked ribs. Plumrose's annual net revenue is estimated at $500 million.
The Danish Crown group is the world's largest pork exporter and Europe's largest pork processor.
Jais Valeur, Danish Crown's chief executive, said Plumrose USA became expendable when the group created a new strategy to lead home markets in Northern Europe and further its position in Asia.
JBS USA is also a majority shareholder of Pilgrim's Pride Corp. in Greeley, the second-largest poultry company in the United States.
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