We could begin to see a few starter bids in feedlot country Wednesday, and you can probably say the same about asking prices, but significant trade is not likely to surface until Thursday or Friday. Live and feeder futures should open on a mixed basis thanks to follow-through selling and short-covering, sparked by recent feedlot premiums.
The cash hog trade got clobbered on Tuesday, so we expect country timbers to shake again Wednesday. Look for opening bids to be another $1 to $2 lower as packers lean into both plentiful supplies and struggling demand. Lean futures should open significantly lower thanks to tough fundamentals.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Both long and short positions declined in the week of July 31, with noncommercials increasing their net-long position in live cattle futures by 2,600 to a total of 55,200. This is the highest level since late March.
| 1) |
Live and feeder cattle futures closed sharply lower Tuesday, falling back into the long-held lateral trading range held by late April.
|
| 2) |
Though closing lower, spot August live recovered late in the Tuesday session, settling as much as 80 points above session lows and above support at 110. Late summer specs clearly want to stay close to cash stability/firmness.
| 2) |
The cattle board continues to imply further declines on cash cattle from the current $114 area towards the $110 area by late summer.
|
| 3) |
Technically speaking, lean hog futures are extremely oversold with many oscillators in single-digits.
| 3) |
The pork carcass value closed moderately lower on Tuesday, pressured by another sharp break in the belly primal (i.e., off $9.52).
|
| 4) |
While additional belly weakness is expected, the sharp losses that this market has experienced over the past three weeks should slow.
| 4) |
Monday's slight hint of stability in the cash hog trade (e.g., slower national receipts) turned out to be as phony as a $3 bill. The national weighted average on Tuesday plummeted by $3.19.
|
CATTLE: (New Food Economy) -- Monday's announcement is the first indication that the agency suspects water contamination from animal agriculture may have been the outbreak's original source.
The Food and Drug Administration (FDA) on Monday shed new light on what may have caused the E. coli outbreak that was traced to romaine lettuce from the Yuma, Arizona growing region earlier this year. The outbreak, which sickened at least 210 people in 36 states and killed five, was declared officially over as of June 28.
Now, an agency press release shows that FDA, along with the Centers for Disease Control and Prevention (CDC) and state and local partners, has zeroed in on a potential suspect: a 100,000-head cattle operation located near lettuce fields in Yuma.
On the same day the outbreak was declared finished, FDA Commissioner Scott Gottlieb had issued a statement indicating that "Several environmental samples of canal water in the area have been found to contain E. coli O157:H7 that genetically match the strain of bacteria that caused the outbreak." But Monday's announcement is the first indication that the agency suspects water contamination from animal agriculture may have been the outbreak's original source. "FDA notes that the canal is close to a Concentrated Animal Feeding Operation (CAFO), a facility with a large number of cattle on the premises," the agency wrote in its statement, "…and the FDA traceback information showed a clustering of romaine lettuce farms nearby."
Food safety lawyer Bill Marler, who is representing 105 people sickened in the romaine outbreak, told AZCentral he'd never heard of an E. coli case tied to an irrigation canal. But FDA's hunch that a cattle operation may be to blame is not altogether surprising. Fresh produce outbreaks often begin with animal agriculture, even if it's actually salads that are making people sick.
In 2006, a deadly E. coli outbreak linked to spinach was traced back to a cattle ranch in San Benito County, California, a highly productive agricultural region in the Salinas Valley. In that instance, too, irrigation wells too close to animals and their feces were named as a likely cause. Animals, whether it's livestock or wild animals like birds and rodents, are a major cause of food safety issues with fresh produce -- and they're a constant headache for growers. In Yuma, farmers are experimenting with falcons to keep rodents and wild birds at bay. The revelation that polluted canals may have been the source is sure to vex the region's lettuce producers, who will need to find new ways to make sure their water supplies are safe.
Unlike the Salinas Valley, which is known as America's Salad Bowl and is responsible for growing upwards of 70 percent of the country's leafy greens and lettuce year-round, Yuma is often referred to as America's Winter Vegetable Capital, producing 90 percent of our leafy greens from November through March (which accounts for the timing of the recent outbreak). Much of the area is dedicated to growing lettuce, and according to the Yuma County Chamber of Commerce, the region is also home to nine salad plants producing bagged lettuce and salad mixes to the tune of 2 million pounds a day during peak months.
In its Monday statement, FDA said that it will continue to examine the links between the CAFO and adjacent water. Environmental assessments are ongoing, the results of which will be released to the public when complete
HOGS:(Dow Jones) -- Record levels of beef, pork and chicken coming to market are cutting into profits for the biggest U.S. meat processing companies.
Companies like Tyson Foods Inc., Pilgrim's Pride Corp. and Sanderson Farms Inc. confront declining prices and uncertain demand as rising meat production and tariffs levied by major importing countries threaten to curtail a prosperous period for the U.S. meat sector.
"Intertwined with uncertainty on trade policies and tariffs are increasing supplies of relatively low-priced beef and pork that are competing with chicken," said Tom Hayes, Tyson's chief executive, on a conference call with investors on Monday.
Tyson, the biggest U.S. meat supplier, reported a 21% increase in quarterly earnings on Monday but cut its profit forecast for the year a week earlier, and tariffs already have cut into its revenue. Pilgrim's, the second-largest U.S. chicken processor, last week reported a 54% drop in second-quarter profits. Analysts polled by Thomson Reuters expect Sanderson's quarterly profits to drop by nearly three-quarters from the prior year when the company reports its results later this month.
As meat piles up, investors are losing their appetite for meat-centric stocks. Shares of Tyson have declined 27% so far this year, falling 6% in the week after cutting its profit outlook July 30. Pilgrim's Pride shares have fallen 41%, and Sanderson Farms 25%. Hormel Foods Corp., which has a smaller business in meat-processing, has gained 2%.
The meat glut, spanning Minnesota turkey barns, Iowa pork plants and Southern chicken hatcheries, has been building for years. "We need to have those markets clearly open to us," said Tyson's Mr. Hayes. He estimated that declines in beef and pork prices, if they remain around current levels, will shave about $1 billion from Tyson's annual revenue. Cheap grain encouraged U.S. farmers and meat companies to expand and meet rising demand from consumers in the U.S., Mexico, China and other countries. Cattle ranchers and turkey farmers raced to rebuild herds and flocks after drought and disease slashed populations earlier in the decade. Pork and chicken processors have built some of the industry's largest and most-efficient plants ever.
Now that meat is coming to market in pounds by the billions, pressuring prices and ratcheting up competition between red meat and poultry. Meat processors will produce a record 102.7 billion pounds this year, according to estimates from the U.S. Department of Agriculture.
Tariffs on U.S.-produced meat, meanwhile, threaten to erode demand. Duties implemented by Mexico and China -- two major markets for U.S. pork -- have forced meat companies to slash prices to prevent products from piling up this year, largely because of pressure created by Mexico's tariffs. Cheap cattle and strong prepared foods profits have benefited Tyson, but Mr. Hayes said he couldn't predict when the trade picture will improve.
"We just don't know," Mr. Hayes said.
Meat prices have been coming down for retailers, restaurants and food distributors. Wholesale pork prices fell 10% over the past year, according to USDA figures published in July. Wholesale beef prices declined 9%, and while chicken prices for most of 2018 were running above last year's levels, those gains nearly vanished in July, the USDA said. In some cases, that has meant cheaper burgers and bratwurst for U.S. consumers' summer cookouts.
In grocery store meat cases, relatively lower prices are helping sausages and ground beef push aside chicken breasts, Pilgrim's Chief Executive Bill Lovette told investors on a conference call last week. "We believe retailers in general were featuring less chicken in favor of more beef and pork," Mr. Lovette said.
Retailers could start shifting back toward their normal chicken-featuring behaviors "as soon as late summer," Mr. Lovette said.
Mike Cockrell, chief financial officer for Mississippi-based poultry processor Sanderson Farms, estimated that jumbo boneless, skinless chicken breast prices have fallen by nearly one-third from their 2017 peak, partly because restaurants are pushing beef and pork, which has also come down in price.
"We'd rather compete against higher priced meats," Mr. Cockrell said.
The U.S. meat sector spans billions of chickens and tens of millions of hogs and cattle, and is tough to change quickly. Some cattle producers already are shrinking herds as feedlots take losses, said Vertical Group analyst Heather Jones, with more beef cows being sent to slaughter and fewer animals seen moving to feedlots over the remainder of the year.
If chicken prices don't pick up by next year, meatpackers could begin breaking chicken eggs instead of placing them in industrial-scale hatcheries, a practice that is faster and cheaper than culling breeder birds, she said. Ms. Jones wrote in a note to investors: "The down cycle will not be quick and painless."
No comments:
Post a Comment