Although a limited amount of clean-up trade is
possible Friday, we suspect that the cash cattle trade is essentially
done for the week. Cattle remaining on showlists are priced around $122
to $123 in the South and $192 to $193 plus in the North. Live and feeder
futures should open on a mixed basis thanks to a slow combination of
residual buying and pre-weekend profit-taking. Spot June is set to
expire at high noon.
Hog buyers are expected to resume work Friday
with bids steady to $1 high. The June 1 Hogs & Pigs report contained
few surprises. Herd expansion seems to be securely in place. The summer
and fall farrowing intentions were marginally smaller than expected.
Yet "intentions" are soft numbers to begin with so we don't think
there's much here to hang your hat on. Lean futures are staged to begin
with uneven price action tied to bull spreading and profit-taking.
| BULL SIDE | BEAR SIDE | ||
| 1) | Once again, live and feeder futures ignored bearish beef demand news by closing solidly higher on Thursday, further underscoring the potential significance of Wednesday's reversal off last week's lows. | 1) | The wholesale beef trade continued to implode on Thursday with cutouts quoted sharply lower again (i.e., choice and select off $2.80 and $2.51, respectively) and box supplies described as "heavy." From Thursday to Thursday, the choice and select box lost a staggering $16.33 and $6.76, respectively. |
| 2) | Beef exports last week totaled 14,900 metric tons, up 9% from the previous week and 8% from the prior four-week average. | 2) | For the week ending June 17, cattle carcass weights took a big jump: all cattle averaged 803 pounds, 7 lbs greater than the prior week but 13 lbs below 2016; steers averaged 855 lbs, 8 lbs heavier than the week before and 12 lbs lighter than last year; heifers averaged 782 lbs, 5 lbs bigger than the previous week and 12 lbs smaller than the year before. |
| 3) |
Spot July lean hog futures posted
another new life of contract highs, settling at $89.48, still nearly a
220-point discount to Wednesday's two-day CME settlement index.
|
3) | The pork carcass value faltered by more than a buck on Thursday with all major primal contributing except the belly. |
| 4) | Net pork export sales last week jumped to 26,200 MT, up 6% from the previous week and 43% from the prior four-week average. | 4) | Though generally well anticipated, the spring pig crop, at 32.3 million head, was documented historically huge. Specifically, it is the second largest March-May pig crop since estimates began in 1970. |
OTHER MARKET SENSITIVE NEWS
CATTLE: (foodmarket.com) -- Pork and beef
feature volume are nearly neck and neck heading into the Fourth of July
holiday weekend. Beef features account for 26.6% of total protein
features, while pork claims 25.6%. Seafood just barely misses the second
spot with 25.3%, and chicken accounts for 17.2%. Question is -- which
protein will dominate front page ad space?
Burgers and dogs are Fourth of July staples in
American backyard cookouts. While retail beef prices have come down and
have generally hovered around 3-year lows to date in 2017, average
ground beef prices on 80% lean are still up $0.66 per lb. from the low
set in April of this year. This week, 80% lean averages $3.36 per lb. on
feature, however, it's worth noting that several large supermarket
chains are offering prices at sub-$2 levels. Ground beef featured in the
area of $1.79 per lb. has debuted on holiday front page ads this week,
and will certainly command attention at the meat case.
Rounding out the beef complex, top round London
Broil is on feature for $3.60 per lb., on par with year ago levels. The
steak complex averages $7.80 per lb., which is slightly higher than
Father's Day feature levels just a few weeks ago. Some chains are
discounting more than others for Independence Day, with prices on T-bone
steaks ranging anywhere from $6.99 to $9.99 per lb. on average.
One thing is for sure—it's hard to compete with
the availability and cheap prices of pork this summer. Boneless,
center-cut pork chops average $2.95 per lb. on feature this week, down
roughly 50 cents per lb. from a year ago. Back ribs run $3.26 per lb. on
average this week, but run as low as $1.77 per lb. in some areas. Pork
shoulder, a hard to beat item at the meat case in terms of value and its
ability to feed a crowd, ranges from $1.00 to $1.99 per lb. this week.
Pork, in its various forms, has won top front page real estate
throughout many ads this holiday as a competitively priced grilling
item.
While boneless skinless chicken breasts might be
pricing themselves out of the competition this holiday at an average
$4.07 per lb., the dark meat complex ranges from $0.94 to $2.89 per lb.
and could claim some space on the grill among poultry fans. Ground
turkey averages about $3.60 per lb. this week.
For the seafood lovers out there from coast to
coast, cooked shrimp runs $8.43 on average depending on count size.
Tilapia averages $4.91 per lb., down 5% from a year ago. Cod fillets run
$7.99 per lb., up 25% from a year ago. Atlantic salmon boneless fillets
are featured at $9.66 per lb., compared to $7.85 a year ago.
HOGS: (National Hog Farmer) -- America's pig
farmers are producing more pork with a 3% jump in production this year.
As the U.S. pork industry produces more it is reasonable to expect
prices to drag, explains Dermot Hayes, Ph.D., Iowa State University
economist, to an audience at 2017 World Pork Expo.
Yet, hog prices this year are still decent, and
the main reason is strong pork demand. Looking at second quarter
numbers, Hayes points out that pork production climbs 3.4% whereas pork
demand is a net increase of 4%. The growth in pork demand is not
domestically as it remains relatively flat in 2017. Exports account for
the majority of the increase in pork demand so far into the year.
"As of April this year, exports are up 15%. So,
when you have 15% increase in a market that's responsible for almost
one-third of your production that can explain why prices are high when
production is high also, " states Hayes. "It is as if we added 4-5% more
pork-consuming Americans to the base."
Looking at the big export picture, the United
States is shipping more pork this year to its international markets
except for China, which remains unchanged. Canada, on the other hand, is
only up 5% from the previous year. Canada is exporting so much to
China, up 123%, that all its other international marketplaces show
negative gain from 2016.
China imported additional 3 million tons by the
end of April 2017, making it the No. 1 pork importer last year. As a
result, Hayes says it kept the European Union and Canada busy while the
United States backfilled pork to the remaining countries. "We (U.S.) are
getting the benefits of China without actually shipping a whole lot of
product there," notes Hayes.
Turning to the European Union, the growth in
Spanish pork exports is often overlooked. Hayes says Spain's pork
exports to France and Italy are flat to down, but it is shipping
substantially more to China. Currently, it is exporting 2,000 20-ton
shipping containers to China monthly. Similar, Germany's pork shipments
are up for China, but down to its other traditional markets.
Hayes presents global hog production
benchmarking data from a collaborative international project (accounting
for exchange rates). With the exception of Mato Grosso, Brazil, the
U.S. hog production costs are lowest, especially for finishing hogs.
Although Mato Grosso production costs calculate lower, the country has
less access to international markets due to foot-and-mouth issues. In
comparison, Canada beats the United States for sow costs, but the
importing of grain to finish hogs drives its overall production costs
higher.
China's much higher production costs are a
result of expensive feed costs. Also, productivity is less as
biosecurity is challenging with a greater density of sows in a
geographic area. Examining the data, Hayes explains even with the extra
transportation costs and import fees, it is cheaper to bring in pork
from the United States. However, ractopamine-produced pork continues as a
barrier.
As for sow numbers, South America and North
America are trending higher while China and the European Union show a
decline presently.
Although China and the European Union appear to
be on a downward trend for sow numbers, the decline in sow numbers is
the reflection of removing unproductive sows from the herd. Early in
year reports from China indicating expansion mode was starting, however,
Hayes presents a statement release from China from two weeks ago that
states the opposite.
"Implementations of strict environmental
regulations will further constrain China's sow herd recovery in 2017.
Post is decreasing its 2017 sow estimates by 12% to 38 million head.
This reduction will impact the 2017 pig crop, decreasing domestic pork
production to 51 million metric tons."
Hayes explains this pencils to 6 million reduction in China's future sow numbers.
Hayes confirms that Ireland, Great Britain and Spain are adding sows to their herds.
"The one thing that might concern you is if all
Americas are expanding then we better have a market for all this
product. You don't often see all the countries expanding at once," notes
Hayes.
Overall, U.S. hog farmers are extremely
competitive with low production costs and superior efficiencies. As
reflected in the USDA long-term projection for pork exports by country,
the United States is an excellent position for export growth.
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