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For the week ending February 9th, chicken output was down 1.4% week-to-week but the six-week rolling average was up 2% (yoy). With USDA forecasting total production for the first half of 2019 at 1.1% higher, the industry appears poised to meet these modest gains. But as integrator margins improve with rising chicken prices, expectations are that production may begin to ramp up later into Q2. The tender/breast price spread is wide relative to history but is still under levels from 2018. Expect the price spread to narrow as breast meat prices climb versus tenders. Leg quarter prices remain lackluster, with key export partners noticeably absent from the market.
Last week, beef production fell 4.5% from the week prior, but came in nearly even with last year, at 492.2 million pounds. Weekly average production schedules are expected to ease through the balance of February before escalating sharply from March well into the summer. But, lighter cattle carcass weights may temper those seasonal increases. Significant forward sales of middle meats, as well as beef 50s, pose continued risks for tight beef supplies (and higher prices) deep into the peak grilling season. Retail features of beef grinds have been active, and the lower price environment should encourage further activity.
Last week, pork production jumped 5.7% (yoy), with hog slaughter a whopping 2.5 million head for the second consecutive week. Increasing pork output has been problematic for the wholesale market, pressuring the USDA cutout to multi-year lows, down more than 17% yearover year. Pork bellies have been in freefall mode breaking below the $1.00 mark earlier this week. If the lower prices hold, that puts bellies near a 30% discount (yoy). Ham sales are expected to ramp up ahead of the Easter holiday, with prices languishing at favorable levels.
U.S. snow crab imports have been erratic during the last several months. In November, they were up 4% from the previous year but at historically inflated price levels. The Alaskan snow crab fishing season is progressing, and the Canadian seasons are near. Still, the Newfoundland harvest this year could be small causing elevated price levels to persist.
The Idaho potato markets have been firm during the last couple of weeks tracking above year ago levels. This is despite February 1st U.S. potato holdings bigger than a year ago. For the date, U.S. potato stocks were 2.5% more than 2018 and the largest for the date in over a decade. Idaho potato supplies were 5.3% more than the previous year. These factors could temper the seasonal upward moves in the potato markets during the coming months. The tomato markets are depressed but the risk in prices is to the upside.
The kitchen sink
The cheese markets have been firm. Cheese block prices are the highest since October and barrel prices are the most expensive since September. Harsh winter weather in parts of the U.S. have tightened milk supplies for cheese producers which has supported prices. Current U.S. cheese prices are still less costly for international buyers which is fueling exports. History says that the cheese markets can appreciate from now through early April. The spot butter market has been steady. Since 2014, the average move for spot butter prices from March through June was up 19.4%.
The total domestic corn production estimate for 2019/’20 was lowered modestly by the USDA in their February report. However, U.S. corn supplies are more than adequate and are influencing prices downward. Nearby corn futures have not traded appreciably below $2.90 per bushel and for a notable period of time since April 2016.
Nearby WTI crude oil futures rose a whopping 8.1% over the last week and achieved the highest level since November. Geopolitical events in Venezuela have disrupted some crude oil operations in that country. Expect crude oil prices to remain volatile but a downward correction occurring would not be a surprise.