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For the week ending July 18th, chicken slaughter fell 3.4% from year ago levels, and lighter bird weights pressured ready-to-cook (RTC) down by 5.1% (y/y). Chicken production lows may be short lived, but integrators do not appear willing to run production sharply higher either. Especially with varying poultry parts values being widely mixed. Breast meat prices are fading, seasonally, while wing prices are mostly firm. Tender prices also continue to increase, and, while the wing prices are expected to seasonally slow, the tender market may continue to rise. Dark meat prices are struggling with apparent lackluster export interest weighing on prices. Upside is expected to be limited.
Last week ended with the smallest weekday cattle slaughter since June and the smallest non-holiday Saturday kill since May. While slaughter was down 0.9% (y/y), beef production was better by 2.2% (y/y). Wholesale beef prices have started to firm, with the middle meats leading the charge, but, aside from the round primal, the wholesale Choice beef cutout remains below a year ago. Packers may slow production into the late summer, suggesting upside price risk. Beef 50s prices are struggling in part to heavier carcasses and light foodservice demand. Yet, seasonal upside price risk usually occurs into Labor Day.
Pork output continues to run well above over year ago levels, with last week being up 11.8% from the same week a year prior. Larger production schedules are weighing heavy on many wholesale pork markets, but some firmness across the hams and loins was noted last week. Still, despite jumping more than 10% week-to-week, the ham primal value remains well below a year ago. Belly prices are holding mostly in the upper $0.90s, as has been the case since early June. The longer-term trend however for bellies in the late summer is lower.
The shrimp markets have traded below year ago levels for the last several months. This has occurred despite a sharp downturn in shrimp imports during May. During the month, the U.S. imported 29.2% less shrimp than the previous year. Shrimp imports are expected to improve this summer however which should aid supplies. Thus, the upside risk in shrimp prices may be relatively limited.
The lettuce markets have firmed during the last week in part to better demand and a downtick in production. However, no major lettuce supply gaps are anticipated in the coming weeks. Lower lettuce prices could be forthcoming. The five-year average trend for the 24-count iceberg lettuce market during the next two weeks is a decline of 21%. The potato markets continue to firm due to historically small supplies. Potato stocks are expected to remain limited deep into the summer and further price increases could be forthcoming.
THE KITCHEN SINK
The CME cheese block market last week fell to the lowest level in five weeks but is still historically high. The cheese barrel market is also inflated. June 30th U.S. cheese stocks were 2.6% larger than a year ago but it was the biggest drawdown for the month on record. Cheese prices will likely remain volatile going forward especially with more U.S. government dairy purchasing expected. That said, there is still big downside risk for the cheese markets. The CME butter market found modest support last week. June 30th butter stocks were10.8% larger than the prior year. Butter prices usually rise in August.
China has been a notable buyer of U.S. soybean products and corn in recent weeks. Crop and product challenges in that country brought on by the heavy rains are contributing to grain supply concerns there. Rapeseed in particular is a concern which could help buoy the oilseed and food oil markets in the near term.
Last week nearby WTI crude oil futures were the highest since March. The U.S. dollar’s recent weakness supports domestic petroleum exports. This factor along with recent cutbacks in crude oil output could support prices further in the near term. But there are still U.S. and global economy growth concerns