top of mind news

Last week’s chicken production estimate came in at a whopping 170.2 million head, but we continue to note that the actuals have been coming in 1 to 2 percent smaller than the initial estimate, but even at a potential 168 million head, that’s not a bad week from what we’ve been seeing throughout the mid- to late-spring months. Larger production schedules look to be taking the highs out of the chicken market, with the breast index closing below the $2.00 mark for the first time since early May while on Friday the wing market printed its lowest close since late April. Still, the leg quarter and tender markets are holding firm near their peaks. Wholesale inventories of wings and breast meat appear to be growing, with USDA noting that wing offerings at the wholesale level are, at times, heavy, with boneless, skinless breast inventories “readily available.” Again, a collapse in prices is not expected, but we wouldn’t be surprised to see the downside accelerate moving forward.

Beef

Downside across the cutouts continued into week’s end, with the Choice cutout off more than $0.14 from the week prior, while Select was off a more abrupt $0.21 from the prior Friday’s close. We continue to reiterate that the middle meats suffered the largest setbacks, and we wouldn’t be surprised to see additional losses continue to mount well into July. Again, packers likely have quite a bit of work ahead to buy back some late-summer feature interest, but kills in the 650,000 to 665,000 head area are expected to continue, and should keep pressure on wholesale beef prices moving forward. Last week’s 663,000 head harvest was about even with the week prior but was 2.6 percent larger than last year’s post-COVID ramp-up. In fact, slaughter levels across the past pair of weeks have been among the largest for early June since 2011, with the increases being done mostly on expanded Saturday schedules. This certainly creates quite the catch 22 for packers: keep kills aggressive on active overtime Saturday kills, lowering beef prices and cutting (record) margins, or cut kills and potentially stifle wholesale buying, ultimately lowering beef prices on expanding wholesale inventories. We’d certainly expect packers to keep kills active and continue to clear product in the forward market.

Pork

The cutout resumed its downside to end last week, averaging $1.234 – its lowest weekly average since mid-May, but remains record high for the respective week. The bellies, hams, and spareribs were all substantially lower week-to-week, and, while the sharp downside was unexpected, it was certainly welcomed! The spareribs and the butt primal still look well overdone here, and a pullback could certainly soften up the cutout a bit more moving forward. Packers put together another 2.44 million head harvest, and larger throughput is likely to keep pressure on the cutout moving forward. Still, slaughter rates in this area are about 200,000 head larger than we were expecting for late spring, and we may see a bit of easing on kills as we head into early summer. Still, we expect a seasonal low on slaughter to be noted sometime over the coming three to four weeks, but we’ll get a better view of available market hog supplies later this week in USDA’s Hogs and Pigs report.

THE SEA

Seafood

The shrimp markets continue to mostly trade at engaging levels for buyers. U.S. shrimp imports have been solid. In April, the U.S. imported 18.4 percent more shrimp than the previous year. As the world economy continues to reopen, it could dampen U.S. shrimp imports some, which could be supportive of the markets. Nonetheless, lean foodservice menus could temper any upside in prices.

THE GARDEN

Produce

The lettuce markets have firmed the last week. Warm weather in California has contributed to a generally tighter supply. In recent weeks, iceberg lettuce shipments have been tracking about 7 percent below year-ago levels. Further, foodservice demand for lettuce is improving. This could be supportive of lettuce prices in the near term. Additionally, the seasonal trend for the iceberg lettuce market is higher into the Fourth of July holiday. The freight markets remain historically expensive. Freight is expected to continue to track above year-ago levels this summer.

THE KITCHEN SINK

Dairy

CME spot butter prices finished higher last week (w/w) and are currently up 13 percent from the 2020 average but down 20.1 percent from the 2019 average. CME cheese block prices were up modestly last week but are down 20.7 percent from the combined 2020 and 2019 average. Per the USDA, domestic milk production for Q3 is forecasted to be up 2.5 percent (y/y). Active cheese production this year has influenced prices lower, but $1.450 is a big support level for cheese blocks. Foodservice butter demand has improved, and recent exports have been strong. In seven of the last 10 years, June spot butter prices averaged 9.8 percent higher than they averaged in May.

Grains

The grains showed a sharp reversal to end last week, but Friday’s upside was mostly modest relative to the prior few days of sell offs. Not surprisingly, the bean oil market was the leader of Friday’s move, with the back half of the complex picking up the most active buying interest. Additional upside may be noted as the panic over renewable fuel refining relief is certainly shaking out as more of an ethanol discussion than a biodiesel one. Value buying in corn was next on the list, with the new crop corn contracts picking up 6 percent almost across the board. Outlets are starting to report that China picked up some 17.6 million bushels of new crop soybeans on this last break, which wouldn’t surprise us at all given China’s ongoing need for soybeans. The trade will be keeping a close eye on this week’s crop progress report, as farmers are reporting a wide variety of conditions across the countryside, and moisture is in the forecast for key crop areas, it might not be enough to break the worsening dry spell that’s been worrying the trade.

Oil

Last week, nearby natural gas futures were slightly lower (w/w) but also hit the highest level (earlier in the week) since November. Per the EIA, for the week ending June 11, U.S. natural gas stocks were 15.7 percent lower (y/y) and 4.9 percent smaller than the five-year average for the week. Expect natural gas prices to be erratic in the coming weeks due to summer temperatures.