top of mind news

Last week, chicken processors looked to have been in make-up mode, slaughtering a whopping 172.4 million head – up from the week prior’s dismal 116.8 million, ad nearly 6 percent larger than year ago levels. We’re not holding our breath that these increases are going to hold, but it certainly does speak to the processors ability to ramp up production as needed. Just sayin’. While mostly off their highs, losses across the breast meat and wing markets has slowed to a crawl, and the ArrowStream wing index is holding in the $3.05 to $3.08 area. The tender market, on the other hand, continues to run at its highs, leaving last week’s close near $2.58, or more than 85 percent over year ago levels. Moving from the chicken to the eggs, egg prices have been moving mostly sideways for the past six weeks, bucking the typical seasonal that pushes egg prices to their lows for the year into late spring. Seasonal upside across the egg market is expected to reemerge from here into mid-July before prices reset ahead of another run higher into Labor Day.

Beef

Last week’s slaughter came in at an active 665,000 head, the largest for the week since 2011. We wouldn’t be surprised to see harvests holding in the 650,000-to 670,000-head range into early July, but we remind readers that this will be done only with active Saturday slaughter schedules and running 60,000-to 70.000-head per Saturday certainly takes its toll on the workforce which is already tight. The cutout caught some additional relief into week’s end, but the Select cutout came off the hardest, approaching the $3.00 area for the first time in almost a month. Downside across the Choice cutout have been a bit slower to develop, with the Choice cutout continuing to hold near the Memorial Day highs. Still, given expectations for expanding slaughter schedules, we remain optimistic that wholesale price relief is on the way.

Pork

The cutout continued to roll over to end the week, with Friday’s close at $1.325 taking back the upside noted across the entire week. Still, the weekly average was sharply higher, with only the ham and spareribs primals garnering downside throughout the week.  Last week’s harvest was an active 2.44 million head, and, while this would usually leave us thinking that product is about to expand, we’ll reserve judgement until we see if processors can keep kills above 2.4 million head for more than just one week. As we’ve been noting, a seasonal low on harvests is approaching, but it’s likely that some of last week’s hogs were just spillover from the week prior’s JBS debacle. Nonetheless, we continue to look for the cutout to be nearing a top over the coming couple of weeks, but sharply lower prices likely aren’t in the works, unfortunately.

THE SEA

Seafood

Most seafood markets are now tracking above year ago levels due to the low prices in the spring of 2020 due to COVID reduced demand.  Foodservice demand is improving considerably however, restaurants are limiting menu items in part to labor issues and sales volatility.  This could temper any increase in seafood demand for foodservice during the next several months.

THE GARDEN

Produce

The tomato markets have been relatively range-bound as of late as the chief harvest area begins to transition north on both the East and West coasts. This is impacting supplies which in recent weeks have tracked below year ago levels. Supplies from the West coast are expected to improve in the coming weeks but East coast supplies could remain limited. History suggests that the tomato markets could move lower in the near term. Lime supplies are improving but larger sized product stocks are tight. The risk in the lime markets is to the downside.

THE KITCHEN SINK

Dairy

Last week cheese block prices finished lower (w/w) but barrels were the highest in 12 business days. U.S. cheese exports in April were a record high for any month beating the previous record by 7.6 percent from March 2014. Spot butter prices last week were down modestly (w/w). April butter exports were largest for the month in seven years and butter imports were down 13 percent (y/y). The USDA raised their 2021 milk output forecast higher by 600 million lbs. and is forecast to be 2.4% more than 2020. And Q3 milk production is expected to be up 2.5 percent (y/y). This factor should continue to encourage cheese and butter output, but prices usually increase during the summer. Still, this year’s seasonal dairy price increases may be only modest.

Grains

The grains got absolutely whacked to end the week as widespread rains bolstered confidence on the crops throughout the Midwest. While the soybean market led the downside across the row crops, bean oil sported losses of more than 4 percent from the day prior. Midwest rains were, however, not to blame here. On Friday, Reuters reported that the Biden administration is looking for “…ways to provide relief to U.S. oil refiners from biofuel blending mandates…”. You read that right, after USDA pushed 21/22 soybean oil use for biodiesel to a record 12 billion pounds (up 2.6 percent from 20/21), adjusting the annual average price for next year to $0.65, there’s talk of walking back some of the bending mandates. While the article focused mostly on ethanol biodiesel has been getting quite a bit of attention – especially with the D4 RIN prices running at their highest since the fall of 2011. Soybean oil below the $0.60 mark may be an area worthy of considering some coverage. Back to the Midwest rains, many comparisons are being made regarding the recently dry U.S. weather and 2012’s short corn crop. As the chart below shows, in 2012 USDA whacked a massive 4,010 million bushels from the June WASDE to final, with the bulk of the decline being noted by the August report. While we certainly aren’t looking for adjustments of that magnitude moving forward, we continue to note that weather between June and August is key to watch!

Oil

Nearby WTI crude oil futures last week were up (w/w) and experienced the highest weekly settlement since October 2018. Strengthening petroleum demand along with growing Middle East geo-political tensions could keep crude oil prices supported in the near term at least. The next upside quarterly pivot target (resistance) for nearby WTI crude oil futures is $78.90 (R2).