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Market Update - 7/23/2020

Fruits and Veggies

  • Tomato – Tomato pricing across the nation remains very high, though prices are flattening on Roma tomatoes and grape tomatoes. We’re still about double the cost of a typical year. Producers in the southeast are putting out more product but were still short overall to meet demand. Round tomatoes are up $2 per 25LB box week over week. Cherry tomato baskets are down close to $3 while grape remain unchanged. Southeastern Roma tomatoes are entering the market this week but most production out of Mexico is flat.

  • Onion – California prices are steady week over week. New Mexico prices are up slightly. The Food Box program is putting a strain on smaller sizes. Jumbos look to be in a good position going into new harvest in 3 weeks or so.

  • Potatoes -- Big increases this week on potatoes from all points of origin. We will see $18 a case FOB by Monday. Oregon and Washington potatoes have paused at $20. We believe that when Idaho potatoes meet the $20 around the 27th of July both groups will pause and then make a move higher to $22 by the 3rd of August.

  • Lettuce – Iceberg is down $1.55 on average week over week from last weeks Friday close, but has staged a late week rally and is up $.89 per 24ct Monday vs Friday. Romaine is unchanged week over week and has had a positive trading range of $1 or more per case during this past week. Romaine and romaine heart production supply is a little below normal budget volume. Industry supply is off to a degree as well. We expect reduced supply for at least the next few weeks. Markets are forecasted to maintain elevated levels.

  • Cucumbers – Cucumber demand is good out of Michigan and North Carolina; Georgia is done. Markets remain steady and quality is good. In the west, good supply crossing through Otay Mesa and South Texas.

  • Oranges –The Valencia market is hot and inventory is down. Foodservice availability is limited. USDA farm to family program is also taking majority of the Valencias and the business towards covering other orders. Spot loads are available but at pricing at a premium.

  • Lemons – California lemons are extremely short, inventories are way down, although we are seeing improvement on pricing and demand. Quality has been great and the fruit is nice.

Plastics

Polyethylene secures $.04/# increase for June. PE prices are rising weekly by $.005 to $.015 per pound. Exports are strong and their continued support to the market will be a pillar for maintaining increases into the future. Polypropylene settles at $.01/# increase with thoughts of an additional $.03 increase in August. Trade volumes are steady and monomer cost are increasing so this product is expected to continue to increase.


Eggs

Undertone is steady. Prices did rise last week about $.10 per dozen. Inventories in the North are low but sufficient in south. Probably another week of steady prices with indications of increases on the horizon.

Soy

NOPA crush report showed 167.2 million bushels of soybean were crushed. This reading was above the trade’s range of estimates and compares to 169.6 last month and 148.8 last year. Soy oil stocks were 1.778 billion lbs, below the average trade estimate of 1.813 and last month’s 1.880, but above last year’s 1.536. The oil yield was 11.56 lbs./bu. The lower soy oil stocks despite the higher crush is a bit concerning and certainly not bearish. Strength on the oil front seems to be coming from the supply side. Palm production in question with a lack of fertilizer being noted. Brazil crush margins are squeezed due to a tightness in the soybean market driven by large export sales. Argentine farmers remain reluctant sellers. Weather concern exist in China with flooding and the Black Sea region with dryness. A quick note sustainable bull markets are demand driven.

Dairy

Last Monday traders tried to push the limits of the spot cheddar market when it reached $3. Buyers were not interested at that level and prices retreated toward the end of the week when purchases came in around $2.66. Foodservice demand is declining but retail and the USDA Food Box program remain active and supportive of the higher prices. Many buyers are buying only what’s necessary short term in hope a price correction will occur. Barrel Cheese also succeeded at securing increases over he week finishing at a 6 year high. Class III milk took losses all week long but did not plummet. While is still pricing far above last years prices, the trading range for front end futures is narrowing significantly. Milk is short in supply but with cheese vats filling up, lack of school milk, and soon shrinking ice cream sales, buyers of spot milk don’t need to pay over class any longer. A good indication that the seemingly endless upward trend is near its peak.


Poultry

Getting a lot of mixed signals from the poultry complex right now. Total slaughter is down over 6.6 million head YOY for this week. Weights are slightly higher YOY. The big thing is that chick placements have been consistently down for several weeks now, indicating a shortage of marketable birds in August. Jumbo breast meat is overstocked, presumably due to an abundance of heavy birds and shrinking foodservice usage. However, wings and tenders which are also heavy foodservice cuts are reaching new highs. We keep seeing reduced slaughter and chick placements YOY which would typically suggest strengthening of prices but all account suggest that there is currently more available supply than the market requires, which is keeping prices discounted. Exports are strong but not as strong as anticipated and cold storage seems to be in good shape. Multiple industry experts had suggested a price hike was coming on chicken in August due to low hatch, but that has yet to materialize.

Beef

As beef prices begin to stabilize, what direction will they head in the coming months? At first glance one might sight the backlog of cattle as reason for lower upcoming prices. As the backlog drags feeders must slow the rate at which their cattle grow, which can be expensive. So will increased beef availability due to higher weights and the backlog of cattle keep the cost increase of slowing cattle growth suppressed? Live Cattle prices are still low compared to where they were this time last year, so cattle marketers are not getting paid as much as they need to be. Lower grain prices are helping cattleman, but eventually cattle prices will need to rise to accommodate the cost of the backlog. The question is will ranchers get the price they need from packers and keep cattle moving through the system, or will ranchers get shut out by packers forcing them to drop calf and feeder production. Both scenarios are indicators of higher beef prices for consumers.

We can also look at the looming threat of low demand as an indicator of suppressed pricing. Excess meat in the marketplace can be absorbed by strong demand, which is what we see now with the re-opening of foodservice establishments. Social distancing is causing suppression of restaurant recovery. Resurgence of COVID-19 in states like California is causing further setbacks to foodservice growth. The effects of unemployment have yet to be felt. These factors could lead to low mid to long-term demand and lower pricing, especially if unemployment takes its toll on higher priced middle meats.

However, as US demand could show decline, Asian demand should be quite strong. Australian exports to China were up 8% in May even with the Chinese ban on several Australian meat packers due to COVID spread. The need to export protein to Asian is gaining strength. Australia is the exporter of choice for China and the U.S./China phase 1 deal isnt exactly living up to its expectation but China has said is the past they will buy where they can get the best deal. Sustained low beef prices would make U.S. product very competitive against the global marketplace. Cold storage stocks saw about a 10% decline from April to May when the worst of the beef plant closures hit. Processing capacity is back up to about 95% with the help of Saturday shifts but were still running a backlog of 950,000 cattle. If cold storage is low and exports begin to increase, we could see beef prices rise because processors cant keep up with demand. If you add higher processing expenses due to heavy cattle into the equation and declining domestic beef market could turn into a rally very quickly.


Pork

If you're wondering where all the pork everyone has been shorted is going, its China. Looks like the May export totals were the best ever for the month of May, 80 Million pounds short of March’s all-time high numbers, 23 million short of April. Most of the product was shipped out of cold storage rather than fresh but the U.S. is now dangerously low on frozen pork. The process of filling that inventory will keep commodity and value-added prices competitive for a little while. Even though we did see a giant 23.6% drawdown in pork inventory from April to May, good slaughter numbers and the backlog of live pigs will raise inventory levels successfully.

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