Monday, August 25, 2014

Transcription

1 Monday, August 25, 2014 Please Note: Due to business travel, we WILL NOT publish a weekly Hog Runner Report next week. We will resume publishing on Monday September 8 THE COMMENTARY Runner prices in the US are unchanged at levels of $1.05. In the meantime, we continue to hear that packers possess decent sold forward positions and are hearing rumblings many packers are indicating that they will be looking for more money, especially with forecast calling for significant declines in the nations slaughter the 4Q of Members of the finished trade continue to claim that achieving price increases on finished material that reflect the move we have seen in Runner prices remains a difficult challenge. Overall, narrow sizes remains well sold and we continue to hear that producers are able to eke out some incremental increases. Meanwhile, although producers have adequate sold forward positions on middle sizes, pressing buyers for more money is a challenge, while producers readily admit that although they have been able to liquidate excess inventories of wider sizes, prices increases are impossible. Something worth keeping an eye on is the continuation of record low beef slaughter numbers in the US. Year-to-date, the fed cattle kill is down 1.5 million head (6.99%) versus last year, while the number of cows slaughtered this year is down 600,00 head (13.92%). Forecasts are calling for larger decreases the 4Q of 2014 and 1Q of 2015, due to inventory of live cattle at its lowest levels in over six decades. This is likely to keep pressure on beef casings. Meanwhile, the shortage of slaughter will keep supplies of cattle hides well below demand. We anticipate this will encourage leather tanners to consider wet-blue splits to supplement shortages and likely we will see potential supply shortages for (lime splits) collagen during this time frame and would not be surprised if prices did not revisit their record levels set earlier this year. In the meantime, reports from Europe call the market unchanged, although we are hearing claims of Runners trading in a range from Euro cents as we continue to hear that producers are well sold. In the meantime, the majority of Europe is slowly returning from the summer holidays and we tend to suspect with thoughts that the US Runner market may be poised for higher prices in the 4Q, it is likely we will see prices follow in Europe. 1

2 THE LOOK AHEAD As to what we expect for the next couple of weeks (we will not publish next week due to travel), we believe the market is poised for an increase in Runner prices, in spite of objections from Casing Companies that they are struggling to pass along the most recent increase in Runner prices. In the meantime, as pundits are forecasting some significant decreases in the slaughter of both cattle and hogs in the 4Q of 2014, retail prices of both items will likely exceed all-time record levels. This will make fresh protein at the retail level considerably expensive, while trimmings destined for the sausage trade will rise as well. Look for a reduction in disposable incomes the 4Q & 1Q of next year, which in turn, could be a blessing in disguise for sausage makers, as consumers turn more towards dinner-links, brats and hot-dogs to replace beef and pork cuts. Meanwhile, we expect profitability in all segments of the industry to become more difficult to achieve. We look for a continuation of companies forming JV s or merge in order to increase efficiencies, and unfortunately those smaller-medium sized players that do not have a niche market, and void of deep pockets caught in the squeeze. THE SLAUGHTER Last week's hog slaughter totaled million head, down 1.3% from the week before and down 9.7% from the same week last year. Year-to-date, the slaughter stands at 66,938,000 head and we continue to trail the pace we set a year ago by 3,558,000 head or 5.04%. The average live slaughter weight of barrows and gilts in Iowa-Minnesota last week was pounds, down 1.3 pounds from the week before, but 10.5 pounds heavier than the same week last year. It is important to note, that this was the 14th consecutive week with weights at least 10 pounds heavier than a year ago. 2

3 Week-to-Date U.S. Estimated Slaughter Totals 08/23/2014 Bovine Swine Ovine Today s Slaughter 590,000 1,991, Slaughter Last Week 577,000 2,017,000 38,000 Slaughter Last Year 636,000 2,204,000 43,000 YTD Slaughter ,391,000 66,938,000 1,365,000 YTD Slaughter ,849,000 70,496,000 1,367,000 ( Feedlot margins dropped significantly last week, from $ per head down to $ per head for the week ending August 16, says the Sterling Beef Profit Tracker s latest report. The two-week skid came after margins topped out at $ per head for the week ending August 2. The decline is well below the $ per head price from a month ago, but significantly higher than this time last year when feedlot margins were losing $41.58 per head. 3

4 Fed cattle prices continue to decline, dropping to $ per hundredweight last week. The $5.39 per hundredweight decline is below the $ per hundredweight price last month and when they were bringing $ per hundredweight this time a year ago. Feeder steer prices also slightly dipped last week, moving from $ per hundredweight to $ A month ago, fed cattle were bringing $ per hundredweight, well above the $ per hundredweight this time last year. Packers continue to gain progress with a $2.23 per head increase from the previous week, topping out at $ per head last week. This is nearly double from a month ago when packers were making $68.66 per head and $9.44 per head a year ago. Beef cutout prices were down $5.11 from the previous week, settling at $ This is still higher than last month s value of $ and a year ago this time of $ Farrow-to-finish margins continue to decline, dropping from $77.80 per head in the previous week to $61.74 per head for the week ending August 15, according to the Sterling Pork Profit Tracker. This is a $49.53 per head decline from this time a month ago when farrow-to-finish margins were bringing $ per head. While the amount of decline is large, it is much higher from a year ago when they were only bringing $25.48 per head. Lean hogs also continue to drop, moving from $ in the previous week to $ last week. After making significant increases to $13.95 per head in the previous week, pork packer margins are back down, settling at $7.23 per head last week. At this time a month ago, packers were making $3.11 per head and $1.34 per head a year ago. Pork cutouts continue to decline, dropping from $ in the previous week to $ last week. This continual drop has lowered cutouts from $ a month ago; however, they are still above the $ value from this time last year. The Sterling Beef Profit Tracker for the week ending August 16: Average feeder margins: $ per head Average beef packer margins: $75.07 per head The Sterling Pork Profit Tracker for the week ending Aug15: Average farrow-to-finish margins: $69.07 per head. 4

5 Average pork packer margins: $6.40 per head. The Sterling Beef and Pork Profit Trackers are produced by Sterling Marketing Inc. and John Nalivka, president, Vale, Ore., and are published weekly by Drovers/CattleNetwork, and PorkNetwork. United States and Canadian Hog Inventory Down 4 Percent United States and Canadian inventory of all hogs and pigs for June 2014 was 75.1 million head. This was down 4 percent from June 2013, and down 5 percent from June The breeding inventory, at 7.08 million head, was down slightly from a year ago and equal to Market hog inventory, at 68.0 million head, was down 4 percent from last year and down 6 percent from The semi-annual pig crop, at 68.1 million head, was down 4 percent from 2013 and down 5 percent from Sows farrowing during this period totaled 6.93 million head, up 1 percent from last year but down 2 percent from United States inventory of all hogs and pigs on June 1, 2014 was 62.1 million head. This was down 5 percent from June 1, 2013 and down 1 percent from March 1, The breeding inventory, at 5.85 million head, was down slightly from last year but up slightly from the previous quarter. Market hog inventory, at 56.3 million head, was down 5 percent from last year, and down 1 percent from last quarter. The pig crop, at 27.4 million head, was down 5 percent from 2013 and down 8 percent from Sows farrowed during this period totaled 2.80 million head, down slightly from 2013 and down 5 percent from Canadian inventory of all hogs and pigs on July 1, 2014 was 12.9 million head. This was up 1 percent from July 1, 2013 and up 2 percent from July 1, The breeding inventory, at 1.22 million head, was up 1 percent from last year and up 1 percent from Market hog inventory, at 11.7 million head, was up 1 percent from last year and up 3 percent from The semi- annual pig crop, at 13.4 million head, was down 3 percent from 2013 and down 5 percent from Sows farrowing during this period totaled 1.26 million head, down 2 percent from last year and down 3 percent from

6 THE WEEK IN REVIEW PORK Statistics Canada says the Canadian hog herd was up 1.3% at midyear with the breeding herd up 0.7% and the market hog inventory up 1.4% compared to a year earlier. Despite the larger breeding herd, their 2014 pig crop is expected to be smaller than last year, almost certainly attributed to the PED virus. Meanwhile, calculations by Lee Schulz at Iowa State University indicate the typical Iowa farrow to finish operation earned a record profit of $ per hog sold during July. Worth noting, that is $14.21 above the old record set the month before. The five most profitable months in history have all been this year. Elsewhere, the average price for 51-52% lean hogs was record high in July at $95.17/cwt of live weight, up $6.08 from the previous record set in April of this year. Retail pork prices set new records in July for the fifth consecutive month. Grocery store pork averaged $4.127 per pound last month, up 1.1 cents from the month before and up 43.1 cents compared to July Retail bacon prices were 51.5 cents per pound higher than in July Boneless pork chop prices were 41.4 cents higher than a year ago and boneless ham prices were up 30.6 cents per pound. Record grocery store prices slow movement, which has combined with the ongoing increase in hog slaughter to cause a big drop in hog and pork prices in recent weeks. Hog carcass prices have declined by $34.72/cwt in the last six weeks. During the same period, the pork cutout value is down $27.91/cwt. The national average negotiated carcass price for direct delivered hogs was $94.22/cwt. That was down $8.54 from last week, but up $2.76 compared to a year ago. The eastern Corn Belt s morning average price was also $94.22/cwt. Neither the western Corn Belt nor Iowa-Minnesota reported hog sales, while Peoria had a top today of $65/cwt. Interior Missouri live hogs had a top price of $73.50/cwt, down $3.50 compared to last Friday. The pork cutout value suffered another drop this week, checking in at $106.76/cwt FOB the plants, down $6.53 from last Friday. Loins, butts, hams and bellies were all lower. Worth noting, the cutout is $8.17 above a year ago. This morning's hog carcass price equaled 88.3% of the pork cutout value. 6

7 Hog futures also were lower this week. The October hog futures contract ended the week at $92.87/cwt, down $2.08 from the previous Friday. December hogs lost $1.90 this week to close at $87.15/cwt. February hogs ended the week at $86.52/cwt. THE NEWS (Meat & Pultry.com) - Danish Crown celebrated the official opening of the company's beef slaughter facility, the first to operate in Denmark for several decades, according to the company. The facility is the part of the legacy of Lorenz Hansen, CEO of DC Beef. Hansen is retiring at the end of September. "The idea was first broached in 1999, and at DC Beef we have waited a long time for this moment," Hansen said. "When walking through the slaughterhouse, I feel truly proud that we have such a facility in Denmark. That we have what I have no qualms about calling it the most modern cattle slaughterhouse in the world." Roughly, 220 people attended the festivities, including Prince Joachim of Denmark. Prince Joachim wielded a meat cleaver instead of the tradition scissors, while a leather strap replaced the ribbon across a chopping block. "We are standing in front of a huge venture," Prince Joachim said. "It is far from every decade that sees the realization of projects on this scale. At the same time, the slaughterhouse is a truly visionary step. It shows that we should not only think about the present, but also try to look many years into the future of Danish farming. "I congratulate Danish Crown and everybody else on the opening of the world's most modern cattle slaughterhouse," Prince Joachim added before chopping the string in half. Following the string-cutting ceremony, Prince Joachim received a guided tour of the slaughterhouse. (Pig Progress.net) - Smithfield Foods, Inc., a wholly owned independent subsidiary of WH Group Limited reported record 2014 second quarter results. Sales for the second quarter of 2014 were $3.8 billion, up 14%. Net income was $142.9 million, compared to net income of $32.4 million last year. 7

8 All comparisons are to the second quarter of Net income +341% to second quarter record high of $142.9 million Sales +14% to $3.8 billion Consolidated operating profit +190% to $260.2 million o Fresh Pork operating profit +257% to $29.7 million o Packaged Meats operating profit solid at $97.5 million o Hog Production operating profit +322% to $129.0 million; margins record high o International operating profit +869% to $33.9 million Reduced interest expense 10% Larry Pope, president and chief executive officer, commented, "Our record results and strong earnings growth in the second quarter were driven by several key factors. Fundamentals were very supportive, particularly in our hog production segment, with tight supplies due to PEDv and strong demand both domestically and internationally, which pushed hog production margins to record levels. At the same time, our management is intensely focused on implementing our organic growth plan, which is working. We have restructured and streamlined our fresh pork and packaged meats operations and are benefiting from our long-term strategy to intensify our consumer-focused marketing programs and foster innovation to improve our product mix toward differentiated, branded and value-added products. The continued successful execution of this plan yielded consistently solid margins in our packaged meats business again this quarter, as well as gains in volume, market share and distribution across a number of our core brands and key product categories. Our strong performance was also propelled by our continued close collaboration with WH Group and Shuanghui, our sister company in China, to achieve synergies." Ken Maxfield, President and Editor in Chief of The Maxfield Report brings 10 plus years experience reporting on Hog Runner and Casings to our report. It is Ken s experience and breadth of knowledge and holistic approach to his reports why peers consider him one of the leading authorities reporting on Hog Runners and Casings. If you have questions, suggestions, or comments, or interested in receiving any of the reports offered by The Maxfield Report, please call or ken@themaxfieldreport.com. 8