Last week’s quarterly USDA Hogs and Pigs report showed some improvement in hog numbers, but also indicated tight supplies for the balance of the year. June 1st hog inventories at 75.7M head were up 1.0% from March 1st - but herd numbers are still down 2.2% from a year ago and the March/May pig crop was down 3.1% from last year.

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Last week’s NOAA drought monitor showed 26% of the western U.S. is now at the highest “exceptional drought” level. The first danger is power generation. Hydroelectric power capacity has already been reduced with the heart of the summer still ahead of us. Without some recovery, rolling blackouts are likely in California by August.

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Here’s how the JBS plant closures affected meat supplies. In beef, the daily weekday (Mon-Fri) slaughter average for the 2 weeks prior to Memorial Day weekend was 118,760 head per day. That compares to just 94,000 head slaughtered on 6/1 and 105,000 on 6/2. So, the hack caused total U.S. cattle slaughter numbers (not just JBS) to drop by 20.8% on 6/1 and by 11.6% on 6/2.

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The JBS cyber-attack last week affected all 3 proteins. Right now, chicken is the biggest (protein) issue for foodservice, but so far the hit to Pilgrim’s looks to be limited/manageable. The attack could not have come at a worse time with restaurants struggling to staff-up, supply-up, and reopen.

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Memorial Day kicked off the traditional “grilling season” in the U.S. Beef 90s trimmings averaged $2.52 per pound in May. And while that’s down from last year’s ground beef hoarding $2.91, it’s still well above an average of $2.22 for the month of May in 2018 & 2019. Meanwhile, we caught a break on beef 50s, which averaged $.79/lb in May vs. $2.08 in 2020 and an average of $.85 for 2018/19.

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In Friday’s Cattle on Feed report, the USDA said feedlot inventories, at 11.7M head on May 1st, were up 4.7% from a year ago - fueled by a 27.2% surge in April placements. But, discounting the Covid-reduced 2020 numbers and comparing to 2019, cattle inventories are down slightly (-0.7%) and placements 1.1% lower. With finishing (feed) costs high, producers would love to hold feeders on pasture for as long as possible.

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Last week’s WASDE report contained the USDA’s first look at commodity prices for 2022. Starting with grain prices, the USDA says corn (currently $6.85/bu) will average $5.70 for the 2021/22 crop year vs. $4.35 for 2020/21 and $3.56 in 2019/20. Soymeal (currently $423/ton) was projected at $400 in 2021/22 vs $405 in 2020/21 and $299 in 2019/20. That makes for a 2-year, 48% increase in feed prices.

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Recapping Thursday’s interview with Hudson Riehle, the NRA’s chief economist, it’s no surprise that staffing is the #1 issue facing restaurant companies this year. Given that handicap, supply chain professionals were most interested in understanding how much pent-up demand is headed their way this spring/summer – and what comes after that.

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Corn prices exploded in April, starting the month at $5.59 per bushel and finishing at fresh, 8-yr highs of $7.40 on Friday (4/30). Bullish price drivers keep piling up: lower-than-expected U.S. planting intentions, big Chinese purchases, weather problems in Brazil, and political issues in Ukraine. Corn prices had touched 4-year lows of $3.02 just a year ago.

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In Friday’s Cattle on Feed report, the USDA said feedlot inventories, at 11.9M head on April 1st, were up 5.3% from a year ago – fueled by a 28.3% surge in March placements. Granted, 2.0M new placements is a big number, but it’s being bumped up against last year’s Covid distorted, 25-year low of 1.56M, and compares to a pre-Covid, 5-year average of 1.95M.

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Last week the USDA ended its Farmers to Families Food Box (FFFB) program. Last year, the USDA pumped $3.8B into a program that absolutely terrorized dairy markets. In 2020, CME block cheese started the year at $1.90/lb, dropped to all-time lows of $1.00 (4/15), hit all-time highs of $3.00 (7/13), dropped back to $1.58 (8/11), rebounded to $2.78 (10/30), then fell again to $1.57 (12/2) before finishing the year at $1.64.

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In Friday’s WASDE report, the USDA projected greater corn feed use (up 50M bushels), increased corn used for ethanol (+25M bu) and larger exports (+75M bu). As a result, 2020/21 ending stocks were slashed by 10% to just 1.352B bushels – and the corn stocks-to-use ratio dropped to 9.1%. Historically, stocks-to-use below 10% has been very bullish for corn prices.

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Economists concur that a mountain of savings - roughly $1.8 trillion over and above what would have been sans Covid - will combine with high vaccination rates and pent-up consumer demand to release a flood of spending this coming Spring/Summer. In restaurants, it means a welcome jump in sales, but it also means a lot of strain on supply chain and staffing needs. The billion-dollar question is “How much and for how long?”

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Last week’s USDA Hogs & Pigs report has thrown lighter fluid onto prices for spring grilling season. The total hog/pig inventory was 74.8M head on 3/1/21, down 1.8% from a year ago and down 3.3% from last quarter (12/1/20). Breeding inventory was 2.5% below year-ago. The Dec-Feb pig crop was down 1.4% from 2020. Sows farrowed Dec-Feb were 0.9% below 2020.

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In Friday’s Cattle on Feed report, the USDA said feedlot inventories on March 1st, at 12.0M head, were up 1.6% from a year ago, but down from 12.1M on February 1st. New placements onto feedlots in February were down 1.9% from 2020. Marketings were down 2.4%. Harsh February weather in TX/OK, along with fewer cattle imports, negatively impacted both placements and marketing numbers.

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There will be a lot of green pushing up through the ground this Spring and it won’t be plant-based. There is a pent-up tidal wave of spending about to hit America’s businesses that will very quickly make us forget this miserable winter. The consumer savings rate for the 10 months through Jan 2021 averaged 18.4% compared to an average of 6.2% for the 25 YEARS pre-Covid.

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Soy-oil futures set fresh, 9-year highs of $.5338/lb on Friday. For the 2021/22 crop year, global soybean demand will continue to outstrip supply. China’s feed demand, in an effort to rebuild its ASF-decimated hog herd, will continue to be the main global demand driver. Additionally, recovery from Covid-19 will lead to a jump in global biodiesel usage.

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In February’s Agricultural Outlook Forum, the USDA projected record large corn and soybean crops this year totaling 182M acres, with a 1M acre increase in corn and 7M more acres of soybeans. Farmers are very motivated by sky-high prices that are being supported by strong Chinese demand and the tightest stocks-to-use ratio since 2013/14.

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In Friday’s Cattle on Feed report, the USDA said feedlot inventories on Feb 1st, at 12.1M head, were 1.5% higher than a year ago. New placements onto feedlots in Jan were up 3.2%. With feed costs elevated, economics favor keeping animals off-feed and on-pasture where possible – so the gain in placements was surprising. But that was Jan. Feb’s focus will be on the brutal winter weather that will result in cattle weight losses and deaths.

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In Jan., China booked 2.1 million metric tons (mmt) of U.S. corn for future delivery, the largest corn export deal since 1991. China could buy 15-20mmt of U.S. corn this year. In last week’s WASDE, the USDA raised 2020/21 corn exports by 50M bushels, and increased its 2020/21 corn price forecast from $4.20 to $4.30 per bushel. But that’s just a small step on the path toward higher price forecasts from the USDA over the next few months.

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