In both pork and beef, these increasing tensions with Russia are a concern. Russia had a ban in place on U.S. pork through most of 2013 due to our use of ractopamine. That was lifted earlier this spring as they could not find adequate supplies of pork from the EU. During May, we shipped them 21 million lbs. of pork, this represented 5% of our exports that month. As exports are currently running 24% of our production, a ban on US pork could equate to a drop in demand for 1.2% of production. At this time their government only needs to give final approval to an already made list of products to ban.
As we noted earlier this week this Russian issue is not just a direct pork problem. It is also a chicken problem where we send 10% of our exports. Watch your leg quarter pricing in the coming weeks. More tonnage left in the United States, along with the seasonally lower prices after summer, could mean cheaper pricing.
This Russian concern comes on top of an already weak cash hog market in the US. Today’s kill topped 405,000 head, a good sized number for recent weeks. Next week will represent the transition week away from tight summer supplies and into the start of the seasonal buildup. While we can point out the big discount in October and December futures is larger than normal, for now it appears valid. Those following our hedge advice, laid out in the online July 24 Allendale AgLeaders Summer Conference should hold those hedges.
Russian tensions are not something we can ignore. A Russian official announced they had completed their list of various products, including agriculture, that will be banned from those countries that have enacted sanctions against it. The government’s health, consumer safety, and veterniary service later indicated the decision on these bans will be “quite expansive”.
The good news for beef is this is no longer an issue. They already have a ban on US feedlot style beef due to our widespread use of the feed additive ractopamine. We shipped them no beef in May. April exports, of veal meat, ran only 5.2 million lbs. That represented 0.003% of our exports that month. That number is not a typo.
For this week’s trading we must point out that October futures are actually unchanged since Friday’s close. Traders are waiting for cash trading to provide the next move. Currently, the trade has adjusted its expectation from steady to lower to now only steady with last week. That would be a bullish victory for a market which should have more cattle available to kill than in July. Also keep in mind futures have a discount priced in. It is now on the bears’ hands to prove there needs to be a discount. While we certainly agree that lower prices are “theoretically” needed, we will point out this whole summer has provided one surprise after another.