Where's the beef… and bacon? (TSN)
Meat production fell 25% in April and May, with pork down 35%, beef down 33%, and chicken down 10% due to plant closures following COVID-19 outbreaks. Beef and chicken production levels are now back to near-normal according to the USDA. Beef and chicken production is at 98% of last year's levels, and pork is at 95%. The National Chicken Council says there is also plenty of chicken in cold storage as well. Beef production for the week ended June 27 was up 5.3% YOY ahead of the holiday weekend. With increased production, prices have started falling in several product categories. Choice boxed beef prices are now back to pre-COVID-19 levels after more than doubling at the pandemic peak. The challenge, according to Smithfield, is in value-added products such as bacon, ham, and sausage, because the skilled labor to make those products is challenged by absenteeism. Bacon's production is at 70% of last year's levels while ham is at 55%, and dry sausage is at 70-75%. Grocery stores do not have widespread empty shelves of the value-added products, because food service demand is also down. 70% of bacon production goes to foodservice.
Albertsons CEO in the interview provides his answer on the future trend.
Vivek Sankaran, the new CEO of Albertsons, began his tenure on April 25, 2019. In an interview in Supermarket News, he answered the question we get the most often – "Where do grocery trends go from here?" by focusing on consumer behavior. "It's hard to put a fine point on what will happen. But if you think about what's changed with customer behavior — eating and cooking at home, what's happened with work from home and all of us getting more comfortable, probably working more and being more productive, and in some cases, you don't have to commute — some of those behaviors are likely to stay even after COVID. Maybe instead of eating three times at a restaurant, we'll all eat two times at a restaurant. I don't know. But it's likely that instead of going every day to work, we can go two days a week to work. And when you do that, you eat more lunch and breakfast at home. So it's more likely that people will eat more at home. And if you eat more at home, it's more likely that a chain that sells great products and great fresh groceries will do well."
Attending school, going into the office, and no longer fearing stay at home restrictions will dictate a sizable portion of food purchases.
Cheese continues to skyrocket (DPZ, PZZA)
CME block cheddar prices have been setting new record highs all June driven by tight supplies, as seen in the following chart. The USDA's food box program has competed for supplies against restaurants reopening, strong retail sales, and robust sales of pizza in restaurants and retail. Cheese plants along the East coast have been running at full capacity, and on the West coast, some manufacturers are running at 125% of capacity. The USDA has committed to purchasing up to $3B under its Farmers to Families Food Box Program. Milk production had declined 1.1% in May as some dairy farmers culled their herds in response to demand plunging from restaurants and schools, but slaughter rates have slowed in June. Milk production cuts could be over in June with the higher milk prices. Weekly cheese prices set by the Chicago Mercantile Exchange are used for cheese sales the following week.
