Market participants were likely surprised by the sharp decline in the AM USDA Boxed Beef report.

We think the decline was largely due to the decline in the value of 50CL beef, which in the morning was quoted at 51.76 cent per pound, down some 20 cents from the previous day.

This was on a very big volume of over 1 million pounds, indicating packers were having trouble moving all the extra supply of fat trim. Two reasons for viewing this as negative for the market. First, the decline came at a time when ground beef demand tends to be good.

If packers are not able to get cleaned up on 50s at this time, when will they be? Which leads to the second point.

Fed slaughter is expected to be strong into June as feedlots try to stay current. But if 50 cents is what 50CL beef is worth in late April, what will it be in late June when ground beef demand slows down?

Now the flip side of this is that the quick ramp up in slaughter needs some time to play out. Retailers and foodservice operators need time to adjust and this is what we are seeing.

The decline in fed cattle prices, and the lower beef values that implies, could buy more ads for June, which in turn could provide better support for fed cattle at that time of year.

Hog prices have been well supported recently because of the gains in cash prices. It is somewhat telling from a demand perspective that fat beef trimmings are tanking at a time when pork trim has gained about 20 cents in the last few weeks. And the gains in pork trim prices have come even as hog slaughter continues to hover at around 2.2 million head.

USDA will be releasing its weekly slaughter report (SJ_LS711), which also provides a breakdown of the weight of steers and heifers.

The numbers are reported with a two week delay but market participants will likely continue to focus on the trend in steer weights. There is some expectation that feedlots are getting more current and the weights are viewed as an indication.

Weekly exports for beef and pork were released this morning and generally we would say there were no big surprises.

On the beef side, the four week average continues to run about 1 per cent under last year. Exports to Asia remain weak, with shipments to Japan in the last four weeks down 11 per cent from the same period last year and exports to Hong Kong down 18 per cent.

One big positive that has helped offset the weak Asia shipments has been a recovery in exports to Mexico. In the last four weeks weekly shipments to Mexico are up 35 per cent from last year.

On the pork side we also did not see any major surprises. There continues to be a lot of speculation about the role that bigger exports to China will have on pork export demand this year.

Those that subscribe to that thesis likely will view the latest report as positive, with exports to China for the week reported at 5,299 MT, the largest volume so far this year.

Overall exports for the week at 22,132 MT, however, were in line with expectations and they imply, according to our calculations, April exports that are about 6 under year ago levels.

There was a report yesterday that Pilgrim’s Pride is recalling a little over 4.5 million pounds of chicken. From a supply perspective we think the volume is relatively small to have an impact on national prices.

As for consumer demand, that is always difficult to know but it is worth noting that the recall was not due to disease contamination but rather because of extraneous materials.