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Welcome to June and the kickoff of the midyear evaluation season. This is the time of year when first half assumptions are evaluated, and second half forecasts are updated. Today we will focus on core risks for the industry looking forward.
Climate
Data is increasingly predicting a record breaking El Nino event to develop in August. Mainstream media is picking up on this, so I will be calling it “Gargantuan El Nino” to differentiate myself from the pack (also as a homage to my fellow Tarantino fans who “so rarely have an opportunity to use it in a sentence”). Weakened trade winds over the Pacific Ocean will push warm waters back to the Americas, leading to potentially more intense hurricanes, higher flood risks in the southern US and Central America, and drier/hotter conditions in Australia and Southeast Asia. One side note worth watching: if flood conditions develop around the US/Mexico border, could that slow the migration of New World Screwworm? “Gargantuan El Nino” brings with it the increased risk of lower rainfall in Panama, leading to reduced canal traffic, which would force longer sea freight voyages of agricultural products at a time when logistics costs are already stressed due to higher fuel costs (more on that below).
Trade
At the top of my priority list here is USMCA negotiations. Bi-lateral talks between US and Mexican trade representatives have begun in the formal review period for the tri-lateral agreement. Canada has been left out of the group chat for now. This agreement impacts multiple industries, but agriculture will take center stage when the next round of talks take place mid-June in Washington. Expect the drama to get turned up to 11+ before this situation is resolved. Also at the top of my watch list is the China situation. It remains to be seen if the quota placed on Brazilian beef imports is a negotiation tactic intended to provide leverage against the US in trade talks. If the 55% tariff is enforced, current data predicts late summer quota fulfillment, and two significant dominoes fall. First, Brazil floods the market with beef, and second, it reinforces my view that China is overstocked on everything and a potential global demand contraction could be forthcoming by the end of the decade.
Economic
Inflation will continue to dominate headlines while oil supply remains constrained and fuel prices are elevated. The Middle East conflict shows no signs of ending soon, and even when it does, supply chains will be backed up well into next year as nations rebuild inventories and strategic reserves. Logistics costs are continuing to increase and (already strained) consumers will increasingly bear the burden as retailers pass the expenses downstream. Rabobank’s current outlook for food inflation is 4% to 8% for 2026 and 2.7% to 7% in 2027.
Here’s the thread tying it all together: climate, trade, and economics aren’t three separate problems this year, they’re three taps on the same brake pedal. Every one of them pushes logistics costs higher and demand softer heading into the back half of the year. The operators who treat midyear as a checkpoint instead of a formality will be the ones who spend H2 focusing on 2027 instead of reacting on the fly. Over the next few weeks I’ll break down market dynamics for G&O, beef, pork, and chicken so you can see exactly where the pressure lands. We will be reviewing YTD progress, second half expectations, and longer-term forecasts.
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Hormel shares strong Q2 earnings, but forecasts H2 headwinds
Hormel reported 2.5% net sales growth and 14% adj. net earnings compared to year ago quarter, attributed to ground turkey and value-added products. Company executives also warned of headwinds throughout the second half of the year related to fuel costs as well as pork and beef market volatility.
US & Mexico begin USMCA meetings without Canada
Last week trade representatives from the United States and Mexico met in Mexico City to begin bilateral talks regarding USMCA. Notably missing from the conversations were the third partner in the agreement as the US & Canada play hardball in trade negotiations. The next round of meetings are scheduled for June 16th & 17th in Washington, where talks will be centered around agriculture.
USDA ramps up comms as NWS advances on US border
USDA APHIS confirmed a case of New World Screwworm 31 miles south of the US border. As a reflection of the importance of the issue, USDA is increasing the frequency of press conferences to every 2 days starting later this week.
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