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CME: Meat Protein on the Move

21 February 2013

US - Protein meat supplies are up from a year ago and this movement is discussed by Steve Meyer and Len Steiner.

 The number is not completely exact since the broiler and turkey supplies are reported with a one week lag but it is close. For the week ending February 16, total meat protein supplies were up 2.3 per cent from a year ago.

The six week moving average (which helps smooth out the week to week volatility) is currently hovering at around 3 per cent ABOVE last year’s levels. While there is plenty of talk about demand problems in the meat complex, particularly for beef and pork, it would appear to us that we have a supply issue. And all the terminology about “weak demand” continues to miss the point, rather we prefer to talk about rising prices impacting the quantity consumers/end users are willing to purchase.

After all, we are trying to get US consumers to purchase more beef, pork and poultry meat than what they did last year while at the same time charging them more money for it (see retail price chart to the right). You can do that if demand for your product has gone up but that is a difficult proposition as the economy is stuck in low gear and consumers face higher real taxes (social security tax is up) and higher energy costs (gasoline prices are higher than in 2012).

There was much speculation coming into this year that tighter meat protein supplies would force beef, pork and poultry prices higher. Retailers and foodservice operators geared up for the coming inflationary environment. Indeed, a portion of the meat supplies coming to market are bought forward as both retailers and foodservice operators seek to hedge their exposure.



Those high beef and pork prices in the retail case do not always reflect the spot market for beef and pork, they also reflect the futures prices against which end users booked some of their needs. It was not long ago that live cattle futures for February were priced close to the mid 130s while April futures flirted with $140.

Some beef for Q1 2013 likely was priced off those record high levels and the meat in the retail case and foodservice menus today reflects those lofty prices. The problem is that as retailers and foodservice operators raise prices, the consumers will demand less of the product offered to them.

This is fine as long as supplies are indeed limited. However, when retailers are doing one thing (rising prices) but packers are doing another (producing more), a backlog of product develops which requires significantly lower prices to clear the market.

We do not have the retail prices for beef, pork and chicken for January (they will be released Feb 21) but it is quite likely prices will be higher than a year ago. Beef output in the last six weeks has been on average 2 per cent higher than a year ago, pork output has been on average unchanged compared to last year while broiler production has been on average a whopping 6 per cent over year
ago levels.

It appears that packers are finally responding and gearing up for a slowdown in production. Steer and heifer slaughter last week was estimated at 461,000 head, down 4.4 per cent from year ago levels. Pork slaughter is expected to hover near year ago levels and with lighter hogs coming to market, pork supplies also should stay in check.

The big wild card at this point is broiler production, which has shown a dramatic increase from last year, due to both more birds and heavier birds coming to market.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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