April 22, 2002
PRICES MAULED BY GLUT OF MEAT AND POULTRY
beef producers may think there is a jinks on the industry as one
bad news story after another has emerged over the last eight months.
Expectations for a decent price year are largely gone, so now
it's a matter of picking up the pieces and salvaging what remains.
of beef demand after September 11, 2001 is well documented. With
a weak economy, cautious consumers slowed their business, vacation,
and convention travel. The discovery of Mad Cow Disease in Japan
and the subsequent 19 percent drop in U.S. beef exports in the
final quarter of 2001 resulted in more beef remaining in the domestic
market. Feedlot managers delayed marketings in the four weeks
after September 11. As a consequence, heavy cattle weights became
a problem that still remains a thorn in the side of price bulls.
The new year
brought more bad news for cattle producers. The Russian's refused
U.S. broiler imports in a trade dispute. Russia is the largest
importer of U.S. chicken meat, accounting for 37 percent of total
exports last year. Those supplies have either been moved into
domestic grocery stores at discount prices or have gone into cold
storage. Poultry stocks are now 23 percent above stocks of last
market has not helped cattle prices. Wholesale pork loin prices
dropped 11 percent in the last month and ham prices dropped 30
percent. Live hog prices fell to the mid-$20's, the lowest level
since 1999. Cold storage stocks of pork are now 22 percent above
those of a year-ago.
have played into the bearish tone in an already edgy cattle market.
On March 13, 2002, rumors of suspected Foot and Mouth Disease
in Kansas leaked to the market before test results could be released.
April live cattle futures were trading near $76 prior to these
rumors. The negative test results quickly quieted the rumors,
but other bearish forces set in. Most recently, a British woman
traveling in Florida was found to have the human form of Mad Cow
Disease. Beef cold storage stocks are also 24 percent larger than
stocks at the same time last year. April live cattle futures declined
to a low of $64.
choice steers averaged $72.43 per hundredweight in 2001. In the
first three quarters, prices averaged $74.86, but declined to
$65.13 in the final quarter. At the start of 2002, the average
price for the year was expected to be near $77. That expectation
has been lowered to about $70.
The USDA's April Cattle On Feed report shows that the total number
on-feed on April 1 was up .5 percent from last year as a result
of a 6 percent increase in placements in March and a 5 percent
drop in marketings. The number of placements weighing 700 pounds
and over were up 15 percent in March, while the number weighing
under 700 pounds were down 8 percent from a year ago. Heavyweight
placements means that animals will reach market more rapidly,
providing a weaker price tone for summer, but stronger for this
fall and winter.
The 5 percent
decline in marketings during March is another bad sign for prices
this spring and summer. Feedlot managers have been slow to adjust
to lowered price expectations and they continue to hold cattle
to heavier weights. In the most recent four week period, carcass
weights have been up more than 4 percent from last year. Excess
weight problems began about a month after 9-11-01 as managers
withheld some cattle in anticipation of a turnaround in prices.
While live weights peaked in the final week of January at 1265
pounds, the seasonal decrease in weights has not been as large
as usual, and the weight problem has not been solved.
prices are most likely in store for the next several months. While
not long ago, I though $65 would hold the summer lows, that now
has to be lowered to the $62 to $63 range with the glut of meat
and poultry that the market has to work through in the short run.
And these lows could come more at the start of the summer rather
than at the end of the summer as is more traditional.
have some positive features in coming months as the Russians will
apparently reopen imports of chicken meat, the grilling begins,
and the recovery of the U.S. and world economy continues. By late
summer, the supplies of cattle should also begin to dwindle. Even
so, a price recovery the lower $70s may be all that can be expected.
Even this is in stark contrast to the mid-$60 suggested by current
live cattle futures markets.
Issued by Chris