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CME: Mixed Picture for January Meat Product Exports

22 March 2013

US - Analysts expect a return to year-on-year declines in the key numbers in this month’s USDA Cattle On Feed report, due to be released this Friday afternoon, write Steve Meyer and Len Steiner.

The results of Dow Jones’ prereport survey of analysts appear at right. There were ten respondents to this month’s survey.

After just one month of higher year-on-year numbers, placements (which were 2 per cent larger than last year in January) are expected to again fall significantly short of year-ago levels. The sell-off in Live Cattle futures certainly cooled interest in placing cattle in February — and has continued that pattern so far in March. Add in the prospect of very tight grain supplies and the potential for explosive prices and one can see quickly why placements would fall. PLUS — the feeder cattle supply is still tight. With little margin available, feeders have had to be pretty disciplined and analysts expect that to show up in lower placements numbers in Friday’s report.

Steer and heifer slaughter during February 2013, according to daily slaughter estimates from USDA, numbered 1.799 million head, 91.5 per cent of the level of one year ago — a pretty comparable number to the 92.7 per cent average estimate for February marketings. The year’s February did have one less weekday than did last year’s leap month and adjusting for that difference would put this year’s slaughter at 95.9 per cent of last year. We believe that survey respondents simply compare this year to last, however, since that is how the question is posed. USDA does not adjust numbers for slaughter or business day differentials.

If the 93.5 per cent average of the estimates for March 1 feedlot inventories is accurate, it would put inventories at 10.918 million head, 759,000 FEWER than one year ago. That is the largest year-on-year decline recorded in this most recent reduction cycle. Inventories were 738,000 lower on February 1 and have been at least 635,000 smaller than one year earlier since November.

The carnage in the protein markets continues this week with both Live Cattle and Lean Hogs futures losing another $2 to $3/cwt since last Thursday. Cash hog markets have dipped below $80/cwt. and cattle are treading water almost equal to last year’s prices with last week’s 5-market average being $126.66 versus $126.45 one year earlier.

There is a bit of encouraging news from the beef packing sector, however, where margins have improved in recent weeks. Beef packer gross margins got back near the 5-year average of about $130/ head the week of March 9 and, if grading percentages and by-product values remained constant last week (which is assumed in the chart at right), will be above the 5-year average last week, the first time that has happened since September. Regardless of whether you like or deride the idea of “trickle-down economics,” the beef and pork businesses are perfect examples in that producer-level demand is derived from wholesale demand which is, ultimately, derived from consumerlevel demand. We think the challenges of late have been primarily at the wholesale level and the increase in cutout values and, consequently, packer margins will have a positive impact on cattle prices soon. But cattle price increases will not likely run ahead of cutout values.

Pre-Report Estimates -- USDA Cattle On Feed
Friday, March 22, 2013

Source: DowJones


Cattle on Feed, US


Beef Packers' Est'D Gross Margin

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