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CME: Red Meat, Poultry Stocks Below Year Ago Levels

24 July 2014

US - On Tuesday (22 July), USDA released the results of its monthly survey of about 800 public and private refrigerated warehouses and the results will likely be viewed as bullish for cattle and, to a lesser extent, for hog futures today, write Steve Meyer and Len Steiner. cale

Below is a recap of the highlights from this latest report and implications for meat market trends in the short to medium term.

Stocks of beef, pork and poultry meat were significantly below both year ago and five year average levels, highlighting the fact that end users have very limited buffer stocks at a time when livestock and poultry supplies remain below year ago levels; and overall demand, both domestic and export, has continues to expand. The latest USDA survey confirmed what prices for a number of items already have been telling us. Boneless beef stocks at the end of June were 26.4 per cent lower than a year ago and 15.8 per cent lower than the five year average. The rate of depletion in June far outpaced the seasonal drawdown in stocks for this time of year. High prices have forced end users to rely on inventories but with tight supplies in the pipeline, this has in some cases further exacerbated end user short positions. The price of lean boneless beef is currently up 40 per cent from a year ago and prices have rallied counter-seasonally in July. Bone in beef inventories at 38.1 million pounds remain 19.2 per cent lower than last year and 35 per cent lower than the five year average. Total beef stocks at the end of June were 357.8 million pounds, 25.7 per cent lower than a year ago and 18.4 per cent lower than the five year average.

Pork inventories in June declined 6.6 per cent from the previous month, in line with the normal seasonal pattern for this time of year and considering that we started from a relatively low point at the end of May. Current stocks are down 4.8 per cent from a year ago and 1.7 per cent higher than the five year average. The one item that was decidedly bearish in the report was the stock of frozen pork bellies, which at the end of June was pegged at 84 million pounds, double what it was a year ago. Normally this is the time when end users will look to deplete inventories and ample freezer stocks will limit belly demand in August and early September. Indeed, the pork belly cutout last night was pegged at $151.4/cwt, down 7.4 per cent from a year ago. But we still view the latest cold storage report as supportive of the pork market in the short term given that supplies of a number of items remain significantly below year ago levels. Ham inventories normally increase between April and October as processors and end users build stocks for holiday needs. So far, the inventory build of hams has lagged significantly below year ago levels, which implies there will be more of a push to try to secure supplies in the next three months. The ham cutout last night was $141.64/cwt, 72 per cent higher than a year ago. Inventories of pork trimmings at 43.8 million pounds were down 9.6 per cent from a year ago and 3.9 per cent lower than the five year average. Boneless pork loin stocks were 18.7 million pounds, 30 per cent below the previous month and a much faster drawdown than what we normally see for June.

Broiler stocks also are very tight at this moment. Particularly bullish in our view was a sharp drop in stocks of leg quarters, which dropped almost 30 per cent from the previous month and are now 46.5 per cent lower than year ago levels. Inventories of wings are down 25.7 per cent compared to last year while breast meat stocks were down 8.9 per cent from the previous month, outpacing the normal drawdown in inventories for June. Total turkey inventories at 460.4 million pounds were down 18.7 per cent compared to a year ago, with turkey breast stocks at 52 million pounds, down 37.8 per cent.

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