US - The US Department of Agriculture (USDA) continues to revise higher its beef supply projections for 2016, write Steve Meyer and Len Steiner.
This is due to, in their words, “the pace of slaughter in the second quarter, but also as feedlot marketings during the second half of the year are expected to remain relatively high.”
Indeed, feedlots have been extremely aggressive in selling cattle so far this summer. Lower fed cattle prices and a strong cutout have given the packer a margin big enough to run Saturday shifts.
Lower prices have also provided domestic retailers and foodservice operators with the opportunity to run more beef ads.
One of the challenges that end users had in 2014 and 2015 was sourcing enough product to support promotions during key demand times of the year. They often resorted to building large inventories, which have their own challenges in terms of cash flow and the stress they place on processors.
Larger slaughter certainly has made those calls to packers for additional product easier to place.
USDA did not make any significant revisions to beef exports and imports. Current projections are for US beef exports to increase 9 per cent in 2016 and then increase another 4.5 per cent in 2017.
We think the pace of exports remains critical for the beef market in the second half of the year. While exports help absorb some of the increase in production, the key benefit is that they add value to cuts that normally trade at just a little over grinding value domestically.
Is the 9 per cent USDA forecast for 2016 realistic? We think so and there is a chance beef exports could end up in double digits. Beef exports in the second half of 2015 declined 189 million lb (-14 per cent).
We think this year beef exports during Jul-Dec could increase between 160-200 million pounds compared to last year as Asian buyers struggle to find product in Australia and will likely turn to the US to fill their needs (see our report yesterday for more on this point).
As for beef imports, they are expected to be down almost 14 per cent as Australia shipments dry up while New Zealand and Uruguay continue to ship more beef to China.
Beef production in the US this year is forecast to increase by 1.25 billion pounds, which helps explain the big selloff in the cattle complex. Beef availability in the US is expected to increase just 729 million pounds (+2.9 per cent) and per capita consumption is expected to be up 2.2 per cent from a year ago.
Despite larger than expected supplies in the latest Hogs and Pigs report, USDA made few changes to the production and use forecasts for pork.
One reason is that USDA was likely already counting on continued expansion in the pork sector and had factored this in their earlier forecasts.
Pork production for 2016 is now a little over 25 billion pounds, surpassing beef for the second consecutive year.
Revisions to pork exports were minimal and USDA still expects total pork shipments for the year to be around 5.2 billion pounds, 267 million pounds (+5.4 per cent) higher than a year ago.
Exports to China/Hong Kong in the first five months of the year were up around 181 million pounds in the first five months of the year.
The challenge for the pork market has been that even though exports to China have met expectations, exports to other markets, be this Japan, Mexico or Korea, have been disappointing. At this point USDA is counting on steady exports to those markets and continued growth to China.
There is a lot riding on export demand for pork. And even with higher exports, domestic pork availability is expected to be up 1.4 per cent this year and another 1.3 per cent next year, implying limited inflationary pressures.
TheCattleSite News Desk