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CME: Improvement in Beef Export Demand Observed

27 February 2019

US - While parts of the Midwest continue to be hit with snow, affecting both cattle and hog slaughter on Monday, retailers know that warm weather is just around the corner, reports Steiner Consulting Group, DLR Division, Inc.

The seasonal shift brings merchandising opportunities and one of the key goals is to build on the revenue targets from the year prior. That goal becomes much more difficult to achieve if you don’t sell the same amount of beef, which has a much higher price point than alternatives.

The total supply of cattle on feed as of 1 January was 1.7 percent higher than the previous year but the supply of +150 day cattle at the start of the year was estimated to be 31 percent higher than the previous year.

Lower placements during Sep-Dec (down 380k head) should help ease this front end supply going into the spring months. What is always a big wild card, and the reason why we mentioned the seasonal shift in demand, is how aggressive retailers and foodservice operators will be in trying to sell beef this year.

Some initial data points to very strong interest, once again, to keep beef on retail features and restaurant promos. For the week ending 22 February, USDA noted that packers sold 1,310 loads for delivery in the next 22- 60 days.

Last year, the volume sold for that week was 1,070 and two years ago it was 1,105. Given the timing, we suspect this is beef that will feed retail features into and after Easter (keep in mind the lag between delivery and time product gets on the supermarket shelves). But sales can be huge one week and then plummet in the following weeks.

The following chart shows a four week moving average to smooth out some of these shifts. In the last four weeks, sales for beef delivering 22-60 days out were up 16 percent compared to a year ago. The increase is not specific only to this time period.

Beef sales for delivery 60-90 days out, basically beef features going into Memorial Day, have averaged 114 percent higher than a year ago in the last four weeks while beef sales for delivery 90 or more days into the future are up 121 percent compared to the same period a year ago.

We think part of the issue is the fact that demand for middle meats (steak cuts) has been exceptional and that continues. Retailers that want to once again promote ribs, strips or other such cuts now have to jump on this earlier in order to make sure they can get the regular supply.

Cattle slaughter was sharply higher in May and June of last year, in part due to the big increase in placements in late fall and winter of 2017-18. That has not been the pattern of placements this year and it remains to be seen if packers will surpass the slaughter levels of a year ago. For now it appears end users are more aggressive in securing product for future delivery.

Export demand also appears to be improving. While beef export sales slowed down in late December and early January, more recently sales into export channels have improved. In the last four weeks total export sales have averaged 1,040 loads/wk, 26 percent higher than the same four week period a year ago.

We will have to wait for the weekly Thursday report to verify some of these numbers and also observe what country is driving export volumes. Current negotiations with China are expected to have an impact on pork sales but we think it will be quite important for the beef market as well.

Last week, USDA noted that as of mid-February, outstanding beef export sales to Hong Kong were an astounding 145 percent higher than the previous year. So far buyers in Hong Kong have been dragging their feet in taking delivery of this product. Will that change if there is a change in the trade dynamic between US and China?


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


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