The livestock markets are different from most crop markets due to the fact that they’re essentially non-storable commodities. Of course, one can’t store animals on the hoof, and the various meat cuts are automatically discounted to fresh product once they’ve been frozen. Thus, while having grain stocks amounting to several months of supply carried over from one year to the next is not unusual, beef and pork stocks often amount to little more than one week’s worth of production.
Given these conditions, the monthly USDA Cold Storage reports usually don’t exert a great deal of influence over livestock prices. Still, shifts in those holdings can tell the interested observer a good bit about the underlying state of affairs. The April 22 report was particularly interesting, since the data indicated that underlying usage had proven comparatively strong during March.
As the following chart shows, the USDA stated ending-March beef stockpiles at 466.988 million pounds, thereby marking a continuation of the sharp decline begun in February. The fact that it fell well below the comparable year-ago total is quite clear. And while the 10-year mean implies a normal tendency for frozen beef stocks to decline during the first half of the year, the recent drop has rather obviously been quite large by recent norms.
The underlying implication is that winter U.S. beef demand outstripped the supply. Production remained relatively low by historical standards, while the pace of U.S. beef imports slowed from the highs of recent years. Consequently, these shifts seemed quite supportive of the cattle/beef outlook, since the inventory reduction suggests consumer demand is recovering from the low levels imposed by greatly elevated prices during 2014 and the first half of 2015. Indeed, recent price weakness and heavily discounted CME futures are likely to encourage those entities farther up the production/marketing chain to feature beef more aggressively, which in turn could amplify beef demand strength during the coming months.
The report stated March 31 U.S. pork stocks at 614.148 million pounds. The chart below puts that figure in perspective, showing the latest result fell about 58 million below the comparable 2015 result. The ending-March total remained well above the long-term average, but the difference has clearly diminished, especially when compared to the huge disparities posted last fall. One interesting aspect of the chart shows up in the early end to the usual inventory surge during the January-February period. That probably reflected the early arrival of Easter on March 27, which required that hams for Easter dinner features be bought, processed and sold in a short period of time.
The reduced pork inventories suggest the supply/demand balance has also tipped toward increased usage exceeding supply. U.S. pork exports have generally improved, but recent totals have fallen far short of the highs seen in 2008 and 2011. Nevertheless, the prospect of seasonally reduced spring-summer production, which may run slightly below to modestly above year-ago levels, suggests the hog and pork markets could be rather well supported during the weeks and months ahead.
Pessimism about the cattle and beef outlook seemed to weigh upon hog and pork values during early spring. That may continue through the balance of the grilling season as well, but the cattle/beef industry seems overly bearish at this juncture. Talk of cheap broilers and chicken meat may also be undercutting the red meat markets, but we tend to view the beef market, especially that for high-end steaks, as the pace-setter for the meat complex."