Cold Storage Report Signals Meat Demand Remains Weak

Posted on 03/09/2017 10:20 AM

The USDA's Oct. 21 Cold Storage Report held cold comfort for the livestock industry, since the data implied red meat consumption remains relatively weak. It's reasonable to argue the huge annualized increases in beef and pork consumption caused the increases, but the size of the Sept. 30 inventory, as well as the monthly gains, indicate large amounts of product went directly into freezers. The numbers strongly suggest underlying red meat demand remains mediocre at best.

The beef chart below offers a bit of perspective on this point, showing the ending-September figure at 520.7 million lbs. was the largest of the year. In fact, it's the largest September total on records extending back into the mid-1970's. Moreover, it represents the third highest reading for any month on those same records, with only the December 2002 and January 2003 totals around 525 million lbs. being larger. The fact that stocks jumped 44 million lbs. from the August total was also discouraging, since that was the largest September surge on our records.

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The seasonal pattern implied by the 10-year mean suggests beef stocks will continue climbing through the end of the year, although the October Cattle on Feed Report released at the same time suggested forthcoming beef production may slow, thereby potentially supporting prices and increasing the need for withdrawals from stockpiles. Slowly declining retail prices should also boost consumer demand and curtail stock additions during the months ahead.

Pork stocks also grew rapidly during September. The chart below puts the latest pork inventory total, at 642 million lbs., in context, showing the 33 million lbs. monthly increase easily exceeded the 10-year norm around 25 million lbs. as well. The contrast to the slight decline seen last year and the modest rise seen in September 2014 is also rather stark. This latest figure doesn't look all that large when compared to the bulk of the monthly totals seen last year, but the contrast to the normal seasonal pattern of storage totals far below those posted during spring is rather dramatic. On the other hand, larger September increases in pork stockpiles have not been that uncommon in recent years. Ultimately, this latest pork inventory result is the second largest ever seen in late September, so it's hardly conducive to hog or pork price strength.

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A look at the various pork cuts in cold storage indicates that a 23 million lbs. jump in ham stocks represented the lion's share of the total pork increase. As the chart below indicates, that wasn't a great deal larger than the 10-year average increase of about 15 million lbs., but it fell only slightly short of the record September rise in ham stockpiles posted in 2008. The September 30 total at 249.1 million lbs. slightly exceeded the year-ago total, thereby setting a record for U.S. ham stocks. Still, ham stockpiles have been trending higher in recent years, as indicated by the disparity between the 2015 and 2016 totals and the 10-year mean. The pork industry's penchant for gathering large ham inventories in recent years may diminish the market impact of this latest result, but by the same token, such a huge figure at this point suggests the usual late-year ham price breakdown could prove quite severe in the weeks ahead. That may add to the bearish hog and pork picture already implied by massive hog supplies.

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In contrast, September 30 U.S. stocks of whole turkeys to be sold during the year-end holiday season look rather small. While they're a bit larger than they were at the same time last year, remember the turkey industry was hit hard by the 2015 avian influenza outbreak. The late-summer decline seen last year reflected the resulting production shortfall. The Aug. 31 total at 283.7 million lbs. was significantly larger than this latest figure (at 269.3 million lbs.), but a look at the historical records also shows it was the smallest annual peak since 2006, and the second smallest of the past 25 years. This indicates a tighter turkey market and consumer prices somewhat above those seen late last year, but fall production will very likely exceed year-ago levels by a wide margin. August turkey slaughter topped the year-ago result by 20%, with the January-August total topping the comparable 2015 result by 7%. As a result, the industry and consumers will be well supplied with holiday dinner entrees in late 2016.

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