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CME: Meat Industry in Contraction Mode

by 5m Editor
12 January 2009, at 6:41am

US - CME's Daily Livestock Report for 9 January 2009.

The production data for the week ending 10 January are in and they reflect what we have been talking about for some time - the meat industry is in contraction mode.

This was the first full production week of the new year and it showed that beef and pork production were down 3.7 per cent. Official broiler production data is not out yet but preliminary USDA estimates indicate that total broiler production for the week was also down 1.3 per cent from year ago levels. More importantly, however, all three top meat protein species are expected to register declines in output in the first half of 2009.

The latest cattle on feed report showed total feedlot supplies as of 1 December were down 6 per cent from a year ago. While cow slaughter may remain high, especially dairy cow slaughter, it will not be enough to offset the decline in steer and heifer numbers.

As for hogs, the latest count of US hogs and pigs as of 1 December showed that total inventories were 2 per cent lower than a year ago and with farrowings for September—November down 6 per cent, supplies in Q2 of 2009 are expected to decline the most.

Broiler producers on their part also continue to place fewer birds for grow out than a year ago. For the past six weeks, broiler egg sets were on average 7.3 per cent lower than a year ago while chick placements were on average 6.4 per cent lower than last year.

Grain markets showed further signs of decoupling from energy markets on Friday trading as soybean values were up as much as 48.5 cents on the January contract and all other current crop contracts were 42 cents or higher. Corn futures were up in sympathy with soybeans as the market seeks to keep enough acres in corn production. There is plenty of talk about much lower grain prices, and they are so compared to the peaks hit last summer. However, as the chart below shows, current corn prices are down only 16 per cent from year ago levels and soybean meal prices, a key component in animal and poultry feed, are down 12 per cent.