Fri, 24 Jan 2014
US - Low beef stocks, ample chicken supplies and a whole lot of bellies - that’s a two second recap of the latest USDA Cold Storage monthly survey, write Steve Meyer and Len Steiner.
Below are the highlights and you can see more details on page 2 (please see link below):
Beef: Total beef inventories as of 31 December were 438.1 million pounds, 2.8 per cent lower than the previous month and 5.9 per cent lower than a year ago. Inventories of beef cuts in storage are down sharply, in part because end users have been reluctant to put beef away given relatively high prices in Q4 of 2013. For a processor or end user, reducing inventories in a way means taking a short position in the market.
And part of the reason why cattle and beef prices have rallied so much in recent weeks is because end users have been caught short and are now looking to cover those shorts in a very tight cattle market. Boneless beef inventories have been trending lower, as they normally do in the second half of the year and boneless beef stocks as of 31 December were 400 million pounds, 0.9 per cent higher than a year ago.
Normally boneless beef stocks increase in the first part of the year as foodservice operators and processors build up their positions ahead of the start of the grilling season. However, building those positions this year may be more challenging given limited cow slaughter and very high priced beef cuts. Imported beef is an important part of the equation but unfortunately USDA has never been able to tell us how much of the frozen boneless beef stocks are imported beef. At this point, the cold storage numbers should be seen as supportive of the bullish story in the beef/cattle complex.
Pork: Total pork inventories increased in December, somewhat of a bearish signal given the tendency for stocks to decline going into the year end holidays. Total pork inventories at the end of December were 557.1 million pounds, 2 per cent higher than the previous month and 1 per cent higher than a year ago.
Belly inventories were sharply higher in December, which helps explain the current situation in the belly market, with prices down as much as 17 per cent from a year ago. Total pork belly inventories as of December 31 were 80.6 million pounds, 66.8 per cent higher than the previous month and 123.5 per cent higher than the previous year.
In part the increase in belly inventories may be a result of end users looking to use freezer stocks as a hedge for some of their early spring needs but the pace of inventory build certainly is very aggressive. We think that the increase also may reflect packers putting more product away in an effort to keep the belly market from completely collapsing in December and early January.
Ham inventories were 78.7 million pounds, 32.2 per cent lower than the previous month and 0.7 per cent lower than a year ago. The pace of ham inventory depletion is very much in line with what you normally expect in December. Pork inventory numbers had modestly bearish implications for the pork complex as a whole and were quite bearish for the belly market in the short term.
Poultry: Total chicken inventories at the end of December were 654.1 million pounds, down 6 per cent from the previous month and now 1 per cent lower than a year ago. The pace of inventory depletion was higher than normal, we think in part because end users and processors do not want to keep inventories around with lower prices expected. The smaller inventories could be supportive of chicken prices into the spring, however, especially as retailers look to feature less expensive proteins given high beef and pork prices.
You can view the full report by clicking here.