click image to zoom The U.S. beef sector finally received some good news — perhaps better stated as “did not receive any more bad news” — on Thursday as USDA’s weekly export data indicated no immediate export damage from last month’s discovery of a fourth BSE-infected cow in the U.S. The weekly report showed that 18,600 metric tons of beef products were exported last week. That figure is 1000 metric tons or 5.7% higher than the previous week and 28.3% higher than one year ago. The week’s shipments add to the steady uptrend in weekly export data that began in mid- March after a period of extreme volatility, at least a portion of which we understand was due to some weekly reports being delayed and added into subsequent weeks by USDA. This shorter-term uptrend is simply an extension of what has happened since beef exports resumed in 2004 after the USA’s first BSE case was found in late 2003. That long-term growth trend was interrupted only in 2008 when beef exports surged in mid-year before falling by over 50% from late August to November in the face of the Great Recession and the resulting temporary strengthening of the U.S. dollar.
To date, Indonesia is the only country to restrict imports of U.S. beef imports due to the BSE finding. No major U.S. beef markets have taken any action to block imports. There have been some rumblings from Korea.
The “settling” of beef export issues has provided a much needed lift to carcass beef prices. The weekly average for the Choice 600-900 pound cutout moved back to $190 last week for the first time since late March. It had reached a record-high of $198.51 the week ending March 6 just before the smear campaign commenced against lean finely-textured beef (LFTB). The cutout has stayed above $190 every day this week and was reported yesterday at $190.96/cwt. down $0.22 from Wednesday. 50% chem lean trimmings were quoted at $85.73 yesterday —a huge recovery from the less than $50/cwt of just three weeks ago but still well below their $100-plus value just prior to the LFTB smear campaign.
So what is happening to pork exports? We don’t have any data with which to answer that question—yet. The beef data quoted here is a result of one feature of the Mandatory Livestock Reporting Act of 1999 which created the mandatory price reporting system for cattle, hogs and lamb. Beef and lamb product were included in that act as were beef and lamb export data. Pork, for a number of reasons, was not included at that time but was added when the act was reauthorized in 2010. The Commerce Department had hoped to add pork to the weekly system this summer but that has been delayed as the proposed rule was retracted due to a procedural error. For now, we are stuck with two-month old monthly data but weekly pork data should be available soon.
So why is meat demand apparently so soft? This question is being asked often by analysts and industry participants. The LFTB situation is part of that answer as the widespread press coverage of a “new” issue hurt not only ground beef demand but beef demand in general and, we think, the broader meat and poultry demand. Calling the trustworthiness of suppliers into question, even when doing so is not fair, causes negativity from consumers that is not usually confined to the specific product in question.
More important, perhaps, is the fact that U.S, consumers are struggling to have enough money to fully support meat demand. When you boil all of the macroeconomic factors down to their essence, it seems to us that personal disposable income per capita (PDI) is the key. That figure represents the amount of money each American has left after paying all taxes. To us, it is the “take home pay” variable. And it is not doing well at all! For the 12 months ending in March, PDI has grown by 1% versus one year ago. If you throw out the 0.9% gain for April 2011, the average gain for the past 11 months is ZERO. For 2012, the figure is –1.3%. Add in gasoline prices that have averaged 8.5% higher YTD and you have much less money available to purchase other items — including meat! Any surprise that chicken has performed well so far in ‘12?