click image to zoom We suppose you could call last week a reasonably good week in the cattle and beef markets but when the most positive news amounted to “Well, that didn't hurt as much as we feared it would!”, it’s still not much to brag about. That was about the size of the good news for weekly exports that drove Thursday’s rally but it was back to the negative side of the ledger for Live Cattle futures on Friday. The past two weeks’ rally was welcome but still leaves Live Cattle futures through October about $12 lower than there pre-LFTB peak. Feeder cattle have fared somewhat better but remain roughly $10 below those early March peaks on the nearby contracts.
Cattle slaughter remained well below last year’s level last week. The estimated 623,000 head harvested were 5.4% fewer than one year ago but 2% higher than the previous week. Heavier carcasses — by 20 pounds last week versus last year — pushed beef output closer to last year’s level but it remained 2.9% lower.
Cow slaughter continued to be a major driver of lower total cattle numbers, with the weekly total for the week ended April 21 (the last week for which actual data are available) of 114,729 falling 7.2% short of last year’s level. Beef cow slaughter for April 21 was down nearly 15% while dairy cow slaughter was 1.9% higher than one year ago. As can be seen at right, the latest U.S. Drought Monitor information from the National Oceanographic and Atmospheric Administration (NOAA) show continuing improvement of moisture conditions in Oklahoma and Texas, historically our two largest beef cow states. These areas are not in the clear yet by any stretch. Summer is coming and rain cannot be counted on to replenish depleted forages. Some west Texas ranch friends tell us they do not expect much of those large cow-calf areas to be completely re-stocked until 2014, assuming normal rainfall. Other parts of the country will, of course, compensate for this slow recovery, especially with calves selling near $2.00 per pound. Missouri is the #3 cow-calf state and conditions are good there. The Northern Plains states are still in good shape and most of the 1.4% higher beef heifer numbers on January 1 were being held there. A growing concern is the spread of drought conditions in the Southeast. This situation was not nearly as severe as was the Southwest last year but it has actually been going on longer, dating back to 2010. Cow herd expansion will not occur in Georgia or Florida until these dry conditions wane. All of this drives home an old, old truism: What cowmen want to do and what Mother Nature allows them to do are not always the same.
The hog and pork sector continues to struggle with larger numbers and what appears to be soft demand, at least for some cuts. Last week’s 2.069 million head was 1% lower than the previous week but nearly 4% larger than last year’s weekly run. In addition, that number is over 2% higher than our model, based on the March 1 market inventory data, predicted for last week. That figure is the largest year-on-year increase versus the predicted level we have seen in non-holiday-influenced weeks since March 1 but the total deviation from expectations since that date is still only 0.7%. Weights have added another 1% to supplies, though, and the demand side has not been stellar with news of China buying “excess” pork to keep prices higher, concerns over domestic income levels and the general negativity driven by LFTB and BSE.
And our computations indicate higher hog numbers for a few weeks based on the March data. Have a few of those pigs been pulled forward the past couple of weeks? That is a possibility but only time will tell. One thing appears certain: The short numbers anyone may have expected due to last summer’s heat have not materialized. At least not yet. That should have happened in late April if pigs performed per normal. All evidence points to better-then-normal performance, however, meaning that the decline could be pushed forward in time. But our experience is that the longer these things take to materialize, the less we are able to ever see them in the data. Ditto for PRRS (porcine respiratory and reproductive syndrome) losses last winter.
All of this has kept the pork cutout under pressure for much of this year. The –14.1% year-on-year decline is not too out of line with the +4.85% production change. Bellies are the biggest drag on the cutout, trailing last year’s prices by one-third last week — and they were 38% lower than last year the two prior weeks. Hams, which account for roughly 25% of the carcass value, have gained on last year’s level the past two weeks but remained 13% lower last week. It is likely that ham prices below $0.60/pound stimulated some export business. Mexican processors have been good customers in recent years when hams become a good value.
The good news in the complex continues to be chicken, where prices are higher across the board versus last year. The chorus the past year has been “If it weren’t for cheap chicken . . . “ The chicken companies are now saying “If it weren’t for cheap pork . . . “ Markets always involve new culprits, it seems.