October 1, 2008
Consumers are trimming beef consumption, bracing against the economic headwinds and leaving a glut of meat in storage to pressure wholesale prices, analysts said.
Market analysts Friday blamed the reduced demand on consumer angst over the banking crisis and the general economic slowdown. Meat packers are responding to the slower beef demand by cutting production, starting with a cut in Saturday's output, with more production cuts likely this week.
The USDA estimated Saturday's slaughter at 19,000 head, down from 58,000 a week earlier. Some market analysts also predicted production cuts would come this week as well.
Evidence of a backup comes from a drop in the choice cutout price, which is the second-highest beef grade, after prime. Furthermore, meat analysts specified the pricier beef cuts are staying in the freezer.
The USDA said Friday the choice cutout last week fell to US$155.42 per hundredweight from US$159.80 a week earlier, with the product pile-up blamed as a major cause of the price pressure.
Middle meats, from which the steaks and rib products are cut, "are stacked to the roof," said Andrew Gottschalk, livestock market analyst at HedgersEdge.com and R.J. O'Brien. Packers are having trouble getting enough institutional hotel and restaurant interest in these products to keep up with production.
The USDA reported total slaughter last week at 647,000 head, down from 686,000 the week prior and 656,000 a year ago. That produced about 507 million pounds of beef, compared with 537 million a week earlier and 518.7 million a year earlier.
HedgersEdge.com calculated daily packer margin index on Friday dropped below the breakeven point into negative territory. Friday's index was a minus US$8.42 a head versus a plus US$22.45 a week earlier. That drop could affect packer decisions to cut slaughter rates.
The problem also was showing up at the high-end restaurants, which are reporting about a 5 percent decline in sales.
Analysts questioned, however, if packers would make a serious attempt at cutting slaughter just because of the margin decline, or if they would wait and allow an expected dip in cattle availability to do it for them. Based on prior feedlot placement rates, market analysts expect a decline in slaughter-ready cattle sometime in the next few weeks, but there is disagreement on the exact timing.
Retail buyers also are unsure of consumer reaction to the economic crisis, and they do not want to have too much product on hand.