November 10, 2008
Big US meat stockpiles sign of hard global economic times
Abundant red meat and poultry inventories in US warehouses are a sign foreign meat buyers are getting squeezed by product costs as the global economic vise tightens.
According to meat industry sources, nearly 22 percent of pork, more than 18 percent of broilers and about 7 percent of all beef production in this country are absorbed by foreign buyers.
Various dynamics, including seasonal production fluctuations and cyclical profitability issues, play major roles in determining how much meat protein is actually put on ice rather than sent outside borders.
Demand is another key storage element, however, that is generating increased scrutiny because of the sometimes fragile relationship between the US dollar and other currencies. This exchange rate interaction is playing out in the midst of a world-wide financial crisis and is likely reflected in the US government's cold storage data.
The US Department of Agriculture's September cold storage data released last month showed total pork in storage at 507.3 million pounds, the most September amount ever. September's record pork stocks were partly due to the widespread use of the circo-virus vaccine last year that saved more pigs than expected.
US pork exports remain a bright spot for the industry, although dimming ham prices and fading ham numbers shipped elsewhere raise concerns. This is particularly true for Mexico where the US dollar for the most part trumped the peso.
On November 5, USDA data quoted heavy hams at US$0.41 per pound after hitting its mid-September peak at US$0.80. Ham stocks at that time totalled 160.5 million pounds, up almost 19 million from the August amount and 2.2 million shy of last year's September record.
"And that's not good," said independent market analyst Bob Brown. "It's like our exports hit a brick wall and we're left having to consume those hams here (US) right now."
Ham prices hit a mid-September high and have collapsed since then, said Brown. The ham supply buildup, he said, cannot be solely limited to reduced shipments to Mexico, which was one of the top outlets for US hams a few years ago.
Based on the federal government's latest January through August 2008 export statistics, ham shipments to Mexico actually soared 63 percent versus year-ago. However, September and October numbers are not yet available, but the writing may be on the wall judging by ham's decay in price during that period.
"Things have certainly changed since August and we don't know how much, but the price data speaks volumes" said Brown.
US September chicken inventories came in at 760.5 million pounds, the largest amount in four years and 105.6-million pounds above last year's amount, based on the USDA survey.
Swollen chicken holdings come at a time when the poultry industry was expected to trim production to offset high feed costs. Additionally, ramped up chicken stocks consist of broiler meat that is highly coveted by Russia.
On the whole US broiler exports through August 2008 grew 21 percent, with shipments to Russia up 12 percent and China increased 18 percent tonnage-wise, points out National Chicken Council director of communications Richard Lobb.
Lobb said, however, Russia and China's US chicken intake in August slipped 13 percent and 3 percent respectively, compared with August 2008. But, he said, overall US chicken exports during August showed a 19 percent gain, which suggests increased business in other countries helped make up the shortfall elsewhere.
"US chicken exports were booming during 2007 and most of 2008 because of the extremely weak US dollar," Lobb said. "But, as the dollar strengthened, our product became a tad more expensive in certain markets."
Lobb also said Russia is grappling with its own economic challenges that are exacerbated by falling crude oil prices.
"I don't have anything specific beyond the August number being a bit of a downward blip," said Lobb. "Hopefully that's just a blip and trade will return to its growth pattern because exports certainly have been a bright spot for the industry."
Dan Norcini, an independent livestock trader, said the poultry demand side of the equation has been reduced dramatically. He wonders when the planned cuts in poultry output will take place, if at all, and the industry actually sees a total reduction in chicken.
"Right now it's a problem, because there is a lot of chicken out there that's competing against just as plentiful pork and beef," said Norcini.
Meanwhile, the amount of beef in US lockers during September was 444.5 million pounds says USDA. This was up 10.6 million pounds from the previous month because of larger slaughters fuelled by more workdays during the month than a year ago. Last year's beef September storage amount was 486.7 million.
Erin Daley, analyst with the US Meat Export Federation, said it is obvious the strong dollar and significant depreciation of other currencies is being felt at the US export level. Furthermore, "major cheapening" of meats from South America and Australia is a complete turnaround from earlier this year.
"I think we're just seeing sort of a reversal of the weak dollar benefits, if you will, but it is largely being seen so far in Russia and also Mexico to some extent where weekly beef export data is showing a significant drop off in sales to both countries."
US beef shipments to Russia through Oct. 24 of this year was pegged at nearly 17,000 tonnes versus an annual total of just 3,500 tonnes in 2003 when the US had full access to the Russian market, said Daley. Comparatively, the amount of beef moved to Russian for the week ending Oct. 24, was only 28 tonnes, she said.
Analyst Bob Brown alluded to USDA data that showed between Aug. 3 and Oct. 23 of this year, US beef exports to Mexico on a weekly basis topped 5,600 tonnes Aug. 7. Shipments later bottomed out Oct. 16 at 1,500 tonnes before rebounding slightly to 2,800 tonnes Oct. 23.