December 8, 2010

US red meat stocks fall but chicken supplies mount

US inventories of frozen boneless beef continue to be below year-ago levels, with stocks during October dropping 7% on the same time last year, at 154,675 tonnes hundredweight, according to the USDA.

The tight manufacturing beef supply situation, particularly for imported beef, has impacted stock levels in the US this year, with boneless beef inventories at their lowest since mid-2005. Reflective of tighter supplies, lean manufacturing beef prices (both US domestic and imported) so far this year have averaged 16% and 25%, respectively, higher than year-ago levels.

On a bearish note, US cow slaughter has been ramping up since mid-August, with cow slaughter for the week ending 19 November reaching 143,901 head. Given the recent run up in cattle placements into US feedlots, beef stocks may boost a little over the next couple of months. The supply situation still looks tight, with the USDA still forecasting beef production volumes in 2011 to be lower (down 2%, at 11.6 million tonnes cwt, despite its recent upward revision.

Also classified as red meat in the US is pork, with inventories also down 7% on-year, at 216,817 tonnes cwt. As a reflection of tighter supplies, US wholesale prices for pork are currently averaging 32% above year-ago levels, but the price highs may be short lived.

USDA weekly pork production data over the past three weeks is showing an average 3% rise on last year over the past three weeks, with the USDA also forecasting a 1% rise in pork production in 2011.

Frozen chicken inventories have been accumulating over the past five months, with inventories jumping 15% on October 2009 levels and 3% on the previous month, at 332,937 tonnes cwt - the highest since the end of 2008. Restricted trading conditions for the US to Russia in 2010, coupled with higher poultry production, have been the main premise for the higher chicken stocks.

Despite the higher stocks, US wholesale broiler prices are currently up 13% year-on-year, at US$0.81 per pound. Chicken prices have come down from the mid-year highs of US$0.86 per pound, which should be making beef traders nervous as poultry production is forecast to increase 1% next year.

Coupled with this, if trading conditions remain volatile to Russia, even more chicken will be pushed back onto the US domestic market. On the positive side, production growth next year may be suppressed due to rising feed costs.