CME: Improved Demand for Beef, Pork Cuts Expected


CME Group

via The Cattle Site - 03 January 2018


US - Packers and retails will work with a short week and, in the near term, this should be supportive of wholesale product values, according to Steiner Consulting Group, DLR Division, Inc.


Retailers will look to replenish the meat case, which is now being emptied of holiday items. Gone are the ribs roasts, turkeys and hams and we should see improved demand for beef end cuts (chucks, rounds), ground beef, pork loins and pork picnics/butts. Beef and pork retail feature activity was not as strong as in previous year’s at the end of the year and retail features normally are not that great at the start of the year.


It is uncertain at this time how the extreme cold impacting some of the country will affect consumer eating patterns. Anecdotal evidence would suggest that retail business should receive a boost but this will be offset by weaker sales at foodservice. Pork tends to rely more on retail than beef, so the shift towards more retail sales could arguably benefit the pork market more.


The challenge for the pork market is that supplies continue to expand and the increase in hog numbers will be further enhanced by heavier carcass weights. Current forecasts are for hog slaughter to be up around 2 per cent while hog weights are running 1.5 per cent higher than last year. It will be interesting to see how wholesale prices perform this week and what this does to packer bids in the second half of January.


The following two charts paint a somewhat different picture of packer margins at the start of the year. Beef packer margins for the most part are compressed early in the year, a function in part of cold weather effects on cattle. Beef packer margins were excellent in 2017 and there is broad expectation that margins will remain quite solid in 2018 as well.


But usually Q1 margins are weak and it appears this year will be no different. After all beef demand is in good shape and cattle supplies will continue to increase, which should drive demand for beef packing services. In the last two weeks beef packer margins have been squeezed and we think for the last week of the year the margin was pretty close to breakeven. If the choice beef cutout remains in the $205 area, then packers could pay $120 for cattle and stay near breakeven, if not make a little money.


The margins for hog packers often start the year very strong...


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