FEEDSTUFFS MEAT PRICE OUTLOOK: February 21, 2017

Pork cutout stays higher than forecast due to belly market.

Beef: Despite the usual sluggish spot beef sales and lackluster mid-winter demand, beef prices firmed as the week progressed last week, with the blended cutout reaching near $190 at week’s end, about $3 above the prior week. Tight operating margins and small feedlot placements in late summer and early fall, along with some slowdown in winter feedlot performance, likely will continue to limit slaughter volumes into late winter and early spring. Weekly slaughter slipped into the 550,000- to 560,000-head range, far below the late-January peak above 590,000. However, following the larger feedlot placements last fall, fed cattle supplies will expand rapidly into the spring, with weekly kills regularly exceeding 600,000 head and averaging 5-7% above last year. The blended cutout may firm and approach the $200 area in early spring before trending lower again into the summer. Supported by tight supplies and lighter carcass weights, fed cattle prices may reach the low to mid-$120s.

Pork: The pork cutout stayed higher than the forecast as the belly market is providing a significant price boost. The elevated level of the cutout, as a composite of the primals, will have a limited opportunity in the next few weeks to break much lower. Loins, butts and ribs all reflect price risk to the upside right now, with the hams possibly price neutral for the next six weeks. During the next six weeks, the belly price is expected to soften but will not drop like a rock yet. If the bellies move slowly lower while the loins, butts and ribs increase, the cutout could trend flat or even slightly up from here. Currently in the $85 area, the cutout is not forecasted to move lower but instead could easily move to $87 next week.

Poultry: Average bird weights in the fourth quarter of 2016 were only 0.6% larger than they were in the same quarter in 2015, while in the third quarter, average weights were 0.1% lower than a year earlier. This action suggests that the industry is reducing average bird weights (or, at the very least, has hit a plateau) and that for weights in 2017 to be even or slightly higher than they were in 2016 is not unreasonable. This expanded view encapsulates various categories of bird sizes. From the weekly U.S. Department of Agriculture slaughter data, year-to-date slaughter has shifted away from the bookends. When comparing data from the last 15 weeks to the same period a year ago, slaughter of the lowest bird weight category has decreased — by 9% — as has the highest bird weight category — by 12%. While bird weights are expected to continue to rise in the long run, for 2017, it seems that actions are in place to stimulate a plateau.

For a more detailed look at the weekly forecasts for the various meat sectors and meat cuts, subscribe to the "Meat Price Outlook." Contact Susan Dahlgren at [email protected] for more information.

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