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FEEDSTUFFS MEAT PRICE OUTLOOK: Jan. 23, 2018

Hams and bellies support pork cutout prices.

Beef: The proportion of negotiated sales 0-21 days (spot sales) has been declining, while the proportion of formula sales has been increasing. Spot sales accounted for an average of 50% of the reported comprehensive sales volume in 2005 and have declined to less than 31% in 2017.Formula sales averaged 35% in 2005 and increased to 51.2% in 2017 -- a slightly smaller proportion than the 52.5% in 2016. Negotiated forward bookings (negotiated 22-90 days plus forward-contract sales) increased from an average of 15.2% in 2005 to 20.3% in 2010 and then declined to 16.3% in 2015 before rebounding to 18% last year. This does not describe all forward commitments, as buyers can opt for -- or sellers can push for forward -- volumes that will be delivered on formula basis. Formula sales provide buyers with a guarantee of supply and provide sellers with production planning parameters. Formula pricing at the time of shipping is often determined by the spot market average of the previous week or a five-day moving average prior to the day of shipment.

Pork: The pork cutout moved higher on the strength of hams as well as bellies, as both are in the midst of seasonal upward price risk. The cutout is expected to maintain support, because neither hams nor bellies have reason to retrace in the next four weeks. As other primals are finding seasonal lows and forming price bases, the cutout further solidifies the probability of its own price support at current levels, which is likely to move higher the next three or four weeks. Gains in most of the primals are expected to be seasonal or moderate at best, save for the potential increases in bellies. For now, the forecast is for the price to rise $2 in the next four weeks, with the risk in bellies able to take the cutout to $5 higher for the same time frame. The premium packers are paying for hogs is also likely to help keep the cutout supported, with the cutout likely to maintain its seasonal price structure moving throughout this year, even with larger supplies.

Poultry: In the U.S. Department of Agriculture’s weekly "Broiler Hatchery" reports to be released in 2018, a banner has informed users that data for the 19 state totals will no longer be published. For a number of years, this total was used as a basis for the analysis of front-end intentions; however, as supplies have grown over the years and hatchery operations have expanded, USDA has decided to include a U.S. total and individual state totals. Informa Economics IEG has elected to continue to report on the 19-state total until more information is gathered on the implications of additional sources contributing to the report. For the week ended Jan. 13, hatcheries from the top 19 states (by volume) participating in USDA’s weekly "Broiler Hatchery" program, combined, set just more than 216.4 million eggs in incubators. That total was nearly even with the previous week and up 3.6% from the same week a year earlier.

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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