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Assortment of raw beef and pork pieces on wooden table

FEEDSTUFFS MEAT PRICE OUTLOOK: March 21, 2017

Ongoing outbreaks of avian flu providing additional risk for broiler outlook.

Beef: Shrugging off the historically strong basis and deep discounts on summer futures contracts, limited front-end supplies of market-ready cattle and higher beef prices paved the way to a higher cattle market last week, with the northern feeding areas continuing to command a premium over the South. The limited fed beef output, with steer and heifer slaughter holding near the modest levels of recent weeks and output further tempered by lighter carcass weights and a strong export pace, has caused beef prices to move higher, but the advance was more measured on markedly slower spot beef sales. With the blended cutout reaching above $221/cwt. at week’s end, well more than $30 higher than the mid-February low, spot beef sales slowed, perhaps signaling increasing buyer resistance. Prospects for larger fed cattle supplies later in the spring, along with fading buyer interest at the higher prices, may temper further immediate interest in the end cuts, with the middle meats also exhibiting some late-winter vulnerability before firming again into the spring.

Pork: The pork cutout started the week higher last week and, for the most part, held onto modest gains that occurred in the prior week. Price risk is to the upside at this time as every primal is forecasted to move slightly higher. There is very little downside risk going into next week and even for the final week of March. However, prices could move sideways or slightly lower during the month of April as hams experience some weakness after the Easter buying season is over. At current price levels, pork product is experiencing a larger demand premium than expected and is not expected to trade lower than current levels until after the summer is over, even in light of larger slaughter levels than a year ago.

Poultry: While ongoing outbreaks of avian influenza provide some additional risk to the outlook for broiler supplies in 2017, it is also worth looking deeper into integrators' incentives. The outlook for 2017 continues to suggest a low feed cost environment, which may prompt integrators to test capacity. Slight downward progression in forward markets in both corn and soybean meal over the last several weeks continues to encourage optimism for healthy margins, especially as demand returns to the breast meat segments. While an outlook for favorable feed conditions spreads optimism for margins, the large production increases incentivized by this environment could prove troublesome to clearance, prompting some rather heavy discounting later in the year. Integrator margins should remain positive through the year and approach zero as demand tapers off during the winter months. However, risk is likely to be to the downside with respect to year-over-year production gains.

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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