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Assortment of raw beef and pork pieces on wooden table

FEEDSTUFFS MEAT PRICE OUTLOOK: May 9, 2017

Tight front-end supplies continue to spur cattle cash trade higher.

Beef: Still-tight front-end supplies of market-ready cattle again spurred the cash trade sharply higher last week, to $145-146/cwt., up $8-9 from the week prior. The surge in cattle purchase costs was nearly matched by sharply higher beef prices with the blended cutout closing the week near $234/cwt., up $16 from a week earlier and nearly $30 higher than the early April low. The surge in beef prices has exacted a toll on spot sales volumes, which declined despite the higher fed beef production of recent weeks, although the large out-front commitments established earlier may continue to limit spot availability. Still, deteriorating operating margins led to a more moderate production volume this week and may continue to temper near-term production schedules, even though fed cattle supplies are expected to trend seasonally higher into late spring and summer. The surge in beef prices and widening premium to competing pork and chicken items likely will dampen buyer interest, leading to weaker prices heading into the summer months.

Pork: Product pricing is expected to move higher on a seasonal basis, which could move the cutout value from current pricing of right around $76 up to -- and possibly exceeding -- $90. To engage the "what if" scenario: If butts rise another $12, bellies rise another $20 and loins rise $12, this would translate into just more than a $7 addition to the price of the cutout. These are modest expectations and do not even factor in picnics or hams, nor the actual highs that still could occur for each primal. On the low side of primal expectations, the cutout should have no difficulty getting above $85 in the near term, even with additional hog supplies more than 4% over last year during this same time.

Poultry: Prices of wings have been on a tear for many of the weeks since the beginning of 2017. Observers noted some rather sharp increases in the fall of 2016 as out-front commitments materialized for heavy users of wings in foodservice outlets. After price points in the mid-$1.80 area were achieved, pressure on supplies failed to fade in progression with a typical seasonal pattern surrounding the winter holiday time frame. From there, it was expected that wing values would continue upward through March as heavy use continued and that fading demand would bring a fallout consistent with what has been typical for a softer period for wings. Analysts advised in February that a risk to the forecast for the steep declines existed when considering the steady improvements to consumption that have occurred in recent years. While evidence of a supply shortage for larger wings comes with some mixed sentiment, it is clear that increased consumption is leading to a more inelastic demand curve than has been afforded to the cut's historically.

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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