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Bleakness sets in

Article-Bleakness sets in

Bleakness sets in
- Cattle feeder and pork producer losses persist. - Consumer prices for beef and pork not "mirroring" wholesale prices. - Dairy market

BLEAKNESS deepened for beef and pork producers last week as costs -- despite hopes and planting projections that the 2013 corn harvest will be record large -- continued to point to very negative years for feedlots and hog operations.

Despite an expected substantial drop in breakeven costs by the end of the year, cattle feeding losses this year still will be the worst ever, and pork production losses will be the fourth worst in history. Furthermore, these losses will come on top of large losses last year.

Equity is being drained.

There were indications last week that seasonal spring demand for beef and pork may actually be beginning, but any seasonal strength will likely be too little and short-lived, according to Feedstuffs sources.

For one reason, stronger demand will be due mostly to pent-up demand that will surface from better grilling weather and the Memorial Day weekend at the end of May because consumer prices are just too high to sustain increased demand, analysts said.

Retail prices for fresh beef were $4.918/lb. in March and were record high, 5.3% more than the year before, according to the U.S. Department of Agriculture. Pork prices were $3.50/lb., 0.7% lower than the year before.

Consumer-level prices are not "mirroring" wholesale prices, which is causing "growing concern" that retail prices are too high to keep beef and pork "moving to consumers," Steve Meyer and Len Steiner noted in an edition of their "Daily Livestock Report" last week.

Retail beef prices have increased 8% since last September, while wholesale prices have increased just 1%, and the pork situation is similar, with retail pork prices rising as the wholesale markets struggle, they said.

Much of this "discrepancy" is the consequence of continued warnings by analysts, and by the media quoting the analysts, about extremely limited and, therefore, high-priced meat supplies this year, and retailers' expectations for this became so ubiquitous that they raised prices early to prepare consumers for cost shocks, Meyer and Steiner said.

However, $200-plus wholesale beef prices are just not developing, and challenges in the export markets have kept more pork at home than on ships, which has held back wholesale pork prices, they said. Accordingly, it now appears as if retail prices "are out of line with wholesale prices," they said.

This means that there is "value space" between wholesale and retail prices, or values, which can allow upstream prices to rise quickly as retailers can simply allocate more of their margins to suppliers without having to shock consumers with prices, Meyer and Steiner said.

However, it also works against producers and processors if consumer demand collapses and product starts moving into storage, they said. So, while value space would support a rally in livestock and meat prices, they added, right now, consumer demand is "paramount, we think."

Beyond the domestic markets, the export markets also aren't doing well.

Beef and pork exports in February (the latest month for which data are available) were below expectations: beef exports were down 2.5% by tonnage from February last year, and pork exports were down a breathtaking 12.7%, according to the Livestock Marketing Information Center (LMIC). January-February volume was down 3.1% for beef and 9.8% for pork, LMIC said in an analysis last week.

This was due, in large part, to the dollar strengthening relative to other currencies, especially the Japanese yen, LMIC said.

In recent years, the dollar's value versus other currencies has supported exports of U.S. beef and pork, but now, the exchange rate has "rather abruptly changed," especially, as noted, as it relates to the yen, LMIC said.

The center explained that the exchange rate is influenced by three factors: (1) differentials in growth rates between countries, (2) differentials in monetary policy, especially differentials in interest rates, and (3) the U.S. dollar's "unique position as the world's reserve currency" and a vehicle in which to put currency in periods of economic and political turmoil.

As those factors bolster the U.S. dollar, the value of other currencies weaken, and U.S. exports of goods such as beef and pork become more expensive, which decreases purchases by other nations.

Since last October, the value of the yen has fallen 25.2% versus the U.S. dollar. Japan is the second-largest export market for U.S. beef, accounting for 18.3% of beef exports last year, and it is the largest export destination for U.S. pork, accounting for 25.6% of pork exports last year.

Accordingly, LMIC said it is lowering its beef and pork export forecasts to Japan and other markets, noting that the less meat that's exported, the more meat that must be moved on the domestic markets, probably at lower prices.

Compounding this, LMIC said chicken production will increase this year, and the per capita supply of meat and poultry this year will be fractionally higher than in 2012 -- the first increase in per capita supplies since 2004.


Rolling promotion

The U.S. Meat Export Federation (USMEF) has seized on an idea for raising awareness of U.S. beef and pork in export markets by putting "wraps" on delivery trucks in Seoul, South Korea, that promote the quality and taste of U.S. beef and pork.

USMEF said 29 trucks have ads promoting beef and 33 have ads promoting pork. USMEF said the trucks cover 2 million miles per year through business districts and neighborhoods delivering U.S. beef and pork to butcher shops and restaurants and delivering the message about U.S. beef and pork to more than 10 million people who live in Seoul.

"There's probably not a person in Seoul who hasn't seen at least one of these trucks," USMEF-Korea marketing director J.R. Lee said, adding that the trucks "are excellent reminders" to consumers, restaurants and stores "that world-class U.S. beef and pork are coming to a business near them."

USMEF said it paid for the wraps -- about $700 per truck -- with funds from the USDA Market Access Program and the beef and pork checkoff programs.


Market roundup

Cattle did not trade in sufficient volume to establish prices last week and, at week-before levels, were $127-128/cwt. north and south on the Plains, 4.3% higher than year ago.

The cutouts finished the week a few cents higher than the week before but at lower prices than earlier in the week.

The hog markets dropped $2.61-3.15 across the Corn Belt to $73.20-78.91/cwt. on a lean carcass basis last Thursday, equivalent to a $55-61 live cash hog market and 5.2% lower than year ago.

The cutout did move up for the week and was $84.31/cwt. last Thursday, but it provided no support to the hog markets. Indeed, the hog futures closed last Thursday at levels that would be below costs of production for every month from now into next (as in 2014) summer.

Some sources still tried to be bullish, pointing to some packer profitability, product getting cleaned up and rising prices, a seasonal decrease in hog numbers with an increase in pork demand and the avian flu situation in China that's increasing pork demand there.

The chicken markets were steady last week, with higher prices for white meat as quick-service restaurants were introducing new products, sources said.

The markets were also supported by interest for Mother's Day, which is one of the best chicken demand occasions of the year and is just three weeks away, sources said.

Chickens were unchanged at $1.05-1.10 and 99 cents to $1.04/lb. in the eastern and midwestern regions last Thursday, 28.7% higher than year ago.

Breasts increased 4 cents to $1.06-1.12/lb., 12.4% higher than year ago, and breast meat rose 10-18 cents to $1.56-1.73/lb., 27.2% more than year ago.

After dropping sharply this year, full wings seemed to be settling and were unchanged at $1.25-1.30/lb. but still were 24.6% lower than year ago.

The egg markets, after falling more than 50 cents since Easter, also seemed to be settling and were unchanged at 94-98 cents and 84-86 cents/doz. for large-sized eggs delivered to eastern and midwestern store doors last Thursday, 4.3% over year ago.

The turkey markets were steady in light trading. The national average offer last Thursday was 94 cents to $1.01 for hens and 92 cents to $1.01/lb. for retail-sized toms, 10.7% and 10.2% lower than year ago.

Fresh tom breast meat, which has slid some 80 cents from its high last fall, was also unchanged at $1.55/lb. last Thursday, 19.3% under year ago.

The dairy markets continued a stunning price run-up last week. Butter was $1.7875/lb. last Thursday, 5.25 cents higher than the week before and 26.5% higher than the year before.

Barrel cheese was $1.76, 0.75 cent higher than the week before and 20.5% higher than the year before, and block cheese was $1.8850/lb., 6.25 cents higher than the week before and 24.8% higher than the year before.

Grade A milk powder was $1.7850/lb., 1.5 cents higher than the week before and 51.6% higher than the year before, and Grade Extra was $1.70/lb., 4 cents higher than the week before and 49.5% higher than the year before.

Prices are increasing rapidly due to demand both in the U.S. and worldwide, and buyers are offering little to no resistance, said Jerry Dryer, whose reports are available at www.dairymarketanalyst.com. "Their focus is to procure product," he said in his weekly advisory to clients.

Dryer acknowledged that the U.S. dairy industry is producing ample milk and milk products, but he said, unlike 10 years ago, the U.S. is now a major participant in the global markets, where there is "an ever-increasing demand" for milk and products, where milk production is down in Australia and New Zealand due to drought and where production is down in Europe due to cold weather and dairy industry economics.

The U.S. is filling much of the world's dairy needs, he said.

Volume:85 Issue:16

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