FarmPolicy

February 25, 2017

Buildup of Livestock Supplies “Crushing” Meat Prices

Kelsey Gee reported on the front page of the Money & Investing section of today’s Wall Street Journal that, “Cattle and hog prices hover near the lowest levels in years as U.S. meatpackers produce the largest volume of meat in history.

Last week’s 9.2% slide in hog futures on the Chicago Mercantile Exchange was a dramatic turnaround for what was the best-performing commodity market in the first half of this year thanks to strong pork exports to China.”

Ms. Gee noted that, “The buildup has stoked concerns over a glut of meat, poultry and other agricultural products in the U.S. Producers are on track to send a record number of hogs and chickens to slaughter this year, and beef production is rapidly increasing.

“Dairy farmers are spoiling excess milk in their fields as warehouses pile up excess cheese. Also, corn, soybean and wheat growers are preparing for a fourth consecutive year of bumper harvests this fall.

“The U.S. Agriculture Department on Friday pegged the size of the nation’s hog and pig herd on Sept. 1 at 70.851 million head, the largest on record for that time of year. That compared with 69.946 million hogs predicted by a Wall Street Journal survey of analysts.”

USDA-NASS, Quarterly Hogs and Pigs

Today’s Journal article added that, “The figure illustrates how producers responded to lofty prices and profitable margins at the start of the summer by breeding more animals—before a sharp drop in prices to multiyear lows reversed the economics for many farmers.

“The U.S. hog herd is still growing, even as the profit potential for many producers evaporates and export demand begins to cool.”

Also, Boomberg writers Lydia Mulvany and Jen Skerritt reported earlier this week that, “Ham, bacon, ribs, pork loins — if it has to do with pigs, prices are in the doldrums.

Hog futures were the worst investment in commodities last quarter and in the past year. That’s because there are simply too many pigs. They’re so numerous these days that slaughterhouses will have to add shifts and operate on Saturdays in November and December to process them all into food, according to Will Sawyer, an Atlanta-based vice president for Rabobank International.”

The Bloomberg article added that, “The huge supplies are coming at a time of tepid export demand. China, which more than doubled U.S. pork purchases in the first half of the year, has now put the brakes on buying. Devaluation of the peso also threatens shipments to Mexico, the destination for 40 percent of U.S. hams. Wholesale prices for pork cuts such as ham and ribs are the lowest for this time of year since 2009. Hedge funds are signaling the meat will probably stay cheap, as speculators cut their bets on a hogs rally in four of the past five weeks.”

Meanwhile, Christopher Doering reported recently at The Des Moines Register Online that, “Costs for beef and veal are expected to drop 5 percent, as the industry grapples with too much supply and reduced demand. Pork prices are expected to drop 2.5 percent in 2016.”

Mr. Doering also pointed out that, “But things have changed. Now [Dave Hommel, who raises swine in Grundy County, Iowa, is] receiving 35 cents a pound for his hogs, compared with around $1 per pound two years ago.

“‘There is a fair amount of pain in the livestock industry here in the Midwest,’ [Hommel] said. ‘Our plan is to hunker down. I don’t know how much longer this will last.'”

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