It was mostly a consolidation day for livestock futures on Tuesday. This was particularly the case for cattle following the limit down day on Monday, write CME analysts Steve Meyer and Len Steiner.
Ongoing weakness in broader markets continues to keep cattle on the defensive.
There are plenty of opinions about price direction for cash cattle/boxed beef prices in the short term, given the start of Lent season (Feb 10), a week earlier than a year ago.
Hog futures have been trading sideways for the past few days.
Cash prices have been stronger than some expected and it is interesting to note that hog weights have declined sharply in the last two weeks, an indication producers have become quite current in their marketings.
Still, market participants recognise the seasonal tendency for prices in February and early March, thus limiting any further upward momentum from current levels.
The latest USDA World Supply and Demand Estimates report (WASDE) did not contain any dramatic revisions to the livestock picture but it continues to highlight one key fact: US meat supplies are expanding across the board, thus helping contain price inflation for the entire category.
In this last update USDA revised beef production marginally lower by 25 million pounds, mostly reflecting the impact of slower than expected slaughter in the first few months of the year.
In January USDA projected 2016 beef production to increase by 3.8 per cent and the inventory numbers published at the end of January did little to change that projection.
Indeed, one can argue that the USDA production estimate already is quite aggressive and implies higher placements in the spring and heavier weights for much of the year.
On feed supplies at the start of the year were only modestly higher than the previous year but the supply of feeder cattle outside of feedlots is at the highest point since 2011.
Timing of placements will be key. So far feedlots have struggled with margins and hedging opportunities. USDA will likely wait and see how placements develop over the spring before making any significant adjustments to the beef supply outlook for the second half of the year.
The revision to pork and chicken outlook was more significant, especially for chicken. Pork production for 2016 was raised by 70 million pounds and chicken production was increased by 74 million pounds.
The downward revision to chicken exports (-85 MM) was also very significant.
In the past we have highlighted pork exports as a key driver for the market in 2016. USDA did not make any changes to the pork export picture and still expects only modest growth of about 184 million pounds (+3.7 per cent).
It also important to note that USDA also expects pork imports (which is mostly Canada) to decline 10 per cent in 2016.
Chicken production and availability is expected to be up 2.5 per cent and 2.4 per cent, respectively.
Total beef, pork, chicken and turkey domestic supply availability in 2016 is now projected at 85.346 billion pounds, 1.8 per cent higher than what it was in 2015.
And when/if some wonder why prices are down so much, consider that in 2016 the domestic market will need to absorb 5.6 BILLION pounds more of red meat and poultry than in 2014 (+7 per cent).