USDA's November Cold Storage report, released Tuesday, really contained no surprises or shocking changes in meat inventories. Total pork in cold storage was 4.5% higher than one year ago and 5.9% higher than last month (see Figure 1). While 466.7 million pounds of pork is not a small issue, and these stocks are above the longer-term average, I don't see them as terribly burdensome, especially given the large decline (11%) in chicken inventories.
The largest category of pork in this month's report was "Other" which, at 112 million pounds, was the largest since the early 1990s. That category also was up 28% from last year and accounted for 14 million of the total 20-million-pound increase from October 2005.
Ham inventories were the second-largest category of pork stocks at 101.3 million pounds. That is 4.7% higher than last year and 2.6% higher than last month. However, as can be seen in Figure 2, October's ham stocks were still nearly 20 million pounds lower than the average of 2000 through 2004. These lower stock levels are a testament to improved export trade with Mexico. Ham stocks will drop quickly over the next two months as packers and processors move hams into holiday trade.
Belly inventories were 9% larger than last year, and 63% larger than last month, but remain relatively low at 16 million pounds. The month-to-month increase is not too surprising either since the seasonal low in belly stocks almost always occurs in September.
Chicken Still Stiff Competitor
As was mentioned earlier, chicken inventories were 11% lower than last year -- thank heavens! Breast meat inventories were 13% lower, but there is still nearly 130 million pounds of breast meat in freezers. Stocks of thigh meat and paws (i.e. feet) were also substantially larger than one year ago, indicating some difficulties for exports. On the other hand, stocks of leg quarters (another big export item) were only half as large this year.
Chicken part prices are still very soft relative to one year ago (see the Competing Meats table). Boneless/skinless breasts at less than $1.00/lb. and leg quarters under $0.40/lb. are formidable competition at the retail meat counter. Egg sets and placements, though, are still running below year-earlier levels, so it appears that chicken companies are certainly trying to rein in supplies and drive prices upward.
Feed Costs Threaten Profit Streak
Hog prices continue to struggle though today's national negotiated base price did gain $1.40 to reach $58.86. With higher feed costs now coming into play on breakevens, extending the string of profitable months on the Iowa State University Estimated Costs and Returns series is going to be very close.
Slaughter Data Right on Target
Figure 3 shows slaughter vs. one year ago and the level predicted by the September Hogs and Pigs Report. While large slaughter runs may be putting some pressure on prices, we certainly cannot say the runs were unexpected. In fact, since Sept. 1, actual federally inspected slaughter has exceeded the levels predicted by the USDA report by just 0.32%. I don't recall any actual data being closer than that to the expected levels.
These data suggest that our largest slaughter week is now behind us, but I would never bet against the week after Thanksgiving or the week before Christmas. This year's lower slaughter weights, though, suggest that producers are quite current, so I think it is very likely that the peak is in.
Click to view graphs.
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.