USDA's monthly Cold Storage Report, released on Friday, May 20, indicates that stocks of meat and poultry in U.S. freezers continued to rise in April and reached their highest point since October 2009. There were 2.121 billion pounds of total poultry and meat in freezers on April 30, 9.9% more than one year ago and 2.7% more than at the end of March. Figure 1 shows the complete data for meat and poultry. Figure 2 shows monthly freezer inventory data since 2000.

All major species have more frozen inventories now than one year ago, with beef leading the increase on a percentage basis at 19.8%. Chicken stocks are a close second on a percentage increase basis (+18.4%) and the clear leader in tonnage terms being over 115 million pounds higher on this April 30 than last.

Pork inventories fell by 5% during April, an expected occurrence given the late Easter this year. Ham inventories, as expected, declined by 27% during the month, but are still slightly larger than one year ago at 76.7 million pounds. The only significant increase of pork products in freezers during April was for “other pork” category, which grew by 11.5%.

Exports are still a driver of these freezer stocks. The surge in exports to South Korea and Japan in March has subsided somewhat, but business to those countries has not fallen completely out of bed. A good amount of the pork in freezers prior to April was there in preparation for export and, we think it is still an important factor in this year-on-year growth in storage volume. April or May is almost always the high for pork in cold storage as processors draw supplies down as hog numbers decline in the summer months.

Chicken inventories are still a concern, especially in light of the anemic reaction we are seeing to some significant losses for broiler production companies. Further, it is difficult to blame any one segment of the industry for the buildup. The amount of leg products (drumsticks, leg quarter, legs and thigh/thigh quarters combined) in freezers is 26% higher than last year and 17% higher than in March. That indicates there are challenges with exports. Breast meat, the preferred product of most Americans, isn’t doing much better at +32% from one year ago – even though stocks are up only 2% from last month. Ditto for wings, whose stocks are over twice as large as last year.

These stocks are reasonably well reflected in chicken part prices – breasts and wings are very cheap. Leg quarters are better, primarily due to exports to Mexico, but they are not high enough to carry sufficient bird values. As I listened to poultry executives at an investment conference in New York last week, they sounded like a group of production addicts telling everyone how they just could not help themselves from continuing robust production levels in the face of losses.

March Demand Data Looks Good
March export and import figures, discussed in last week’s Weekly Preview, was the final piece of data needed to compute demand indexes for all species through March 2011 – and the results are pretty positive (Figure 3). The March figures for pork, beef and chicken indicated that U.S. consumer level demands were 2.6%, 1.3% and 8.5% higher, respectively, than in March 2010. Those figures bring the average indexes for April 2010 through March 2011 to +2.1%, +0.7% and +2.7% vs. the period April 2009 through March 2010.

How can these be so positive when prices have fallen so sharply? First, remember that the latest data are for March. Most of the selloffs in Lean Hogs and Cattle futures have occurred since then. In addition, chicken consumption is reasonably good (up 5% from a year earlier during March), and chicken prices are not bad by historical standards – they just aren’t high enough to cover costs given the run-up we have seen in feed costs.

So, demand indexes look reasonably good, even when the companies are losing money and those reasonably strong chicken prices, in historic terms, are low relative to the “new” levels of prices we see for pork and beef.

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Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com