US - CME analysts Steve Meyer and Len Steiner take a look at the USDA's latest forecasts for beef, pork and poultry supplies in 2016.
The most significant revisions involved beef production and trade but pork numbers were also adjusted slightly, largely reflecting a downward revision in pork export. The charts show two things.
They illustrate the degree to which the latest USDA WASDE forecasts have been revised compared to the previous month. We show both the percentage change as well as the actual volume.
The second column of charts then shows the degree to which USDA expects red meat and poultry supplies to change next year.
Below are some of our thoughts having looked at the numbers.
December Revisions: USDA revised its previous forecast for beef availability next year by about 220 million pounds, or 0.9 per cent.
The revision was a result of changes in forecasts for beef production (down 170 million pounds compared to November projections) and lower imports (down 100 million pounds).
The reason why the availability did not change by 270 million pounds is because USDA also changed its estimates of carryover stocks, which makes sense considering how large October beef stocks were and that we are not drawing them down as fast as earlier expected.
Both revisions make sense given the pace of placements in the last cattle on feed report and overall cattle availability next year.
Still, it is important to note that even with the recent adjustment, USDA projects beef production in 2016 to increase by 4.3 per cent. USDA also lowered its 2016 export forecast by about 100 million pounds (-1.9 per cent).
Exports to a number of markets, especially Asia, have been slower than earlier expected and this may have caused USDA to temper some of its projections. The strong US dollar and low prices for pork in Europe and Brazil also have created a more challenging environment for US pork trade.
At this point we do not think the USDA forecast make any assumptions about the potential impact from higher tariffs in Canada and Mexico. USDA normally does not engage in such speculation and they may adjust their numbers only when the tariffs go into effect and we have a clearer picture of the items affected.
Chicken production was revised slightly by 75 million pounds, but adjustments to beginning stocks meant that chicken availability in 2016 was revised only by 25 million pounds or 0.2 per cent.
Current forecasts for 2016: USDA expects beef, pork and chicken supplies to increase in 2016.
Beef production is expected to register the biggest gain, increasing by 564 million pounds (+4.3 per cent). However, it is important to keep in mind that in terms of pricing it is even more important focus on domestic availability.
Because beef exports are expected to be down 12.9 per cent, overall beef availability in the US in 2016 is forecast up just 2.3 per cent. And yet, fed cattle futures are showing 2016 prices down almost 20 per cent in 2016, a much bigger decline than fundamentals would suggest.
Pork production is forecast to increase 1.6 per cent but exports remain a key driver as the could significantly change domestic availability and consequently pricing in 2016.
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