One reason for the stronger red meat prices is the smaller white meat supplies. Poultry represents nearly half (47%) of total red meat and poultry production in the US. Jan-Jun red meat and poultry supplies were 3.9% and 2.6% higher than the year before, respectively. However, for July and August, red meat supply was 3.5% above the 2005 pace while poultry production was down 2.0%. Thus, the recent interest in beef and pork is likely filling a short-term gap in chicken.

This lower supply is likely short-term as egg-set showed a year-over-year increase beginning the last week of July and chick placements increased beginning the last week of August. Supplies of beef, pork, and poultry are expected to be larger in the fourth quarter 2006 than they were the year before.

Figure 1 shows the quarterly production of red meat and poultry. It is the final estimates for 2005 and the first half of 2006 and estimates for the remainder of 2006 and 2007. Note the seasonal trend. First quarter is the lowest production and fourth quarter the highest. Also note that 4th quarter is expected to be higher in 2006 than it was 2005, but first quarter 2007 is currently expected to be near 2006 levels.

Figure 2 is the actual and expected per capita consumption of total red meat and poultry. It is the production values in Figure 1 adjusted for imports and exports and changes in cold storage inventory and then divided by population. Note that third quarter 2006 is down from 2005 and is part of the support for cattle and hog price this summer. However, consumption is expected to pick up in the fourth quarter, but be steady to lower through the first three quarters of 2007.

Hogs

Figure 2. Source Livestock Market Information Center

Pork production through the first six months of 2006 was 0.9% higher than the same period of 2005, but has been 1.9% higher in July and August. In addition, three of the largest daily hog slaughter totals in history were posted between August 31 and September 6. The Labor Day holiday may have pushed more hogs into the work days, but these volumes were 416,000, 414,000, and 410,000. When we had slaughter near this level in December 1998 live hog prices were $10/cwt or less and now prices are over $50/cwt or more. Packer capacity has increased as has domestic and export demand.

The US exported 15% of the pork produced in the first half of 2006 and posted a 15% increase compared to the same period in 2005. Put another way, exports increased 202 million pounds, but US pork production increased only 96 million pounds, reducing supply to US consumers. Most of the export growth is coming from Russia and Mexico. Japan remains the largest US pork export market, but its purchases were down 8% from last year.

Domestic demand for pork has weakened from a year ago. The easiest place to see it is that during the first half of 2006 per capita consumption declined 0.8% and retail prices declined 2.4%. When both supply and price decrease there is reason for concern.

The next USDA Hogs and Pigs report will be released September 29 and it will be watched with interest. Producers are in the midst of a streak of 32 consecutive months of selling hogs at profitable prices. However, recent expansion in the US has been modest and sow slaughter has increased compared to 2005, 6% higher since the first of June when the last report was taken. The Canadian breeding herd was also lower in its July report.

September 2006