USDA’s monthly cold storage report, released yesterday (May 21), showed a slight reduction in April 30 frozen pork inventories from their record level of March 31. Total pork in commercial warehouses amounted to 652.2 million pounds, fractionally lower than last month’s 652.7 million pounds (see Figure 1). This level is still the second highest on record.

Figure 1

The increase was led on a percentage basis by stocks of butts, which grew by 158% vs. April 2007. The actual increase in butt inventories amounted to 16.937 million pounds, putting butts third on the actual tonnage increase list for this month. The 27.7 million pounds of butts in cold storage is a new record, breaking the old mark set two months ago. Note that butt inventories had never exceeded 20 million pounds until January 2008 and they have done so each month since.

Figure 2

The largest tonnage increase for April cold storage stocks was bellies at 38.58 million pounds. Those stocks now stand 62% larger than one year ago. Ham inventories increased by 30.6 million pounds or 38.5% over last April.

I think at least a portion of the increases in inventories of these three cuts is attributable to the refrigerated shipping container shortage, which we have discussed in the past. While many think the U.S. pork industry primarily exports loins and tenderloins, these three cuts have become much more important in the export mix in recent years – especially as more price-sensitive markets, such as Mexico and China/Honk Kong, – have grown. Any difficulties for exports in general will show up in these inventory numbers.

Figure 3

Loin inventories grew by 23%, year/year, or 8.75 million pounds in April.

I am still not overly concerned about the levels of cold storage inventories. As can be seen in Figure 2, cold storage stocks as a percentage of production dropped in April, indicating that March was very likely the high for the year. If that’s the case, this year’s peak will be lower than in six of the past 10 years.

Figure 4

Meat Inventories Plentiful

Demand has been, by all accounts, exceptional this spring. If that continues, these stocks will not pose a problem for the U.S. pork industry. On the other hand, one must remain concerned about the sheer volume of product that is in warehouses. Should any hiccup develop for pork demand – either at home or abroad – these supplies would become burdensome to prices very quickly.

That concern increases when one considers the amount of total meat and poultry in cold storage (Figure 3). April’s level of 2.354 billion pounds is just 10 million pounds shy of the April record set back in 2002. Turkey stocks will continue to grow through next fall, so it will take some pretty dramatic reductions in either chicken or pork stocks or both to keep from surpassing the 2002 record levels the rest of this year.

Figure 5

And current levels of output do not portend well for large reductions of frozen inventories. Figure 4 shows the amount of combined weekly meat and poultry production increase over last year. I have used a six-week moving average to smooth the data a bit, but the message is clear: We are producing a huge amount of meat protein each week.

Corn Concerns Grow

Finally, the situation with this year’s corn crop does not look good at all. Figures 5 and 6 show data as of last Monday for the percent of corn acres planted and percent emerged. The planting rate is the second lowest since 1990 – barely ahead of the flood year of 1993, while the percent of corn emerged is far and away the lowest since 1999 (the first “emergence” data that I could find in the USDA database). Hopes for more than the planned 86 million acres of corn are now, I think, long gone and the hope for at least a trend-line yield of 153 or so bushels per acre is in dire jeopardy.

Figure 6

Consider the likely consequences of 86 million acres and lower-than-needed yields, plus crude oil surpassing $130/barrel this week. What does that mean for corn prices if gasoline and ethanol follow the oil market? Will there be any reason to run ethanol plants below their capacities?

This is not a good situation for the meat business. But you’ve heard that before, right?