CME: Market in a State of Desperation

US - CME's Daily Livestock report for 22nd October 2008.
calendar icon 23 October 2008
clock icon 4 minute read

USDA released on Wednesday afternoon the results of its monthly survey of refrigerated warehouses and the report confirmed what many in the market already suspected, slowing exports and still high hog and poultry slaughter have resulted in a significant increase in US cold storage inventories. Some market analysts think that the higher inventories were expected and thus will have little impact on futures when they open on Thursday. We are not so sure.

The market is desperate for some good news and was hoping that maybe the cold storage report would provide some ray of hope that things may not be as bad as they seem. The report, in our view, had little good news to offer. Keep in mind, however, that at this point futures continue to be primarily driven by what is taking place in equity markets and that will trump all else in the short term. On Wednesday livestock and grain futures were again sharply lower following the sell-off in equities and repeated mention of the new buzzword of the day - ‘capitulation.’

Pork cold storage stocks as of September 30 were reported at 507.3 million pounds, 4.6% higher than a year ago and 13.5% higher than the five year average. This was the largest amount of pork on record for the month of September and inventories increased by a little over 20 million pounds compared to the previous month. The overall increase was fairly normal for this time of year but it was driven primarily by a surge in the number of hams going into cold storage. As we pointed out in yesterday’s edition of the DLR, ham prices generally tend to carry hog carcass values in Q4 and the surge in ham cold stocks during September could be viewed as negative for hog prices in the short term.

Total ham stocks were reported at 160.5 million pounds, 1.3% lower than the all time record levels of a year ago but 33.7% higher than the five year average. Pork belly stocks were pegged at 21.5 million pounds, 25.8% higher than a year ago and 45.2% higher than the five year average. The market was clearly fearful in anticipation of the stocks number. Given that September inventories declined some 33% compared to the previous month could be seen as supportive. Pork trimmings at 36.4 million pounds were 8.3% lower than a year ago but 7.9% higher than the five year average. Total broiler stocks remain a concern, contributing to the overall increase in meat protein pounds in cold storage. Total chicken stocks in cold storage were 760.6 million pounds 16.1% higher than a year ago and 9.1% higher than the five year average.

Further Reading

- You can view the full details of the rest of the report by clicking here.
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