CME: Meat Demand Cause for Concern
US - CME's Daily Livestock Report for 14th November 2008.Cattle and hog futures closed the week on a weaker
note due to the uncertainty in equity markets and continuing
negative news about the state of the US economy.
Meat demand
going into the holiday season remains a primary concern. Foodservice
business has slowed down considerably and anecdotal evidence
of the expected drop in holiday restaurant spending abounds.
And it is not just cash strapped consumers that are deciding to eat out
less, businesses also are expected to limit their spending on celebrations
over the holiday season.
Hog slaughter for the week was reported at 2.3 million head,
2.7% lower than year ago levels. Pork production for the week was
down 3.6% due to lighter hogs coming to market. The reduction in
supplies has helped provide only marginal support for pork prices,
with export pork orders apparently contracting at an alarming rate.
At the moment there is plenty of speculation about pork exports for
2009 and the impact this will have on the industry. While most expect
pork exports to decline, the magnitude of the decline is difficult to
assess.
The latest USDA report projected export numbers for 2008 at
5.068 billion pounds and then 4.5 billion pounds for 2009. We think
that the pork export numbers for 2008 will likely be about 4.7
billion pounds for this year and 4.2 billion for next year (a -
10% decline). But even with this decline, this will be the second largest
amount of pork ever exported. Our 4.2 billion pound number accounts
for a 60% decline in shipments to China/Hong Kong, a 50%
reduction in exports to Russia and flat exports to Mexico.
US pork
supplies, on the other hand, are expected to be lower. This would imply
that the impact of lower exports will not be as significant as some
believe it will be. As to how well domestic demand will hold up, that
is anyone’s guess at this time.
