CME: Meat Demand Cause for Concern

by 5m Editor
17 November 2008, at 9:37am

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.