CME: Red Meat Prices Below Year Ago Levels

US - It is interesting looking at the summary table below that despite significant reductions in US meat supplies, red meat prices generally are well below year ago levels, says CME's Daily Livestock Report for 5 June 2009.
calendar icon 8 June 2009
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Beef production for the week was down 2.5 per cent but fed steer prices so far are tracking some 12.7 per cent lower than a year ago, a result of much lower wholesale prices for beef which have limited the packer’s ability to pay for cattle. Also important is the sharp decline in the value of hides and offal. Hide prices continue to suffer from the decline in export demand as well as smaller hide purchases from US car manufacturers (leather seats).

Weak cattle prices are also having an impact on cow calf producers. Feeder cattle prices have declined as feedlots have become much more cautious in light of weak out-front fed cattle pricing as well as rising feed costs. So far beef cow slaughter is running below year ago levels but that may not last for too long. If cow-calf producers continue to lose money, we could see another wave of liquidation this fall.

Lean hog prices are currently running some 20 per cent below year ago levels and cutout values are down some 27.5 per cent. Producers are bleeding red ink at a time of year when they should be making money. It seems that the industry has concluded that there is simply too much production capacity and that prices will remain weak unless significant steps are taken to reduce the breeding herd.

It was recently reported that a group of independent hog producers will undertake a sow herd retirement program, similar to the dairy cow herd retirement program organized by CWT. It is an ambitious project but the details are still rather sketchy and we would like to see more information before making any judgments. Clearly one of the challenges for any such enterprise is organizing enough producers to really have an impact. As for the legality of such a program, we have bee told that the group been advised by lawyers that the enterprise would be on firm legal grounding but you never know.

Then there is the free rider problem. When the dairy coop organized the latest herd retirement program, it concluded that it needed at least 70 per cent of producers enrolled in order for the program to go ahead. How many producers will be enrolled in the sow retirement program and how will those producers that pay into the program feel when others that do not also reap the benefits? Finally there is the issue of financing. Some market analysts believe that the program could generate as much as $50 million that will be used to buy out sow producers but that is likely a guess and we need more details to understand the potential impact.

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