CME: Beef and Pork See 'Long Dry Spells'
US - We thought some historic perspective on the absolute and relative values of the major meat species might but useful to our readers as we watch these quite-unusual markets, write Steve Meyer and Len Steiner.The charts below show the weighted average wholesale — ie. cutout — values for beef, chicken and pork as well as the price spreads between each pair of values. The beef cutout value is the USDA Choice cutout for 550-700# carcasses for 1998 and for 600-900# carcasses since 1 January, 1999. The pork cutout value is for 51-52 per cent lean pork carcasses and the chicken value is the 12-city composite broiler value.
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A few observations:
- All three of the wholesale values have stayed, generally,
within a “normal“ trading range since 2003 with the only
significant departures being the upward spike for pork in
2008 and the low values for pork last spring and summer
(due to H1N1 influenza and higher-than-expected slaughter
and weights).
- Broiler cutout values shifted upward rather quickly after
corn prices rose in 2006. That shouldn’t be much of a surprise
since the generation interval is much shorter for
chickens than it is for either pigs or cattle. The increase
has kept broiler values consistently higher than pork values
since late 2006 — except, of course, for the “08 pork spike.
- Both beef and pork have seen “long dry spells“ for wholesale
values since mid-2008 as the economy, H1N1 and
generally ample supplies have take their toll. Both price
series have risen quickly this year — pork due to lower
supplies and beef due to what appears to be the beginning
of a recovery for the foodservice sector.
- As with retail prices, all three of these wholesale values
are on sharp up-trends and are nearing their all-time highs.
While seasonal pressure may come to bear on the beef
cutout value before it approaches the 2003 levels (which
were driven by Canada’s BSE problems and appear to us
to fit the definition for outliers), it now appears very possible for the others to reach all-time records.
- Beef-Pork and Beef-Broiler prices spreads have risen in recent weeks but are not at all unusual from a historic perspective. In
fact, the Beef-Broiler spread as been lower than normal for some time due to the quick rise in broiler values in 2006 and the much
slower increase in the Choice beef cutout value. Current trends suggest that the Beef-Chicken spread may continue to grow but
$80--plus pork cutout values will keep the Beef-Pork spread within its historic range.
- The Broiler-Pork spread is near its lowest level since 2006. Lagging pork wholesale values are the primary reason that this spread has been as much as $31, a level it reached in the aftermath of last year’s H1N1 crisis.
Please see page 2 of the link below for a Special Executive Report from CME Group regarding the listing of the October 2011 Live Cattle futures contract.
Further Reading
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