CME: Cold Storage Report Has Bearish Implications

US - The latest USDA cold storage report had bearish implications for beef and chicken prices while we think it was neutral for pork, write Steve Meyer and Len Steiner.
calendar icon 26 January 2015
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One thing to consider in terms of the December stocks situation are the ongoing challenges presented by the labor dispute in West Coast ports and the disruptions to trade with Asia.

The situation has become particularly troublesome in January and we will likely see a further increase in meat stocks in the January report as products destined for export sit in refrigerated warehouses. According to wire reports, backed up product may take as long as 45 days to clear and there appears no sign that the worker unions and the mari- time association are close to resolving the situation.

Highlights: Total inventory of beef, pork and chicken in cold storage at the end of December was 1.844 billion pounds, 4.3 per cent higher than the previous month but 4.4 per cent lower than a year ago and 2.2 per cent lower than the five year average. The drawdown in stocks in December was a bit slower than normal. Beef inventories increased sharply, particularly inventories of boneless beef.

Total boneless beef inventories as of December 31 were 403.5 million pounds, 11.4 per cent higher than the previous month and now one per cent above year ago levels. Unfortunately USDA does not segregate imported vs. domestic product in the survey. USDA also does not tell us exactly what kind of boneless beef is in storage.

Our opinion is that a big reason for the jump in boneless beef stocks is due to higher imports from Australia and New Zealand. Australian shipments to the US in November (this product entered the country in December) were up 130 per cent from the previous year.

New Zealand November exports to the US were up 87 per cent . There appears to be a lot of imported beef inventory in warehouses, both public and private.

Imported beef trade has slowed down and prices have declined as traders seek to generate sales volume. As a result, the spread between 90CL domestic and imported beef is currently as much as 40 cents per pound. Large boneless beef inventories will limit the upside in beef trim prices in March and April, when normally end users start to deplete stocks in preparation for the start of the grilling season.

Pork inventories were 497.1 million pounds, 10.3 per cent lower than a year ago. Inventories were modestly higher from the previous month when normally we see a small drawdown in stocks.

Still, the supply in cold storage at this point does not appear burdensome and we see the results from the report as neutral for the market. Ham stocks at the end of December were 66 million pounds, 14 per cent lower than the previous year. This should be supportive of the ham market going into Easter.

Chicken inventories at the end of December were 712.6 million pounds, two per cent higher than a year ago and six per cent higher than the five year average.

Inventories have increased sharply in recent months on larger production volume. Some of that production appears to have backed up in freezers. Breast meat in storage was 159 million pounds, 44 per cent higher than a year ago and 25 per cent higher than the five year average, by far the most bearish number in the report.

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