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US Chicken Production Growth Slows as Margins Eroded

23 October 2015

US - To highlight one aspect of the cattle market, live cattle futures prices have made some dramatic movements, write Steve Meyer and Len Steiner.

Yesterday’s close was $143.28 per cwt., just five days earlier the close was $6.75 lower at $136.53 per cwt. The recent low close was set October 1st at $130.00 per cwt.

The live cattle close yesterday was all the way back up to where it was about one month ago on September 14th.

A big picture item was the trend in food sector sales data reported by the U.S. Department of Commerce for September. Those data were quite positive and seem to add a positive checkmark for the meat sectors against other macroeconomic trends which might be summarized as a mixed bag.

Foodservice and restaurant sales growth re-accelerated at an impressive pace during September, topping prior year levels by 8.4%. That compares to a 6.1% year-over-year gain in August and came back into the robust range that occurred in the prior months of this year.

In September, grocery store sales were up 2.6% year-over-year, an improvement from the August increase of 1.4%. For the summer quarter, foodservice and restaurant sales were reported as 7.8% above a year ago, while grocery store sales rose 2.4%.

Hog slaughter levels are seasonally ramping-up, but we have been monitoring daily levels and media reports on the status of the Smithfield Tar Heel, North Carolina plant.

This individual plant can capture attention because it is the largest in the U.S. and by our knowledge the world. Steve Meyer had an article on plant capacity in National Hog Farmer on August 11, 2015, regarding slaughter capacity and provided plant estimates.

He listed that plant with a daily slaughter capacity of 32,500 head. In the fourth quarter of the year, when slaughter is the largest of the year and many plants are running near capacity, any major plant closure can quickly become very problematic for all sectors of the industry and can drop slaughter ready hog prices quickly and dramatically.

Fortunately, the plant closure quickly appeared to be temporary. Smithfield reported that all workers were evacuated from the Tar Heel plant on this past Monday and the plant was shut down due to problems with the roof structure in part of the facility.

Early reports said the plant was scheduled to resume operations on Tuesday. Still, preliminary slaughter data from USDA-AMS for Monday, Tuesday, and Wednesday indicated a slippage in the national number of hogs processed compared to expecta- tions. But, Smithfield reported that they will mitigate production losses by adding shi?s at other plants and at Tar Heel later in the week.

Finally, close monitoring of the weekly USDA-NASS data on the chicken industry is warranted.

Chicken companies had been growing production for several months, now they are beginning to respond to much lower product prices. Margins have been eroding for months and dropped into the red in about mid-September on the large birds, which are the bulk of production. Additionally, outlook for chicken exports during the next few months remains poor.

Recent data on eggs set in incubators and chicks placed into growing facilities are beginning to suggest a pull-back in the rate of growth in chicken production in coming months. The week ending October 17th (preliminary data released Wednesday October 21st) showed a drop in eggs set of 2% compared to a year earlier and placements declining 1%. Seasonally both those numbers have declined in rather typical fashion.

Year-over-year change is the key, expectations are that modest declines in eggs set and chicks placed will persist. Looking ahead, bird weights will be the key factor that determine tonnage that must be absorbed by markets.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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