CME: What's H1N1 Doing to the Meat Industry?

US - CME's Daily Livestock Report for 28 May 2009 asks, "Did a cow somewhere in the world contract the H1N1 virus?"
calendar icon 29 May 2009
clock icon 4 minute read

We ask that question tongue-in-cheek and with a bit of trepidation given the way these things tend to take on a life of their own but the sharp decline in beef cutout values depicted at right is even more dramatic than the change in the pork cutout value since mid- April. We know that the real measure of the damage to the pork cutout is in comparing it to what it “SHOULD” have done at this time of year, but the pork cutout has at least recovered a bit from the worst of the H1N1 scare. This chart for Select beef shows no signs of that — yet. And readers should note that the chart for the Choice beef cutout looks much the same, though the Choice decline was only about $5/cwt and it has stabilized a bit over the past two weeks. The departures from both the year-ago and normal seasonal patterns is just too sharp and too coincidental, we think, to not be driven by the same H1N1 scare that has hurt pork prices.

Of course, the answer to our initial question is “No, no cows have contracted H1N1,” but it appears to us that the scare spilled over to beef as well. This drop in beef cutouts could be driven by consumers’ substituting lower-cost pork products which have been widely featured by retailers once they were convinced that consumers were not going to run away from pork en masse. But part of the reduction is likely a general fear reaction to meat as well. It may not be logical from out standpoint but logic flies out the window in a panic.

The weekly charts for chicken show no such problems. Both 12-city wholesale broilers (below) and Georgia Dock broilers have moved sharply higher over the past 4 weeks with the surge positively impacting virtually every chicken part as well. Chicken has likely benefitted in both the US retail and the export sectors as consumers and countries replace pork and beef protein with relatively low-cost chicken. There is always the possibility that chicken companies’ substantial production cutbacks finally gained some pricing traction but, again, this change in price direction is simply too dramatic and too closely timed to the H1N1 scare to think that the two are not related.

So, what is to come? That’s a VERY difficult question since a) we have not dealt with a situation like this before and b) the H1N1 influenza is still with us and many media outlets refuse to stop calling it swine flu. As we pointed out, pork cutout values gained about $3/cwt the week of May 16 before holding steady last week and thus far this week. Hog slaughter levels remain much as expected out of the March Hogs and Pigs report, suggesting some of the lowest weekly non-holiday week slaughter totals in several years could be seen of the next 4- 6 weeks. Cattle slaughter remains 5-7 per cent below year-ago levels as well and beef carcass weights, which had been troublesome in the first quarter, have been within 10 pound of year-ago levels 6 of the past 7 weeks. Supplies are supportive of higher prices — but will demand be sufficient?

Another view of the H1N1 situation appears below. This graphic comes from The Fresh Percpetive newsletter published by Perishables Group. It tracks fresh pork sales at the retail level and indicates that US consumers backed away from pork VERY early. In fact, the graph suggests they reacted even before the first H1N1 case was reported in the US The first real hit on wholesale pork prices did not come until the week of 2 May and the largest hog price discount occurred on 5 May.

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