CME: Broiler Cutout Price Jumped Last Week

US - Has the broiler cutout — and especially boneless, skinless chicken breast meat — FINALLY shaken off the doldrums of the past two years? write Steve Meyer and Len Steiner.
calendar icon 15 March 2012
clock icon 4 minute read

Has the broiler cutout — and especially boneless, skinless chicken breast meat — FINALLY shaken off the doldrums of the past two years? Like a doctor celebrating progress by a seriously injured or ill patient, we aren’t ready to declare the malady over just yet but last week’s nice gains for both of these key prices suggest that the broiler sector may finally be returning to some semblance of health. As can be seen below, our computed broiler cutout value jumped sharply last week, gaining $4.43/cwt. to reach $95.97. The increase was supported by all chicken cuts but the big contributors were Bnls/ Sknls breasts at +$6.24/cwt., tenders at +$9.05/cwt. and wings at +$3.57/cwt. from the week before. Breasts are still only 1% higher than one year ago but tenders are up 15.9% and wings are more than double the prices of mid-March 2011.

The $95.97 estimated cutout value (which, for our newer readers, is the weighted average price of all of the parts of a chicken) is at its highest level since 2004 when chicken prices went to all-time highs and the cutout topped out at $109 and change. It also marks the second week this year in which the cutout value has exceeded the 2010 high which marked the largest price response to output cuts which were driven by the corn and soybean meal price surge of 2007- 2008. Many — including us — are saying “Well it’s about time!” to this increase in chicken values after a 7% output reduction in Q4-2011 and YTD production that is 6.1% below year-ago levels. Let’s just hope it continues and that chicken companies don’t get too bullish and begin another breeder flock expansion. Our sources indicate that higher output is already on the way in the form of more and more heavy birds destined for boning. Several chicken companies are looking for new barns to accommodate the longer growing periods these birds require.

Meanwhile, the Choice-grade beef cutout reversed course in its assault on the magical $200/cwt. level last week, falling nearly $2 to $196.65. That reduction, of course, was from a new weekly record high or $198.51 the week of March 2. The Choice cutout normally continues to rise through April and into May as slaughter numbers fall. The average increase over the period 2006-2010 was about $10/cwt. The rally last year was closer to $20. A repeat of that would put the Choice cutout well above our expectations of $215 to $217 for the seasonal peak.

The Select grade cutout has rallied at an even faster clip to push the Choice-Select spread to its lowest level in almost a year. No surprise there as the spread usually bottoms in late-February or earlyMarch as the portion of cattle that grade Choice increases. Over 65% of the cattle that were graded in each of the past three weeks achieved the Choice grade. Those weeks mark the first time that level has been surpassed since — the week of March 12 last year. We expect the percentages to begin to fall soon but they may be a bit sticky since slower chain speeds have backed some cattle up in feedyards, giving them a few more days to marble and meet Choice specifications. Finally, amid all of this positive, the pork cutout value continues to muddle along in a sideways pattern—that is PERFECTLY NORMAL FOR THIS TIME OF YEAR. Easter ham demand is pretty much over and no other cut has any seasonal strength until hog numbers fall and grills fire up demand for ribs and chops. So don’t expect much for this value soon — but summer is coming!

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