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CME: Fewer Cattle and Hogs to Slaughter

19 November 2014

US - Total beef, pork and poultry production for the week still is about one per cent below year ago levels, write Steve Meyer and Len Steiner.

It is interesting to note that even with grain prices tracking well below year ago levels, we have yet to turn the corner in terms of ramping up meat protein supplies in the US.

Now there are some issues with weekly data in terms of future revisions but the general trend is that we still have fewer cattle and hogs coming to slaughter while poultry supplies are not growing fast enough.

This has supported meat prices going into the holidays but the expectation is that supply increases already are in the pipeline and we should see notable increases in the coming months.

The first indication is the increase in broiler chick placements, which are currently up 3.3 per cent and broiler weights that are up 1.3 per cent.

We plan to give a preview of cattle on feed estimates once wire services report on analyst estimates tomorrow but there is one factor that we wanted to highlight before that discussion - imports of feeder cattle from our two North American neighbours.

As you can see from the charts below, there is significant seasonality in terms of cattle flows, reflecting production patterns and the end of pasture feeding.

We scaled the charts in exactly the same way so you can see the relative importance of these two counties in terms of weekly feeder cattle flows.

Mexico is by far a much more significant contributor to US feeder cattle supplies, especially during the fourth quarter. Availability of Mexican feeder cattle is particularly important for feedlots in five states (TX, OK, NM, AZ and CA).

Mexican feeder cattle generally make up about 15 per cent of placements in these five states although, during certain months in the last five years, placements of Mexican cattle have accounted for as much as 35 per cent of all placements.

So far imports of Mexican feeder cattle are in line with year ago levels and thus should have limited impact in skewing the year/year change in overall placement numbers.

For the period 29 September—1 November, imports of feeder cattle from Mexico were 101,652 head, 1769 head (+1.8 per cent) compared to a year ago levels.

For the year, however, imports of Mexican feeder cattle are up, thanks in large part to record prices for feeder cattle in the US and a very strong US dollar.

It is important to recognise what higher imports of Mexican feeder cattle imply at a time when overall cattle numbers in Mexico continue to plummet—the domestic feeding industry in Mexico likely will continue to shrink as more cattle go north rather than into local feedlots.

This will continue to make for an increasingly challenging environment for Mexican packing plants, especially some of the smaller operations in the Northern part of the country.

So far this year (though 8 November), the US has imported 824,633 head of feeder cattle from Mexico.

Imports of feeder heifers at 181,313 head are up 40,907 head (+29 per cent) while imports of feeder steers at 643,320 head are up 59,203 head (+10 per cent).

While larger than a year ago, however, these volumes still are quite a bit smaller than what we saw in 2012, when drought forced a significant liquidation of the Mexican cattle herd and Mexico shipped almost 1.5 million head of feeder cattle to US feedlots.

The expectation is for more Mexican feeder cattle to become available in November and early December. Last year, imports of Mexican feeder cattle to the US in November were almost 124,000 head, or about seven per cent of the total number of cattle placed on feed in November 2013.

It remains to be seen whether that volume is sustained again this year and how that impacts overall feedlot placements at the end of the year.

Imports of Canadian feeder cattle are tracking significantly higher than a year ago and the increase is significant enough to impact the overall placement estimates. For the period 29 September - 1 November, imports of Canadian feeder cattle were 66,978 head, some 34,345 head (+105 per cent).

This increase in Canadian feeder imports likely contributed about 1.2 per cent points to the overall placement number in October.


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