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Weekly North American market update 20 Nov 2009

It has been a week of political non-events (US Senate deferring a Climate Bill till spring of 2010; President Obama hesitant in China visit; FAO's World Food Security Conference in Rome looking inconclusive) contrasting with tough commercial news (US manufacturing index slowed down in October; dairy farmers in Pennsylvania state declared "It hasn't been this bad for 50 years"; US Meat Export Federation grappled with future strategy plans at its bi-annual board meeting in Denver; and giant Brazil-owned JBS meat group declared its worldwide 3Q net earnings fell 78% to $US 87.4 million, on sales of $4.3 bill (up 8%), which hurt liquidity - forcing a sale of 26% of equity capital in its US division, to complete recent acquisition of the big Bertin group in Brazil - and raising questions: "Is Bertin too big to swallow?"
By Graeme Goodsir
  
Another commercial expansion story also turned sour in the past week: Burger King corporation's burgeoning sales of $1.00 double cheese hamburgers (big volume increases, but no apparent profits at store level) caused its franchizees to sue in court to stop this money-losing promotion. 
 
The most disconcerting economic/political news in past week was release of a research report by USDA-ERS indicating that - during 2008 - 14.3% of US households "had difficulty at times during the year to put enough food on their tables" - up sharply from near 11% in 2007. And separately, Hormel Foods Corp (arguably the top marketing firm in US meat industry) said that near 25% of American adults are probably eating less this year, in order for their children to have enough to eat.
 
These startling numbers must have a serious impact on US food demand (consumer expenditures) and must also be reducing the big amount of food waste that occurred in past years, when many restaurants' serving-sizes were typically huge and also contributed to obesity (that is changing).
 
In foregoing circumstances, export sales of beef, pork and chicken are becoming more crucial for price stability in US domestic markets - even though production of beef and pork is down 2%, and chicken output recently showed declines near 5% from year-earlier. The big chicken export market (Russia) used to buy near one million tonnes annually from US (mainly leg quarters) but now has set a year quota of 750,000 metric tonens - and actual US exports for 2009 might barely make 650,000 m/t.  
 
Because of slower export and domestic foodservice trade, US wholesale prices of boneless chicken breast meat have wallowed in recent months between $1.00 and $1.20/lb, with retail prices recently seen as low as $1.28 to $1.38/lb (in 10-pound packages) and ranging up to $1.78-1.88. Ironically, US consumer demand for bone-in chicken wings remains strong - lower supply keeps prices strong.
 
US pork exports have maintained high levels (albeit still a bit below year-ago - helped by the weak US dollar and by low US wholesale prices, and by the product's growing popularity in the Mexican market (where it has displaced higher-priced US beef to a remarkably large extent) and in Asian markets, where consumers appear to love the product.  
 
Today's US pork cut-out value (composite carcass wholesale price) is down fractionally to 56.8c/lb, as daily slaughter stays near peak level of 433,000 head, and live prices for market pigs at auction stay between 33 and 37c/lb - but live sow prices have surprisingly risen much higher this month - up by 7-10c to 40-46c/lb range today at Sioux Falls auction market in South Dakota.  
 
Retail food stores across the US currently have their freezers full of turkeys and hams for Thanksgiving holiday promotions - most at low prices - but so far wholesale ham values haven't dropped to any large extent.
 
Beef exports keep struggling, and wholesale prices bobbled during past week, finishing today with average cut-out values of 140.8c/lb for Choice-grade (up 1c) & 132.1c for Select-grade (down 1.6c). The spread them has widened this week to 8.62/lb (up by 2.52c).  Packers varied daily fed kills to try to improve slaughter margins (and bought fed steers today near 3 to 4c/lb below week ago - now costing 82-84c live), but packers were last week estimated still "in the red" by near $22 per head.
 
A continuing "late fall run" of cull cows caused c-c carcass cut-out value today to fall below 100c-lb for the first time in several years - to 99.7c/lb (down 1.6c from week-ago) and the wholesale price of 90CL fresh domestic boneless cowbeef has fallen between 3 and 4c - quoted near 122c-lb today, providing good supply and margins for grinders who often kept working 6-day weeks, despite E.coli publicity concerning ground beef (but the production pace now seems to be slowing). 
 
50CL fat trim price stayed steady near 65c/lb this week, while 90CL frozen imported cow beef again seemed to be invisible - one processor reportedly "let go" of some of this frozen 90CL from his spot inventory at 135 to 136c/lb fob (because domestic cow beef is so much cheaper to use), but asking price for forward arrivals is near 140c (with no sales apparent).  Some importers complain that there is now a "disconnect" with their export suppliers, because high currency still keeps CIF offer prices unreal.
 
In grain markets, corn futures contract prices stayed fairly steady during the past week (in ranges of 398 to 423c-bushel, up to April 2010 delivery - still portending high feed costs ahead for livestock) while soybean futures contract prices rose 50 to 60c/bushel (in narrow range near 1,030c-bu) on expectations of tighter supplies ahead.     
 
PLEASE  NOTE: Market update will NOT be written next Wednesday (Thanksgiving Eve) because many US businesses close on that afternoon to take holidays for a 4-day weekend, including traditional Black Friday shopping sprees (but bargains may not be so avidly pursued this year by cash-strapped shoppers). Happy Thanksgiving to all American readers. GG
 
*For week ending Wednesday 18 Nov.
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