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Weekly North American market update 05 Feb 2010

US beef packers reduced their fed cattle kills last Thursday and Friday by nearly 15% and 20% respectively, below a daily norm near 100,000 head.
Weekly North American market update
 
By Graeme Goodsir
 
 
The reduction was done to stem the prior week's sharp 5c/lb decline in wholesale beef prices. The fed beef wholesale market did subsequently stabilize, - the composite carcass cut-out values are quoted at 139.8c/lb for Choice-grade beef (down just 0.7c from week-ago) and at 137.2c/lb for leaner Select-grade beef. This is up 0.2c - with a very narrow spread of 2.6c below the Choice value - indicating plentiful supply of marbled beef.  
 
The timing of these reduced fed cattle kills coincided with last week's annual convention of National Cattlemen’s Beef Association which included Friday sessions about the future industry outlook. The speaker panel included the CEO of the big JBS-USA packer group, who emphasized his wish to see a profitable cattle industry with long term growth in US herd size.  
 
A separate CattleFax analysis session on that same Friday presented a forecast for 2010 of: 1) continuing decline in US cattle numbers; 2) a 2.9% decline in US beef production ; 3) a decline of 2.4 pounds in US per capita beef consumption (to 58.6 lbs - the first time below 60 lbs since 1952) ; 4) average carcass weights 2 to 3 pounds above 2009; 5) an increase in both exports (mainly of fed beef) and counter-balancing imports (of lean processing beef from southern hemisphere); and 6) US cattle/beef prices that may average same to slightly above 2009 levels (most big feedlots incurred large financial losses in 2009, while cow-calf ranchers were near break-even). 
 
The CattleFax forecast included continuing tight margins for feedlots (who may have lower feed costs, but would compete fiercely for tight cattle supplies - with excess capacity increasing) and some profit improvement for the cow-calf/re-stocker segments including stronger cow prices. In current US cowbeef markets, the canner-cutter carcass wholesale value eased by 1.2c/lb during past week (to 114.2c/lb), despite daily cow-bull slaughter falling in recent days to 24,000 head, from week-ago peaks as high as 28,000 head when packer demand was stronger. 
 
The average mid-west price range (USDA index) for fresh 90CL boneless cowbeef has declined by near 2c/lb in past week (to a range of 145-149c), while imported frozen 90CL cowbeef had a similar decline, in slower trading activity.  
 
There was more CIF selling interest from down under, with the AUS$ exchange value down to US$ 0.88 - 5c below recent peak - with some consequent improvement for export price returns, but US import demand has become hesitant. The Wall Street Journal newspaper this week carried a detailed article on page B1 about recent declining sales at Burger King fast-food chain, and also at several other hamburger restaurant chains (except for McDonald's, where sales/profit keep rising). In pork markets during past week, there was a second price slide (3c/lb) in the porkcarcass cut-out value - to 67.6c/lb - making an overall 11c/lb drop since 2 weeks ago,after a near continuous 20c/lb rise since mid-November, supported by strong export trade - but there is now some export slowness in trade to Russia. 
 
National hog kills have eased slightly to a daily range of 420-425.000 head, with an odd dip last Monday to 412,000 head - possibly to ease supply line pressure. There has been notable decline in wholesale prices for pork trimmings (for sausage material) and for bellies/bacon processing. 
 
There is also structural change happening in the US pork industry, with Smithfield Foods planning by April to close its large 'John Morrell' hog kill plant at Sioux City, Iowa (which dates back to 1827), with a loss of 1,500 jobs. In anticipation of this event, the large livestock terminal market at Sioux City (which often had up to 700 hogs sold daily at auction) has already closed. Smithfield's decision reportedly is attributed (in part) to the big drop in hog imports fromCanada, caused in large part by unacceptable sorting/label costs of new COOL rules. 
US chicken markets apparently held up well during past week - with wholesale price of boneless, skinless breast meat quoted in a range from 120c-135c/lb - up a good 20c from post Christmas - and leg quarters holding in 30-38c/lb range - despite uncertainty of future export trade of this cut to Russia (high-level negotiations continue with Russia). 
 
The "hot" wings price appears to have peaked out near 195c/lb, and is expected to ease sharply after a big eating splurge at parties next Sunday watching Super Bowl football on TV at sport bars and in homes. With a temporary demand lull thereafter, and less wings removed from whole bird carcasses, the whole bird price has already eased 2c to 80c/lb. Traders indicate that a positive tone has carried over from last week's large International Poultry Expo held at Atlanta, Georgia, with chicken prices and profits expected to stay firm. 
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