Meat price doldrums won’t be short term

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Published: June 13, 2002

If you don’t like ugly sights, don’t look at the meat markets this

summer.

Both pork and cattle prices are well below what most analysts expected

a few months ago, and there is no indication that low prices are a

short-term phenomenon.

Big meat surpluses that have weighed down the market for months are

lingering, and the fourth quarter of 2002 could send prices for a

tumble.

“When you have a capitalistic, free-market economy, everything rides on

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the margins,” said University of Missouri economist Ron Plain.

“When you’re walking along a knife’s edge, you can really fall either

way very fast.”

Since the autumn of 2001, slaughter cattle weights have been heavy

because feedlots have been holding back animals hoping for higher

prices. That has resulted in a bigger beef supply, which has hurt

prices.

Meat markets have also been affected by the dispute between Russia and

the United States over poultry exports. During the winter, Russia

banned U.S. poultry from entering its market for several months. That

pushed lots of poultry – about seven percent of U.S. production – into

the U.S. retail industry and led to heavy discounting of chicken in the

stores. That put downward pressure on other meat prices, and cut the

demand for pork and beef.

The Russia-U.S. dispute is apparently over, but “technical problems”

still impede the flow of product into Russia, said economist Janet

Honey of Manitoba Agriculture.

“They need to get the poultry back moving,” she said.

According to Kansas State University economist James Mintert, the

amount of beef in cold storage in December 2001 hit levels not seen for

a decade. In January, red meat in cold storage also hit a 10-year

record.

Honey said pork prices usually go up in summer with the increased

demand for bacon, but large stocks of pork bellies have prevented that.

And Canadian producers haven’t helped the slumping meat market either.

Surging Canadian weanling exports to U.S. feeders have kept the U.S.

supply of slaughter hogs high.

Plain said a fourth quarter price crash, like the one in 1998, is

possible if supply outstrips slaughter capacity. He’s carefully

watching U.S. Department of Agriculture and Statistics Canada numbers

on the size of the two countries’ sow herds, and looking for accurate

numbers on weanlings shipped from Canada to U.S. feeders in May. May

weanlings become October and November slaughter hogs.

Plain said a 10 percent increase in Canadian exports to the U.S. can be

caused by factors such as exchange rates, wage costs and land available

for manure spreading. But an increase of more than 30 percent defies

easy explanation.

Canadian weanling production makes up for a large decline in Missouri,

Arkansas, Tennessee and Kentucky, which used to be a main source of

animals for mid-west U.S. feeder operations, Plain said.

A price slump in late 2002 has always been a possibility. Plain said

good pig prices in 2000 and 2001 led to increased production and

construction of new pig barns in 2001, which puts pressure on prices by

increasing the supply the next year. But the early slump in spring and

summer 2002 has been a surprise.

Honey agreed, saying her first quarter 2001 projected prices were close

to reality, but she has had to reduce her second and third quarter

projections because of the unexpected slump.

Honey said she is beginning to hear of Manitoba weanling producers

losing contracts to supply pigs to U.S. barns because the American

producers are worried about fourth quarter supplies. If that happens on

a wide scale, it would be a helpful shrinking of supply, she said.

But it is hard to tell how much production will be scaled back now that

most producers are involved in contracted production.

Honey said a number of factors would help eat through the meat glut.

If Japanese beef demand returns to normal levels after the recent

decline caused by mad cow disease, some of the glut would disappear.

Getting Russia back on line to swallow some poultry production would

also help clear the U.S. logjam.

And in Canada, getting Maple Leaf Foods’ Brandon plant up to two shifts

would help. But Honey said the Brandon plant has been slow to ramp up

production, and there’s more chance of Prairie slaughter capacity being

cut because of a strike at the Springhill Farms plant in Neepawa, Man.

Plain said keeping plants running smoothly will be key to correcting

prices, because as soon as slaughter capacity becomes tight “the

packers really don’t think they have to bid for pigs.”

About the author

Ed White

Ed White

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