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.”
