CME Group: USDA forecasts lower beef supplies for U.S. in 2016Written by Saige Albert
After USDA released its 2016 forecasts for beef, pork and poultry supplies on Jan. 12, CME Group mentioned that the World Agricultural Supply and Demand Estimates (WASDE) report showed almost a one percent drop in domestic availability of beef but increases for pork and chicken.
“USDA once again revised lower its forecasts for U.S. beef supplies and availability in 2016,” they wrote in their Jan. 13 report. “Remember that in the December report, USDA lowered its production forecast by 0.7 percent.”
The latest report reduced the production forecast by an additional 0.3 percent, or 77 million pounds.
“The lower production forecast combined with higher exports and lower imports implies that overall beef availability in 2016 will be about 225 million pounds or 0.9 percent lower than the earlier forecast,” CME Group continued.
The December report also revised availability by 0.9 percent lower.
“In the last two months, USDA has made some very significant downward revisions to supply projections for 2016, and yet futures markets continue to hold a very bearish view of fed cattle prices, especially for the second half of 2016,” they added.
Imports were 3.4 percent below December estimates, and production dropped 0.3 percent.
The report also forecasted a 2.1 percent increase for exports.
The 2016 forecast showed a 1.4 percent increase in domestic availability of 2015 and a 9.4 percent increase in exports. USDA also forecast a 15.6 percent decline in imports and 3.8 percent increase in production for 2016 over 2015.
Fed cattle futures for October 2016 sat at $121 per hundredweight on Jan. 13, but early November 2015 futures for the same contract traded at $132 per hundredweight, said CME group.
“To be sure, beef supplies are expected to increase in 2016, with USDA currently projecting domestic beef availability to be up 1.4 percent compared to the previous year,” they added, “but it appears to us that futures at this time are not just pricing the impact of higher beef supplies.”
CME Group continued, “Rather, they also appear to be pricing the impact of much lower meat protein prices, sharply lower commodity prices and the potential for a dramatic global slowdown that could disproportionately impact beef prices.”
They further clarified that, while beef production will increase, it will do so at a slower rate than many initially believed.
Minor revisions were made to pork supply and demand data, with an increase of 0.3 percent in domestic supply availability. The increase came after a 35 million pound increase of pork production and slight adjustment to ending stocks.
“While the latest Hogs and Pigs report showed smaller than expected farrowing, it also told us that the breeding herd remains much larger than a year ago and productivity gains will likely offset the impact of lower farrowings,” CME Group said.
They added, “Total pork production in 2016 is forecast up 1.9 percent from the previous year while domestic availability is expected to increase 1.3 percent.”
“Chicken supplies also were heavy in 2015,” CME Group commented, “and USDA projects chicken supplies will be more than adequate in 2016.”
For poultry, domestic availability forecasts were increased by 0.5 percent as a result of a 125 million pound drop in exports for 2016. After a 12 percent decline in poultry exports in 2015, a meager 3.6 percent increase is expected in 2016.
“Exports will remain a key driver for the chicken – and overall meat markets – in 2016,” CME Group concluded.