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Q1- low supply to test demand

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Information about Q1- low supply to test demand

Published on January 25, 2014

Author: FoodServiceGeeks

Source: slideshare.net

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From JBA & K & M Meats, a cattle report about the first quarter of 2014.
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Q1- low supply to test demand December 05, 2013

November notables • Record cash cattle prices paid last month - $134 live and $212 dressed • Record box values ($200.33 comprehensive), record ribs too • USDA formula box sales reached record 54%, branded tied record 15% • USDA drop credit reached record $15.06/cwt live or $208/head • USDA steer weights: tied record 876# • Fall cow run did happen, but tied with 1971 for second smallest in history back to 1950 • Counterseasonal bump in quality grade 2

Summary • 2013 was the end of the herd liquidation. 2014 will be a rebuilding year. (Unless another drought!) • Feedlot inventory -600k head on Dec 1 (-6%), will impact Q1 steer + heifer slaughter • Data says economy is growing – but is consumer still deleveraging? 1.9% Q3 consumer spending growth slowest in 4 years. • Beef exports OK. 3-4% more chicken coming. Pork supply? • Expect to move cutout consistently >$200 psychological level 3

Supply key points • Feedlot inventory -600k head on Dec 1 (-6%), will impact Q1 steer + heifer slaughter. • Q1 fed slaughter projected 459k average, that’s 36 hours. • Q4 placements largest quarter since mid 2011, impacts Q2 supply- good news!! • Cows – lower feed costs, grass, higher milk prices and a young herd keep both beef and dairy culling at a minimum. I’m using -10% for 2014. November was -12%. 4

Unable to close the gap even with big Q4 placements 5

459k Q1? Seems so low to be far fetched but supported by low CoF 6

LC futures would have to go even higher to solve Q1 supply shortage, borrow from Q2 7

Cow slaughter telling us liquidation is over 8

90% lean: imports support domestic? 9

>$200 coming? 10

Drop value: record levels helping packer margin 11

Demand questions • Economic growth question – just what is the data reflecting? • Middle man margins? Does the consumer pay what we are paying for cattle? • Export growth continues – but at what rate? • Competing meats – more chicken, less pork (PEDv)? On balance my guess is largely netural to beef 12

Choice minus Select: Heading lower into Feb/Mar 13

It’s been a good run: Ribeyes 14

Recap • Function of the market is to ration a declining supply – raises price risk • Low Q1 beef production – – – – -8.5% vs. Q4 -5% YOY 5.894B# Lowest in 34 quarters (since Q1 2005) Combination of lower fed and cow slaughter • Expect cattle Q1 prices $129 - $136; boxed beef prices >$200 some weeks • Seasonally soft demand Jan/Feb but low production supports prices 15

What does all this mean to our customers? • Retail – Declining supply – Choice / Select spread narrows into March – Tight ground beef supply • Foodservice – Carcass weights lower through April – Quality grade lower into spring • Manufacturing / beef processing – Lean beef supply – heightened risk – Import supply still tight – Freezer stocks declining • Distribution – Lower middles – Tight supplies 16

The Takeaway Assured supply is more important than price. 17

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