Source: Chris Scott, MEATINGPLACE, 4/12/17


The outlook for chicken and pork margins is solidly positive, but temporary front-end cattle supplies held beef margins at break-even last month, an industry analyst reports.

BMO Capital Markets analyst Jeffrey Zaslow noted that overall chicken prices have started to firm despite higher feed costs and that pork packer margins were three times the five-year average for March. He added, however, that cattle supplies have created “extreme volatility” with March packer margins starting the month in negative territory, jumping higher at mid-month and starting early April at near breakeven. Specific breakdowns include: 

Chicken
Chicken cutout margins increased 18 percent between February and March and by 16 percent compared with March of 2016, Zaslow reported. He cited such factors as seasonality, lower weights and strong demand in retail and export markets contributing to an 11-percent surge in pricing.

Feed costs also fell in the period, contributing to the upswing. Chicken margins are likely to continue to move higher, reflecting seasonally higher cutout values, a “muted” feed cost outlook, limited production growth and stronger demand at retail and for export, the analyst added.

Pork
Abundant hog supplies, a scarcity of slaughter capacity and stronger-than-expected demand drove pork margins to triple the margin posted in March of last year, although they declined from February 2017 levels to $20 per head from $22 last month.
Zaslow characterized the “meteoric pork margin environment” as unsustainable, but he sees the outlook as remaining favorable for the “foreseeable future,” in light of a recent decline in hog prices and a resumption of negotiating leverage after the first quarter when hog supplies are expected to exceed packing capacity.

A shift by retailers to focus on pork also is affecting demand, Zaslow added.

Beef
Beef packer margins climbed to $65 a head in March from negative $64 a head in February as packers more than offset rising live cattle costs by selling beef at sharply higher prices, Zaslow reported. He added, however, that cattle supplies sparked a $2-per-head decline at the beginning of March, a rebound to $124 per head and then a retreat to $40 a head at the end of the month.

Zaslow expects beef margins to improve after Easter, adding that it is likely they will rebound to top historic levels for the next couple of years as retailers capitalize on low wholesale beef prices and beef production continues to expand in 2017.

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