Source: Chris Scott, MEATINGPLACE, 5/15/17


Strong demand for both chicken and pork sent margins sharply higher in April, but a temporary surge in live cattle costs put a damper on beef packer margins, according to one industry analyst.

BMO Capital Markets analyst Kenneth Zaslow reported that lower chicken weights, features and solid export demand sent chicken margins higher as breast, leg and wing prices became stronger. Strong pork supplies sent packer margins 25 percent above last April’s record and should keep pork margins elevated through the rest of the year, Zaslow noted. Meanwhile, temporarily tight front-end supplies prompted beef margins to retreat last month, although cattle expansion through 2018 should bring margins higher.

Chicken
Chicken cutout margins rose 6 percent from March levels and 18 percent compared with April of 2016 thanks in part to a 12-percent jump in cutout values and a 2-percent drop in feed costs, Zaslow reported. Single-digit gains in breast meat, legs and wings also propped up the overall margin, which Zaslow contends likely will drive near-term margins higher, helped by seasonally higher cutout values, a muted feed cost outlook, limited production growth and stronger export and retail demand. He also noted that March U.S. chicken exports increased 12 percent year over year for the ninth consecutive month.

Pork
The news for pork packer margins was even better in April, Zaslow said, with last month’s results beating the April five-year average by more than seven times, Zaslow said. The 25-percent gain from April 2016 levels reflects abundant hog supplies, scarcity of hog slaughter capacity and stronger-than-expected supplies at retail. Zaslow noted that the current “meteoric pork margin environment” is not sustainable, particularly in light of tighter supplies of hogs in the summer. He adds that the pork margin outlook for the rest of 2017 should remain favorable and he expects margins to remain strong through 2018.

Beef
Zaslow cited surging live cattle costs as compressing beef packer margins in April and sending profitability down to near-breakeven levels from $65 per head in March. The April figure of $2.14 per pound was 2 percent lower than in March and down 2 percent from year-ago levels, Zaslow said, adding that live cattle prices have surged more than 25 percent since October. That increase was the result of tighter supplies stemming from severe storms between December and April and smaller feedlot placements in early fall 2016. Cattle expansion likely will continue through at least 2017 with production increasing at least 4 percent with modest gains into 2018 considering the heifers and cows currently in the pipeline, Zaslow added.

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