Feedlots sold approximately 8.9% more animals in July 2016 than the year-ago period
Cattle and hog futures have been sinking over the past few months amid record American production of beef and pork, leaving U.S. meat producers grappling with lower prices since the beginning of 2016. Livestock producers across the U.S. have been able to increase meat supplies as cheaper grains have lowered the cost to feed larger herds. The U.S. hog herd has expanded to the largest on record for this time of year, according to government data. Feedlots sold approximately 8.9% more animals in July 2016 than the year-ago period.
Cattle futures for October delivery dropped 1.3% to settle at $1.0875 a pound on the Chicago Mercantile Exchange on September 6th, 2016. Prices touched $1.077, the lowest for rolling most-active futures since June 16th, 2011, as reported by Reuters. U.S. live cattle futures declined more than 2% on September 6th, 2016, nearing their lowest levels in six years on pressure from record supplies of cattle and beef and lower wholesale meat prices.
Cattle broke below the psychological threshold of 100 cents per pound for the first time since November 2010, following steep drops in boxed beef prices, which sank to the lowest since December 2015, according to U.S. Department of Agriculture (USDA) data. As a result, feeder cattle futures and lean hogs each eased as much as 3% at the Chicago Mercantile Exchange, with investors selling all three classes of livestock futures on signs consumer demand was outpaced by supply.
Retail meat prices hit record lows
Consequently, the supply glut has resulted in falling retail prices for meat. For the week ended September 3rd, 2016, choice wholesale beef averaged $195.67 per hundredweight (cwt), falling 26% from its record high in May 2015. Pork averaged $77.71 per cwt, a massive 43% drop from the all-time high of July 2014, according to the USDA.
The size of the U.S. cattle herd has shot up to a five-year high after falling to a 63-year low in 2014, following several years of drought in parts of the U.S. In addition, the hog population reached a record high in 2015 as the industry recouped from the Porcine Epidemic Diarrhea virus that killed millions of pigs in May 2013.
Outlook for Q3 FY16
U.S. feedlot inventories have been increasing 1%-2% versus the year-ago levels through H1 FY16, while placements are up 3%-5%. As a result, the USDA revised the Q3 FY16 beef production estimate to 6.46 billion pounds, a 400 million pound Y-o-Y increase. Cash cattle prices will likely remain range bound in October 2016 because of a supply glut in the market. In Q4 FY16, meat supply is likely to marginally contract, but would still remain above year-ago levels. In Q1 FY17, the U.S. meat market would likely rebalance and witness the lowest quarterly production for the year.
Meat processors jump into jerky bandwagon
The record low prices for U.S. livestock has prompted meat processors to piggyback on jerky’s growing popularity to find new customers and markets for soaring supplies of cheaper beef, pork and poultry. The U.S. is witnessing a growing trend of snacking among health-conscious consumers shunning sweets to embrace dried-meat snacks, protein bars, and other nutritional eats. The consumer perception of jerky as a salty, over-processed snack has changed in recent times; health-conscious people now see jerky as an in-between high-protein nibble.
Hence, it comes as no surprise that the U.S. per-capita consumption of meat snacks has risen 14% since 2012, far outpacing the growth of other savory snacks, according to market research firm NPD Group, and as reported by Reuters. U.S. jerky sales totaled $1.5 billion for the 52 weeks ended August 7th, 2016, as per Reuters.
To cash in on the growing demand for jerky, chocolate maker The Hershey Company (NYSE: HSY), acquired Krave Pure Foods, a maker of premium beef jerky with about $35 million in sales, in 2015 and is diversifying into dried meat with the launch of Hershey beef jerky. Other companies that have expanded their product basket to include jerky are Tyson Foods Inc. (NYSE: TSN), the largest meat processor in the U.S. by sales, and ConAgra Foods Inc. (NYSE: CAG), which owns the Slim Jim brand.
A bag of meat jerky averaging about 2.5 ounces can range in price from $4 to over $8 for premium products. While beef is the most popular meat protein for making jerky, pork and turkey are gaining popularity, along with such exotic meats as bison, kangaroo, salmon and even earthworms!