Society Generale has moved even more bullish on hog futures, and more bearish on cattle prospects, as budget-conscious US consumers seek out affordable meat.
Despite a recent rally in lean hog prices pork remains “at a historically low discount to beef,” SocGen said.
And with consumers increasingly favouring saving over spending, pork is set to win market share in the US.
Tighter consumer budgets drive preference for pork
“We have long argued that the steep discount of pork to beef and consumer wariness on spending would heighten the competition between the two meats,” said Societe Generale.
“This is a dynamic that we expect to continue into the spring and summer.”
The bank’s economic forecasts sees the growth in US consumer spending cooling as 2016 wears on.
Furthermore, the propensity for US consumers to save continues to rise,” SocGen said.
“Given the US consumers’ uneasiness to spend and muted pork prices, we have seen, and expect to continue seeing, substitution from beef to pork,” said SocGen.
Lean hog prices for the last three months of 2016 were forecast to average 75.53 cents a pound, up 9.29 cents from SocGen’s previous forecast.
December lean hog futures in Chicago are currently trading at 64.10 cents a pound.
Over the whole of 2016, SocGen saw prices lean hog prices averaging 75.25 cents a pound, a 6.00 cent increase from the previous forecast.
The rally in prices if forecast despite ideas of increasing supply.
Pork production continues to rise, SocGen said, as a higher pig crop more than compensates for lower slaughter rates. The bank saw pork production up 1% in 2016.
Pig supplies are recovering from the damage caused several years ago by an outbreak of Porcine Epidemic Diarrhoea virus, with death rates in litters back to normal levels.
And the volumes of pork in cold storage are also high by seasonal standards.
Strong January trade
Still, SocGen said production rates have cooled in recent weeks, due to lower carcass weights.
And the bank was bullish on US pork export prospects, nothing strong volumes in January, up 10% year on year.
“If this trend continues, more upside potential could be seen in hog prices,” SocGen said.
But this week the US Department of Agriculture’s Livestock, Dairy, and Poultry Outlook called prospects for pork exports “tenuous”.
The report noted that the start of last year saw disruptions to shipments due to labour disputes, which makes year on year comparisons somewhat misleading.
“Comparing January 2016 shipments to those of January 2014—a period without factors affecting export transportation—shows a decline of almost 14%,” the USDA said.
And the strength of the US dollar was seen as a threat to pork exports, as other countries, particularly Japan, seek out more affordable supplies from Canada and the Euroepan Union.
Tight supplies from North America
SocGen trimmed its forecast for beef prices, for the same reason, as consumers shun expensive beef.
But beef still remains expensive by historical standards, SocGen said, as herds continue to rebuild.
This week the USDA noted that competition from Canada and Mexico would be limited, by tight cattle supplies in both those countries, helping slow any downward correction in beef prices.
“We continue to see US consumers as being disciplined in their spending, leading to more pressure on live cattle prices,” SocGen said.
Feeder cattle prospects for the last three months of 2016 were trimmed to 137.41 cents a pound, compared to a previous forecast of 150.99.
November live cattle futures are trading at 154.55 cents a pound.
(Source – http://www.agrimoney.com/news/socgen-ever-more-bullish-on-hog-prices-more-bearish-on-cattle–9426.html)