U.S. stocks are down slightly this morning as macro traders digest headlines from over the weekend that China has cuts it’s economic growth target. The Chinese government however emphatically denies any rumors of a “hard-landing”. Crude continues to gain traction and is now trading at multi-month highs. Emerging market equities just chalked up their biggest weekly gains since 2011. It’s also worth noting that both gold and iron ore, though down slightly this morning, are up nearly +20% on the year. All of which has some inside the trade arguing that the commodity markets have bottomed. Bottom-line, I suspect as oil stabilizes investors are going to continue to feel more at ease with adding “risk”. There seems to be more talk about the overall economic landscape becoming much more highly “fragmented” rather than negative across the board. In other words some pockets or areas of the economy are seeing sharp declines and have clearly moved into recessionary territory, while other areas remain strong and robust. Many analyst believe this is why the markets have become extremely difficult to forecast. It seems like whatever direction the headlines and lights on the stage decide to shine can produce wildly different results. One thing for certain, we are finally seeing more sizable cuts in U.S. oil production as rig counts drop below 400. Keep in mind, U.S. crude production had jumped from just 5.4 million barrels a day back in early-2010 to a whopping 9.7 million barrels per day this past spring. We are also seeing more headlines about Saudi Arabia looking to borrow $10 billion dollars and talk their government may be starting to feel the pain of cheap oil. Russia is also talking more openly about possible production cuts. Here at home this week economic data will be very light, today’s only release being the Labor Market Conditions Index, which isn’t heavily watched by investors but seems to be something the Federal Reserve officials monitor. Keep in mind the jobs report this past Friday was extremely strong, showing employers added +242,000 jobs in February, well above market consensus. The government also revised upward its estimates for job gains in December and January by a total of +30,000. The negatives in the report were a -0.1% decline in hourly wages and a slight reduction in weekly hours worked. I suspect the main event this week will be the European Central Bank’s latest policy decision, which will be announced on Thursday morning. The trade is expecting the ECB to move rates further into negative territory. Keep in mind that the whole “negative rate experiment” is eyed with a high degree of anxiety as investors and economists alike aren’t sure what the ultimate consequences might be. While central bank stimulus has historically been viewed by Wall Street as a positive, the deeper move into negative territory may not illicit that traditional response. It doesn’t help that the ECB’s stimulus efforts have so far failed to prop up their waning economy, as just last week data showed the the EU block has slid back into “deflation.” Analysts are also expecting the ECB to increase its bond buying by […]
The Avian Influenza outbreak continues to grow and leads to more questions about the impact on livestock and meat markets. USDA-APHIS (Animal and Plant Health Inspection Service) reports that the current toll is nearly 34 million birds depopulated. The majority of these are laying hens, followed by turkeys with relatively few broilers at this time. As a result, the biggest and most immediate impact for consumers is in egg markets, especially in the north central part of the country. The reduced supply of table eggs as well as breaking eggs used in food service will impact consumers directly and indirectly.
The direct impact of Avian Influenza on poultry meat supply is minimal and likely to remain that way. The current depopulation total of 33.8 million birds is 0.38 percent of the 2014 poultry slaughter total of 8.9 billion birds. As bad as it is, it is very unlikely that enough birds will be slaughtered to impact domestic poultry production significantly. Even for turkeys, which only represent 2.7 percent of total poultry slaughter, the current turkey depopulation represents less than 3 percent of 2014 U.S turkey slaughter. Both broiler and turkey production are still expected to surpass year ago totals unless the outbreak expands significantly.
While the direct loss of birds is unlikely to materially impact total poultry production, the impact on domestic consumption is more likely to be significant and is counterintuitive. The biggest impact of Avian Influenza on meat markets is the closure of poultry export markets. In 2014, 8.2 billion pounds of poultry were exported from the U.S., which is 18.2 percent of the 45 billion pounds of total poultry production. Both broiler and turkey exports, already struggling in 2015, are forecast to decrease even more in 2015 as result of the outbreak. Broiler exports are expected to be down roughly 9 percent, though the situation is very dynamic and the impact could get larger or smaller depending what happens in the coming weeks.
Decreased broiler exports will add to already expanding broiler production resulting in increased domestic consumption of broilers. The anticipated 5.2 percent year over year increase in broiler production, augmented with decreased broiler exports, is expected to push domestic broiler consumption up by roughly 6.5 percent. Increased broiler production will combine with an expected 6.7 year over year increase in pork production to push total 2015 U.S. meat and poultry production up by 3.5 percent despite a projected 1 to 2 percent year over year decrease in beef production. Per capita beef consumption may show a slight year over year increase in 2015 with increased beef imports and decreased beef exports. Total domestic red meat and poultry consumption is projected to increase by 4.2 percent compared to year ago levels.
THURSDAY, MAY 14, 2015
Morning Summary: Investors appear uncertain as the U.S. dollar slips to fresh three-month lows on softer than expected U.S. economic data and thoughts it might push back the timing of the Fed’s first rate hike. This has the U.S. stock market higher and the “commodity” […]