Quote_left

It is estimated that every dollar of agriculture export value generates an additional $1.48 in supporting industries, roughly $171 billion in added value last year alone.

Global Meat & Poultry Trends Into 2016

Date: 2/11/2016

Market uncertainty and volatility are defining 2016. Major trend shifts are noted. Events were set into motion in 2015, which marked a major correction in most global agriculture commodities. Assumptions are shifting and strategies must be realigned as well to adjust to a much different global picture.

Not all key trends have shifted, some are the same. Here are our thoughts:

What’s Different?

Commodity deflation has marked a major trend change. Deflation initially hit grain and dairy sectors in early 2015, but has now spread into meat and poultry. An example: Non-commercial net longs (investor positions, long minus short) in hog and cattle futures numbered over 200,000 contracts in early 2014. That number ended 2015 at a negative –20,687 contracts - a net short position; global investors “sold” over 220,000 “paper-loads” of cattle and hogs. Global meat and poultry price indices also confirm this major trend. The FAO Meat Price Index is now at the lowest level in nearly six years.

Global economic concerns have shaken financial markets. China’s weakening economy is no surprise, but overall global slack demand is troubling. The Baltic Dry Index, a global freight index, fell to an all-time low of 383 recently (from 1,222 last August) as global trade grinds lower (and the global fleet increased). The index covers bulk dry commodities (coal, grains, iron ore) and reflects global demand. Slowing global demand has a strong price impact on perishable agriculture commodities.

What’s the Same:

Russia’s food import bans against sanctioning countries (over Russia’s military action in the Ukraine) took effect in August 2014 and put EU pork and dairy markets into a tailspin. Fallout from those bans has roiled through the global markets as well. The initial ban was slated for 12 months, but was renewed last August for at least “6 more months” (to January 31, 2016) according to one Russian official. The EU sanctions against Russia were also renewed to January 31, 2016. It appears doubtful that Russia will relax their bans. If they do, expect global pork and dairy markets to improve.

HPAI concerns continue globally, with recent outbreaks in the U.S. Cheap feedgrains are the current trend and barring a unique weather event will likely remain cheap through 2016. U.S. dollar strength appears solid and unlikely to change in 2016. While the U.S. fed raised interest rates slightly in December; any further hikes will strengthen the dollar.

Bottom Line:

  • Global commodities moved from BOOM to BUST in 2015; agriculture commodities were NOT excluded.

  • Watch dollar rates, global economic performance, and Russia’s food import bans, and adjust expectations accordingly if these variables change in 2016.

Quote_left

It is estimated that every dollar of agriculture export value generates an additional $1.48 in supporting industries, roughly $171 billion in added value last year alone.