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Is Chicken The Culprit In Falling Fed Prices?

Cattle prices have declined sharply since peaking in mid-February. Rising supplies of slaughter cattle are partly to blame. For example, the four-week rolling average of federally inspected cattle slaughter ranged from 2.3% to just 0.2% above a year earlier in February.

In contrast, federally inspected cattle slaughter the last three weeks of March was 3.7% to 4.9% larger than the prior year. Meanwhile, cattle weights continued to average above the prior year. Federally inspected weekly dressed cattle weights averaged 782 lbs. in March, 3.6% higher than a year ago. Weights in March were actually 2 lbs. heavier than January. This is in sharp contrast to the seasonal pattern as dressed cattle weights normally decline about 2% January to March.

Larger slaughter and heavier weights pushed average daily beef production in March up 9% compared to 2005. Per-capita supplies likely didn't increase as much as production due to improvements in international trade (even without exports to Japan) since last year. Still, rising beef supplies clearly provided much of the impetus for falling cattle prices in late winter 2005.

But rising domestic chicken supplies also contributed to the price decline. Trade reports indicate chicken exports, especially of dark meat, have fallen sharply as foreign consumers reduce chicken consumption due to bird-flu fears.

At the same time, total chicken production is running ahead of last year's pace. Preliminary weekly data indicate chicken production in March was 5% greater than a year ago. The result has been a huge increase in cold storage stocks of dark meat chicken. At the end of February, U.S. cold storage stocks of chicken drumsticks (+64%), leg quarters (+180%), legs (+162%), thigh and thigh quarters (+77%), and thigh meat (+31%) were all up dramatically compared to a year ago. The situation likely did not improve in March.

As a result, chicken prices have fallen sharply, providing stiff competition for beef and pork. For example, March broiler leg quarter prices averaged 45% below a year ago. And even higher-valued white meat prices were well below 2005. Chicken tender and chicken breast prices in March were 37 and 33%, respectively, below a year ago.

Integrators are starting to respond to low chicken prices. Chick placements finally fell below a year ago in February and remained below 2005 in March. But it's going to take time for the situation to improve. -- James Mintert, Kansas State University at