Sort & Cull

When the World Board prepared to issue monthly revisions to supply and demand estimates, meat producers and traders rarely bother getting fitted for new crash helmets. Besides the fact that such dart-throwing data simply doesn't have a great track record in terms accurately predicting fundamentals, the USDA's month-to-month adjustments are typically cautious and incremental, the kind of piecemeal and token criticism you might get from the "Grandmother of the Year".

Yet, given the way cattle futures are running for the hills in the wake of Thursday's uncharacteristically surprising report, several board players probably now wish they had taken a few more precautions.

While I'm not sure April's new supply and demand table represents the one and only smoking gun tied to late-week triple-digit losses (fear of struggling cut-outs and worsening packer margins may have also played roles), the remodeled tower of per capita meat supplies clearly worked to shake bullish confidence.

Specifically, government economists now believe that total meat supplies in 2015 available (indeed, essentially required) for domestic consumption should total 211.1 pounds per capita, up from the March estimate of 209 pounds and the 2014 actual of 202.3 pounds. This suggests the biggest meat platter served since 2008.

On one hand, I wasn't shocked by the way beef and pork tonnage was tweaked higher. Between the persistence of heavy cattle carcasses, larger-than-expected cow slaughter through the first quarter, and the confirmation of aggressive expansion in the swine herd, the 1-pound increase in red meat per capita pretty much made good, anticipatable sense.

But the wild card in the deck was clearly tied to poultry. Although leaving estimates of 2015 broiler and turkey production untouched, the World Board grabbed the biggest broadsword it could find and slashed its estimate of total poultry exports by a whopping 6% (i.e., from 7.99 billion pounds to 7.53 billion).

Why such radical surgery on the export potential of bird meat? Apparently the USDA believes that scattered cases of bird flu in this country are not going away anytime soon. Indeed, this dangerous contagion and its negative implications for export potential could easily get worse before it gets better.

The steep cut in export prospects came as the government confirmed a second commercial flock of turkeys in South Dakota has been infected with the H5N2 flu. Birds in eight other states have tested positive for the same lethal strain since the beginning of the year, prompting key overseas buyers such as Mexico and Canada to limit imports from states and counties with infections. The most damaging restrictions to the $5.7 billion U.S. export market have been countrywide import bans imposed by China and South Korea.

If failing export demand forces more chicken into Safeway's meat case, U.S. consumers will probably insist on cheaper legs, wings, and breasts if asked to participate in necessary clearance. But such a development could make steaks and burgers look even pricier.

I would argue that it's far too early in the game to get this bearish on the manageability of bird flu, but for some reason Agriculture Secretary Tom Vilsack and his number-crunching minions are not returning my calls.

For more of John's commentary, visit http://feelofthemarket.com/…

(ES)