Supplies are growing and will likely get larger and prices have had to adjust significantly in order to clear the market. More product is ending up in cold storage, which tends to cap future prices.

Seasonally pork and chicken production increase in the second half of the year and thus even more meat is likely to accumulate in cold storage ahead of the year end holidays.

Total beef in cold storage at the end of June was 451.2 million pounds, 4.9 per cent lower than a year ago but 1.8 per cent higher than the five year average. While beef supplies are lower compared to last year supplies increased 1.2 per cent compared to the previous month.

Generally stocks decline into the fall and the increase in inventories could imply that some of the increase in beef supplies we have seen recently is ending up in cold storage rather than flowing through to the consumer.

Boneless beef stocks were 413.1 million pounds, 5.4 per cent lower than last year but 0.8 per cent higher than the previous month. The monthly increase in beef stocks (June vs. May) was largely driven by more beef going in cold storage in both East Coast and West Coast warehouses.

Normally this would be a result of larger imports but shipments from Australia and New Zealand are down which leads us to think that the increase is a result of higher beef export activity (bullish).

Boneless stocks near domestic packing plants showed a significant drawdown, which fits with the generally firm tone we have seen in the market for fat boneless beef product. Overall we view the beef cold storage numbers as moderately bullish for the beef complex.

Beef production in Q2 of 2016 was 6.187 billion pounds, 331 million pounds (+5.6 per cent) higher than a year ago. Beef imports are expected to declined sharply in the second half of 2016 while beef exports are expected to be notably larger than a year ago.

Pork cold storage stocks were 585.9 million pounds, 7.7 per cent lower than last year but still some 3.7 per cent higher than the five year average.

June stocks were down 4.7 per cent from the previous month compared to a five year average drawdown of 8.1 per cent. We view this as somewhat negative for the pork market.

Belly inventories remain heavy at 62.9 million pounds, 41.6 per cent higher than a year ago. Ham stocks increase between June and September as market participants get ready for the holiday ham demand.

Ham inventories at the end of June were 166.6 million pounds, 7.7 per cent lower than last year but still some 12.4 per cent higher than the five year average. The buildup in ham inventories was normal for this time of year (+15.4 per cent from previous month).

The drawdown in the inventory of ribs was slower than normal, with stocks at 85.6 million pounds down 22.1 per cent from the previous month compared to a five year drawdown of 31 per cent. Rib inventories are now 17.3 per cent higher than a year ago and 40.3 per cent higher than the five year average, hence the sharp price pullback the last two weeks.

The increase in pork supplies in cold storage has come even as Q2 pork production was just 37 million pounds (+0.6 per cent) higher than last year.

Chicken supplies in cold storage remain heavy, up 12.5 per cent from last year and 22.7 per cent compared to the five year average.

We view the large chicken supplies in cold storage and continued expansion of US broiler production as generally bearish for the meat protein complex, especially when considered in the broader context of expansion in hog and cattle numbers.

Broiler production in Q2 was 10.2 billion pounds, 227 million pounds (+2.3 per cent) higher than last year. Total red meat and poultry production in Q2 of 2016 was up 725 million pounds (+3.1 per cent) y/y.