Animal Fat Prices Climb on Tight Supply and Increased Demand

17 November 2003 00:00  [Source: ICB Americas]

Prices for tallow, lard and greases for the past few months have risen sharply because of lowered output and increased domestic and international demand. Exacerbated by the continued ban on Canadian cattle, domestic cattle supplies continue to tighten, slowing cattle slaughter operations, which in turn reduce fats production. Mean-while, demand for fats from the oleochemicals and feed sector has improved as fat pricing remained favorable compared to current high vegetable oil and oil meal prices.

"For the most part, fewer cattle slaughtered at lighter weights and the overall availability of fats and oils have driven tallow, lard and grease prices higher than normal for the past couple of months," notes Tom Cook, president of the National Renderers Association Inc. "Additional export demand for fats, lard and greases will also keep upward pressure on prices," he adds.

Domestic fat supplies have steadily decreased in the past few months as meat packers reduced the operating rates of slaughter plants because of a shortage of market-ready cattle. At the beginning of the third quarter, cattle on feed inventories were already 5 percent below last year, according to the US Department of Agriculture (USDA).

"With the ban on Canadian beef and cattle imports and continued very strong domestic and export demand for beef, prices of cattle were forced to record levels, pulling fed-cattle marketings ahead of schedule. Supplies will continue to tighten until additional beef and/or slaughter/feeder cattle begin to be imported from Canada," says the USDA. The government agency estimated total commercial cattle slaughtered in October at 2.98 million heads compared to 3.13 million heads slaughtered in August. September cattle slaughter was estimated at 3.12 million heads.

"US cattle kills will probably not pick up until near the end of the year. The US will also not allow Canadian cattle into the US until sometime early next year after all legal work is done," says Bill Dieterichs, market analyst and editor at Jacobsen Publishing Com-pany, which provides oilseeds, oils and fats market analysis. "To make matters worse, average live cattle weight seen from August to October this year was only 1,230 pounds compared to 1,266 pounds in the same period last year. With profitable beef prices on the market, feedlots are rushing to sell cattle ahead of schedule, and as a result the cattle are weighing less than a year ago," Mr. Dieterichs adds.

On the demand side, domestic consumption of rendered fats in animal feeds and oleochemicals has been increasing this year. A slightly better economy is said to have strengthened demand while higher oils and oil meals pricing made fats more favorable as raw materials. Total consumption of inedible tallow and grease from January to September was estimated by the US Census at 2.47 billion pounds, a 6 percent increase compared to 2.32 billion pounds consumed at the same period last year.

Exports are also picking up because of the late slaughter season in New Zealand and uncertain tallow supplies from Australia. Another recent factor in increased fats exports is the tendered 23,500 ton tallow shipments to Paki-stan under the US government's Food for Peace program. "There will probably not be another Food for Peace program as large as seen to Pakistan early next year. The tender for 23,500 metric tons will end in February, and any buying that has to be done in all likelihood will be done before the end of the year," Mr. Dieterichs notes.

For the rest of the year and even for the first quarter of 2004, supplies will remain tight, especially during the holidays, where fats output is expected to be cut back with the slaughtering industry taking the holidays off. Meanwhile fats demand in the feed market will also get a boost because of the incoming colder weather across the Midwest, says Mr. Dieterichs. Most fats prices are expected to remain at or near their current levels, as analysts do not see any significant change in the market for the short-term period.

Since mid-August, domestic fats prices rose by 30 percent to the mid-40 percent range for greases, around 45 percent for lard, and the mid-50 to mid-60 percent range for tallow. Prices for bleached, fancy tallow climbed to 25 to 26 cents per pound from the 15.5 cents per pound seen in August. Lard prices in Chicago were recently quoted at around 27.75 cents per pound, while yellow grease and choice white grease were placed at 16 and 21 cents per pound, respectively.

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