Taken together, this leads to a 5% drop in domestic pork availability (or a 5.8% decline on a per capita basis) and a 1.5% decline in domestic beef availability (or 2.5% on a per capita basis). Chicken is the only protein that should be more available on the domestic market vs. last year and thus consumption is expected to increase.

We have already started to see signs of overall demand improvement with the recovery in the broader economic as pointed out in U.S. Census' recently released monthly retail sales data, reporting a sequential increase of 1.6% in March (above the consensus calling for +1.2%). Retail sales for "food services & drinking places" category (a proxy for restaurant sales) were up 0.3% and 3.0% on a sequential and YoY basis, respectively. According to DB's Restaurant analyst, Jason West, this translates into a 1.3% YoY increase in sales for 1Q10, compared to +0.1% in 4Q09, -0.6% in 3Q09, +1.2% in 2Q09 and +1.2% in 1Q09. West indicates that this data suggests industry SSS accelerated in 1Q10 vs. 4Q09, with particular strength as the quarter closed out.

The tight protein environment combined with a benign feed cost and improved demand environments bode well for integrated protein producers. We have favored the hog sector owing to the biological lag involved in increasing the breeding herd and thus production (at least a two year lag between when a sow is born and its offspring is brought to slaughter). This process takes about 9 months for chicken.

Eoin Treacy's view The slaughter schedule for pigs, cattle and chicken accelerated as the price of feed rallied from mid-2007. Subsequently, the credit crisis curtailed the ability of farmers to access capital to renew their inventory of animals, resulting in tight market conditions as the economy and resulting demand continue to recover. Lean Hogs and Feeder Cattle prices rallied impressively over the last year with the former breaking to new decade highs. (Also see comment of the Day on April 16th http://www.fullermoney.com/x/default.html?id=1882&schtxt=lean hogs).

Lean Hogs remain in a seasonally favourable period and broke successfully above the psychological 80¢ level in March. While comparatively overextended relative to the 200-day moving average, prices remain in a relatively consistent uptrend as they consolidate above the prior high. A sustained move below 80¢ would be required to question the consistency of the medium-term move.

Feeder Cattle has rallied impressively from the December low to test the multi-year range highs near 120¢. Prices are quite overextended relative to the MA at this point and have begun to lose momentum. However, a sustained move below 112.5¢ would be required to mark a major medium-term inconsistency because it would signal a breakdow n from the current range and a pull back into the previous range.