Market Movements
When 1.7M lbs of flap meat falls out of the spot over the next 9 weeks, what will happen to the price?
Did you notice that 1.7M lbs of flap meat (185-A) got sold out front over the last two weeks in September? By far the largest volume of flap meat sold out front over a two-week period in 2021, dwarfing the 1.2M lbs sold out front over a two week period in mid-March (see chart below).
Flap meat is an interesting series to watch. As you can see in the graph below, formula volume (purple line) for flap meat has remained relatively constant over the past twelve months. In contrast, the spot volume (yellow line) and volume sold out front (green line) fluctuate unpredictably and show a clear inverse relationship. This is logical, as any volume sold out front and reported on the USDA 455 report will fall out of the spot market in 22-90 days, constricting supply and driving up the spot price.
Figure 1
This graph shows the formula volume (purple), spot volume (yellow), and sold out front volume (green) for flap (185A) over the past 12 months. Note that while formula volume is relatively stable, the spot volume and 22-90 volumes are inversely related.
Given that this volume was reported on the USDA 455 report published on Monday 9/27, at least 1.7M lbs of flap meat is going to fall out of the spot market over the course of the next 9 weeks.
This leaves us with two very important questions:
- What is going to happen to the volume of flap meat available on the spot market?
- What is this going to do to the spot price of flap meat?
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