| OU 369 | December 9, 2002 |
TOTAL MEAT SUPPLIES TO MODERATE IN
2003—
GOOD FOR BEEF PRODUCERS
P.J. Rathwell, Extension Ag Economist
Livestock and meat prices have been under pressure in 2002 from simultaneous peaks in supplies of beef, pork and poultry. Cold storage stocks of red meat and poultry this fall were 30 percent above last year’s level.
Record pork production this fall results from a large spring pig crop. Beef production may hit a record this year as carcass weights continue their long-term growth and as drought and poor pasture conditions in many parts of the U.S. forced continued liquidation of the cattle herd. For poultry, large production is coinciding with a substantial drop in export demand.
This glut of meat has translated into supermarket specials with very attractive prices. For much of 2002, retail beef prices have been below year-earlier levels and the growth in retail prices for all meat and poultry is only one-third the level of overall food price inflation. Overall, U.S. consumers have a strong appetite for meat and poultry with total per capita consumption forecast at a record 219 pounds (retail basis) for 2002. And, it does not appear that this year’s well-publicized meat recalls and scares have adversely affected U.S. demand for meat.
The current supply situation has highlighted the growing importance of foreign demand for meat. Between 1992 and 2002, export volume as a share of total use rose from 5 percent to 8 percent for beef, from 2 percent to 8 percent for pork, and 7 to 16 percent for broilers. During this period, global economic growth and reductions in trade barriers, primarily in East Asia and Mexico, have spurred growth in exports.
With exports accounting for a growing portion of the long-term growth in meat production, market participants see export-related issues taking on added importance—any change in foreign demand is felt quickly in U.S. livestock and meat markets. In 2002, disease and food safety issues disrupted poultry exports, for example. As for overall export demand, sluggish world economic growth and the strong U.S. currency value this year limited export growth.
While the market works though large meat supplies, near-term prospects for a downturn in total meat production appear more likely than at any time in the recent past. Producers, particularly in the hog and poultry sectors, are responding to higher feed costs and several months of low market returns by paring back production plans. In the absence of an unforeseen drop in demand, livestock and product prices are expected to turn up in 2003 after languishing for most of 2002.
Hog Outlook
A few months ago, hog market prospects for the fourth quarter of 2002 and the winter of 2003 appeared to be almost as grim as in 1998---very low prices and significant financial losses, especially for producers who sold on the cash market. Rather than face a repeated crisis, producers began making adjustments this summer. In anticipation of higher feed costs and lower hog prices in the fall, sow slaughter increased, helping drop the U.S. breeding herd to 2 percent below year earlier on September 1, 2002. Producers also intend to reduce farrowings in the next 6 months, which will result in 2 percent lower pork supplies and higher hog prices in the beginning of 2003.
Two other major supply factors related to market and industry structure will also moderate pork supplies next year. First, U.S. imports of Canadian hogs, after increasing nearly 10-fold in 10 years, are expected to remain unchanged in 2003. Given poor hog market conditions and high feed costs this year; the Canadian industry is shifting from dramatic growth to more stable inventory levels. Second, growth in the average number of pigs per litter (and pig crops per year), after advancing throughout the 1990’s, has halted as the structural shift to larger, more efficient hog operations has been mostly completed.
Pork exports are expected to continue rising next year. General economic gains in the three most important markets—Japan, Mexico and Canada—will likely enhance U.S. shipments. However, the U.S. faces increasing competition from Canada in Mexican and Japanese markets, and from the European Union (especially Denmark) and Brazil in other markets.
Broiler Outlook
Export difficulties broadsided the poultry industry in 2002. Much lower prices have accompanied large meat and poultry supplies and the drop in export demand. As a result, U.S. per capita consumption of broiler meat is forecast to rise to a record high at nearly 80 pounds (retail weight) after remaining steady at 76-77 pounds since 1999. Whole-bird and leg meat prices in the third-quarter of 2002 were down 8 and 31 percent from a year earlier.
The most publicized factor in this year’s 12 percent drop in broiler exports is a major slowdown in shipments to Russia, the largest U.S. market. A trade dispute between the two countries emerged earlier this year involving localized outbreaks of avian influenza, sanitary regulations and reporting requirements. It was eventually resolved in August. Other countries such as Japan, Korea and Mexico have also imposed restrictions on U.S. poultry products at some point during 2002 due to localized disease outbreaks.
Higher feed costs, uncertain export demand, and lower product prices are affecting the poultry industry. From mid-September to early-November, the number of broiler-type eggs going into incubators was down 3 percent from a year earlier. Broilers from these eggs will come to market around early December, slowing growth in fourth-quarter broiler production. Broiler production grew 5 percent per year between 1980 and 2000, but has since slowed. Growth in production is forecast at 2 percent in 2003.
Cattle OutlookAttractive calf prices in recent years have created an annual expectation in the industry that cow-calf operators, assuming normal weather and good forage-growing condition, would soon begin to retain heifers and expand their herds. But poor forage conditions during the last several years in major cow-calf producing states have resulted in a steady liquidation. The level of cow slaughter and numbers of heifers in feedlots continued at levels that dampened prospects for a rebuilding phase in the national cow herd and for the sharply lower beef supplies that would accompany the process. Record slaughter weights also have contributed to record beef production and put downward pressure on cattle prices for more than a year.
Market prospects appear to be changing, through. Cattle placements in feedlots were down from year-earlier levels in September and October, which signals reduced slaughter levels in 2003. Beef production is forecast down 5 percent in calendar 2003, although with high slaughter weights preventing a further decline. Fed-cattle prices broke through year-earlier levels in late October, and the seasonal price rally is stronger than in recent years. Prospects for higher cattle prices next year depend to a large extent on “normal” forage and grazing conditions in spring and summer, which would encourage producers to retain animals for breeding rather than feeding them for slaughter.
Demand for beef is relatively strong. In 2002, the market has seen large volumes of meat pass through domestic and export channels at prices that are above expected levels based on historical demand and supply relationship. Domestic demand appears to have bounced back from a drop in the last quarter of 2001 (related to reduced travel, restaurant sales, and business spending). Similarly, beef exports this year have exceeded early forecasts, with strong shipment to Korea and Mexico. With some improvement in global growth, additional gains are expected in 2003.
This outlook, taken in great extent from Jim Robb’s epistle at CattleNetwork.com suggests again that things are getting better in the cattle industry. Especially, enlightening is the demand analysis on the beef, pork and poultry industries. The future for beef appears to be getting brighter.
REMEMBER—HELP THE BEEF INDUSTRY—RUN OVER A CHICKEN
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