Domestic Protein Supplies Building
by Duane Lenz, CattleFax
Due to a variety of reasons including drought, viruses, high grain prices and lack of profitability, protein supplies in the United States have been limited over the past two to three years. Starting in the second half of 2015 this scenario will shift. For the first time in several years, a year–over-year increase in protein and per capita supplies will be noted. Undoubtedly the increases will affect prices and demand over time. It may be difficult to push current record high values for beef higher or even maintain them from this point forward.
This article will take a look at the forecasted increases by species and what the result for prices may be. For this article we will assume there will be a modestly strengthening economy over the next year as well as growing exports. A recession would serve to slow demand more than currently forecast.
Beef production in the first half of 2015 has been lower than a year ago and at year’s end is projected to be the smallest level noted in more than 20 years. This is due to a severe drought over the past three years that has reduced total cattle supplies. This has also resulted in historically high cattle and beef prices. Looking ahead to the second half of 2015, cattle numbers will be near year-ago levels, but due to much larger carcass weights, beef production is forecasted to be above a year ago for the July through December timeframe. For the year, beef production could be at 24 billion pounds as compared to 24.3 billion pounds in 2014. As much as a billion pound increase may occur in 2016 as more cattle become available to the market and carcass weights stay large. The result is likely decreasing prices for beef that will begin to effect prices in the fourth quarter of 2015 and in 2016. A stronger than expected export market, if that were to occur, would help as would slowing imports moving forward.
Pork production for 2015 is pegged to be at 24.3 billion pounds or 6 percent above a year ago. In 2014, the industry was ravaged by the PED virus that killed several million baby pigs and resulted in small pork production. The industry responded by making carcass weights historically large and that increase has carried over into, and most likely through, 2015 and into 2016. With the worst of the disease behind us, this year the larger carcass weights are combining with the larger total hog numbers to produce a lot of pork. The resulting decrease in hog prices has been dramatic. During the spring of 2014, the pork cut-out reached $130/cwt, this year they are at $65/cwt or nearly half of what they were a year ago. Although the industry has been profitable, helping to drive the supply increase, profits are fading and could possibly negatively affect production in 2016. Cheaper corn prices are giving producers some wiggle room though and so carcass weights are likely to stay high, limiting any production decreases in 2016. Still, prices are expected to remain well below 2014 levels for the foreseeable future, and pork prices will be stiff competition for both beef and poultry as all compete for the consumer’s dollar.
A lot is going on in the U.S. poultry industry currently. Avian influenza has affected many states. Most of the damage is being felt in the turkey portion of the industry, and even though several million birds have been eliminated, that accounts only for about 2 percent of the turkey industry. On the chicken side, about 1 percent of birds have died. It is mainly in the laying herd; very few of the barns housing broilers have been affected due to better security in those facilities. The 1 percent loss represents about 10 percent of the laying flocks. On the other hand, countries are banning U.S. product from the counties, regions or states in which the disease has occurred. The result has been a loss so far of 13 percent of our poultry exports. Cheaper grain and high profitability over the past year have had producers ramping up -- poultry production is forecast to be up 5 to 6 percent this year. The combination of higher numbers and weights along with slower exports are hitting prices hard. At the current time, boneless/skinless chicken breasts are 23 percent lower in price as compared to a year ago while chicken quarters are down 43 percent. The lower prices could result in smaller production going into 2016, but so far there is no indication of a slowdown. With grain prices appearing to be on defensive because of what looks to be a big crop, poultry production may remain near current levels. The loss of the laying flock could reduce egg sets at some point, and for now eggs in the grocery stores may be affected more than chicken production.
The protein industry in the United States is undergoing a transformation from smaller year over year production to a sizable increase. Over the next year, protein production in the U.S. may increase by three billion pounds from 2014 levels when beef, pork and poultry are combined. Even though exports are forecast to remain stout and imports on the beef side are likely to slow, per capita meat consumption could grow by more than 10 pounds as compared to 2014. No doubt prices will be negatively affected. Beef may have the most to lose given the lower levels that pork and poultry are already trading for. As this occurs, it stands to reason the lower prices will be rolled back first to the feedlot level and then to stockers and cow/calf producers. Again, as stated earlier, the economy both domestically and abroad will play a role in prices going forward, but beef may face strong headwinds fighting for the consumers dollar during the next couple of years.
Tags: Beef Issues Quarterly, Summer 2015, Trends Analyses
June 22, 2015