The following is a release from Rabo AgriFinance:
U.S. meat and poultry production is headed for what researchers at the Rabobank International Food & Agribusiness Research and Advisory (FAR) group anticipate to be a “precipitous fall” by mid-2012. Beef and broiler supplies are all expected to tighten as production increasingly lags behind GDP growth.
Released today, the Rabobank International Food & Agribusiness Research and Advisory (FAR) group’s “Where’s the Beef?” report notes that drought in the U.S. is a major contributor to the production decline, but the report finds that global meat and poultry production is in the midst of a multi-year process of adjusting to higher and more volatile feed costs. Since the US is a large and significant exporter of meat protein, the decline will also affect world markets as well as demand for feed, notably for corn.
“The drastic decline in protein production we anticipate will be felt in a number of industries,” notes David Nelson, Global Strategist with the Rabobank Food & Agribusiness Research and Advisory team. “We expect the decline will create concerns for everyone from foodservice operators to corn producers.”
The report delves into domestic and global consumption trends. Per capita meat consumption in the U.S. appears to have peaked. The poultry industry, in particular, should no longer count on rising domestic demand as a means of growing its way out of over-production situations. However, a rising GDP in the developing world is contributing to an increasing global for meat protein.
“The greater global demand for meat protein is the key driver to rising feed costs, which in turn drive up the cost of raising animal protein,” says Nelson. “Global meat and poultry production continues to significantly lag GDP growth, which is, of course, the key factor behind rising prices.”
Beef Outlook
Given the long cattle-production cycle, as well as a relatively high feed conversion ratio, beef is the protein sector least able to cope with structurally higher and more volatile corn prices.
Extreme drought conditions in the South and Southwest and many areas, specifically Texas, are resulting in significant herd liquidation. As a result, the report predicts U.S. beef supplies will be plentiful when the cattle currently in feedlots come to market, but the long term impact will include a dramatic decline in beef production by mid-2012.
“U.S. beef production could be running as much as seven percent below comparable 2011 levels by the third quarter of 2012,” says Nelson.
U.S per capita consumption will continue in a gradual decline, so the reduction in supplies will be most notable for importers of U.S. beef. The report indicates there could be a double-digit percentage decline in beef available for export in the second half of 2012.
Poultry Outlook (Broiler):
The report notes the U.S. broiler industry is suffering some of its worst-ever financial losses. The industry has expanded breast meat output at a time when demand has been softening due to the weak economy.
Despite some cutbacks in bird production, the report predicts profits will remain under pressure into early 2012 as bird weights have provided a significant offset, and due to a large increase in breast meat inventory. Barring further market dislocation, the report authors believe that the industry can return to profitability some time next spring, but only if the more aggressive cutbacks that FAR expects actually take place.
Swine Outlook:
Swine is the bright spot in the report. The report suggests that in 2012 hog prices could end up on average 10 percent higher than even the record levels seen in 2011.
The current supply and demand situation for the US pork industry is much more stable than for beef or poultry. Strong export demand (currently accounting for roughly 25 percent of output) coupled with solid domestic pricing has allowed producers and packers to weather the storm of rising feed costs. That said, the deterioration in US crop conditions —leading to higher corn prices – has dampened the outlook a bit.
Corn Outlook:
A reduction in the domestic production of beef, chicken and pork will, of course, have an impact on corn demand. Ethanol consumption accounts for approximately 40 percent of the use of the 2011 corn crop and the report’s authors estimate that corn demand will decline by an incremental 50 million bushels in the third quarter and by 100 million bushels in the fourth quarter of 2012 compared to 2011. This estimate should be considered in the context of USDA’s current estimate of corn ending stocks for the 2011/12 crop year of only 672 million bushels and the implied stocks-to-use ratio of 5.3 percent — the second lowest in history.
Source: Rabo AgriFinance
Posted by Haylie Shipp
