Animal feeding up

Animal feeding up

- More animals being fed and to heavier weights. - Forecast holds for less meat and poultry production and higher prices. - Cattle exp

THE U.S. Department of Agriculture's final numbers for the current feeding season were strong ones for those with corn to sell and terrible ones for those with corn to buy and/or animals to feed.

In its report issued Jan. 11, USDA said there will be less corn in the current 2012-13 feeding year than it forecasted in its December report and more animals to feed -- or, stated otherwise, more pounds of meat to produce, requiring more feed -- than anticipated last month.

The report suggests that it will be costlier than expected to feed those animals and produce those pounds of meat.

First, USDA reported that 97.2 million acres were planted to corn in 2012, fractionally more than indicated in the December report, but the acres harvested were fractionally less than in last month's report, so that was a wash.

However, USDA said the actual 2012 corn crop yield was 123.4 bu. per acre, and this was sufficient to end up with more production and supply than in the December report.

So, what about this is bullish to corn and negative to feeders?

It's simple: Livestock and poultry producers are either feeding more animals or feeding animals to heavier weights or both, according to Feedstuffs sources.

USDA increased demand for corn for feed in 2012-13 by 7% -- enough to reduce ending stocks at the end of this August to 602 million bu. and stocks-to-use to 5.3%, which will be the lowest stocks and usage since 1995-96.

While by no means records, historically, the corn yield, production and supply numbers "are sizeable, but in the context of corn demand, they are uncomfortably small, as the market has been making clear for several months now," John Anderson, deputy chief economist at the American Farm Bureau Federation (AFBF), noted.

An already tight carryover became even tighter, he said, with 2012-13 corn now priced at $7.40/bu., a new record high and more than a dollar higher than 2011-12 corn.

The increase in corn demand for feed in the first quarter of 2012-13 (September-November 2012) suggests that livestock and poultry production -- rather than contracting in mid- to late summer due to high corn costs, as most observers thought was happening -- was stabilizing and even expanding, Anderson said.

Such a production scenario would be supported by the December hogs report, which showed a breeding herd that actually expanded in the first quarter, and by recent egg sets/chicks placed reports showing that chicken companies are increasing the commercial flock, he said.

USDA's January report confirmed this, according to University of Missouri agricultural economists Scott Brown and Ron Plain, who noted that USDA estimated 2013 beef production to be down 4.3% this year, whereas it previously pegged 2013 production to be 5.0% lower, indicating that cattle feeders are finishing their animals to heavier weights.

They said chicken production will be down just 0.4% this year rather than 1.3%, and pork and turkey production will be up rather than down, indicating that producers are feeding more animals and/or feeding to heavier weights.

So, livestock and poultry producers are driving corn demand and prices through expansion strategies (Table 1), sources said.

 

Higher prices

However, meat and poultry supplies still will be limited or scarce this year when considering the extent to which producers have reeled back production from 2008, when corn prices first spiked to new levels and producers reduced production to increase prices enough to cover corn costs.

Beef, pork, chicken and turkey production all will be lower this year than in 2008 -- beef, with cow/calf producers and cattle feeders wracked by drought and feed costs, will be down substantially -- and total meat and poultry production will be down almost 2% from 2008 (Table 1).

These decreases in production are amplified by per capita consumption, the amount of product available for each individual in the U.S. population after accounting for exports and imports, or the per capita supply (Table 2).

On this basis, the beef supply this year will be 11.6% lower than in 2008, the pork supply will be down 7.7%, the chicken supply will be down 4.0%, the turkey supply will be down 5.7% and the total meat and poultry supply will be down 7.3%.

In the meantime, the U.S. population has increased roughly 4-5%, which means that there will be considerably less protein for considerably more people.

(On the boneless equivalent series, the per capita beef supply this year will be the smallest since the 1940s, the pork supply will be the smallest since the 1930s, the chicken supply will be the smallest since the 1990s, the turkey supply will be the smallest since the 1980s and the total meat and poultry supply will be the smallest since the 1970s.)

This has to mean higher prices for livestock and poultry (Table 3) -- cattle and chicken prices will be record high this year -- and this has to mean higher consumer-level prices for beef, pork, chicken and turkey.

Indeed, meat and poultry prices will increase 3.5% this year after inflating 12.4% in the previous two years, according to USDA's most recent Consumer Price Index.

Egg and milk production this year will be steady with 2012, but eggs and dairy products still will inflate 3.5% and 4.0%, showing, even on a one-year basis, what happens when production does not keep pace with population growth, sources said.

 

Market roundup

In the livestock and poultry sectors last week, cattle traded down $3-5 to $123-125/cwt. in Nebraska and $125/cwt. in the Southwest last Wednesday, about even with year ago.

The Choice cutout dropped $1.61 to $192.20/cwt.

Analysts said they continue to expect the cattle markets to rally strongly on tight supplies.

Cattle and Choice product "are having a hard time making an assault on (price resistance) at $130 and $200," said Bob Price at North America Risk Management Services Inc., but decreased placements in late 2012 "almost assure" that those price targets will be taken out, with all-time highs set in the first half of this year.

However, Price said this bull market "has been widely telegraphed," and packers, wholesalers and retailers are prepared for tight and very expensive supplies. This preparedness could hold back how much prices will increase, he said.

Dennis Smith at Archer Financials said beef production will decrease this year and next year, and beef buyers will eventually realize that beef prices are currently a bargain and at a bottom. This will create "a mad scramble" for beef that will, in turn, create a scramble for cattle, he said, and cattle and Choice will price well above resistance.

At the same time, AFBF's Anderson cautioned that the higher-than-expected chicken and pork production will create "a competitive meat counter" at a time when drought, feed costs and dramatically lower production "are making it difficult for beef to be price competitive."

The hog markets increased $1.00-2.78 last week to $82.72-86.42/cwt. on a lean carcass basis across the Corn Belt last Thursday, equivalent to a $62-65 live cash hog market and 1.7% higher than year ago.

Sources attributed increased prices to tightening hog supplies and packers bidding to get hogs in ahead of the bitter cold forecasted for early this week, as well as increasing demand for competitively priced pork.

The chicken markets were steady, with demand slowing in all channels but with supplies moderate for needs, sources said. Chickens were 99 cents to $1.05/lb. and 89-99 cents/lb. in the eastern and midwestern regions last Thursday, unchanged to down 4 cents, and breast meat was $1.26-1.35/lb., 1.6% more than year ago.

The egg markets were up 9-10 cents last week to $1.24-1.28/doz. and $1.18-1.20/doz. for large-sized eggs delivered to eastern and midwestern store doors last Thursday, 22.3% more than year ago. Sources credited markets to good demand, moderating production due to culls and egg import interest from several countries, especially Mexico and the Pacific Rim.

The turkey markets were unchanged at 93-98 cents/lb. for hens and retail-sized toms last Thursday, 4.9% more than year ago. Sources said they believe turkey prices have found a floor but may not increase much or quickly given that some Thanksgiving packages are being put together at lower prices than for last Thanksgiving.

Fresh tom breast meat was unchanged at $2/lb., 17.7% less than year ago.

 

1. Dairy, meat and poultry production

 

 

 

Total

 

 

Total

Total meat/

 

 

 

Beef

Pork

meat

Chicken

Turkey

poultry

poultry

Milk

Eggs,

Year

-Billion lb.-

bil. doz.

2008

26.561

23.347

50.225

36.908

6.246

43.712

93.397

190.0

6.403

2011

26.195

22.758

49.232

37.201

5.791

43.513

92.745

196.2

6.590

2012

25.917

23.248

49.438

36.939

5.918

43.444

92.882

200.0

6.678

2013

24.805

23.285

48.357

36.800

6.000

43.315

91.672

199.9

6.630

2013 as % of 2012

95.7

100.2

97.8

99.6

101.4

99.7

98.7

100.0

99.2

2013 as % of 2008

93.4

99.7

96.3

99.7

96.1

99.1

98.2

105.2

103.5

Note: Eggs are table eggs as reported by the U.S. Economic Research Service.

 

2. Meat and poultry per capita consumption (supply)

 

 

 

Total

 

 

Total

Total meat/

 

 

Beef

Pork

meat

Chicken

Turkey

poultry

poultry

Eggs,

Year

-Lb.-

number

2008

62.7

49.4

113.5

83.4

17.6

101.0

215.9

248.3

2011

57.3

45.7

104.3

82.9

16.1

100.4

204.6

247.6

2012

57.4

45.6

104.2

80.3

16.1

97.9

202.1

248.0

2013

55.4

45.6

102.2

80.1

16.6

98.0

200.2

250.0

Note: Meat and poultry consumption is retail weight basis.

 

3. Meat, poultry, milk and eggs prices

 

Steers

Hogs

Chickens

Turkeys

Milk,

Eggs,

Year

-$/cwt.-

-Cents/lb.-

$/cwt.

$/doz.

2008

19.27

47.84

79.7

87.5

18.29

1.28

2011

114.73

66.11

79.9

102.0

20.14

1.15

2012

122.86

60.88

86.6

105.6

18.53

1.17

2013

129.50

63.00

93.0

103.5

19.20

1.15

Note: Steers are average of all grades. Hogs are liveweight basis. Prices for 2013 are at midpoint of ranges.

Source for Tables: USDA "World Agricultural Supply & Demand Estimates."

 

Volume:85 Issue:03

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