CALENDAR year 2014 will go down in the history books as a chart-busting year for the entire livestock complex. A rare combination of circumstances sent the livestock, poultry and dairy markets to fresh new highs.
Previous years of high feed costs, diseases and drought took their toll on U.S. meat supplies and fueled prices to shatter new records for both the hog and cattle markets.
Further, chicken and turkey prices were exceptional in 2014 and held at nearly record prices. Egg prices also topped previous records at the end of November.
Dairy producers enjoyed new price peaks, with the all-milk price sailing past $23/cwt., butter reaching $3.00/lb., cheese barrels at $2.60/lb. and cheese blocks at $2.42/lb.
On Dec. 31, 2014, the U.S. Department of Agriculture's livestock slaughter report put the annual total for beef slaughter at 29.673 billion head, 7.67% below 2013. The slaughter total for hogs was estimated at 106.1 billion head at the end of 2014, down 4.84% from 2013.
While restricted supply stole the thunder in the market's perfect-storm drama, demand also played a significant role.
In 2014, U.S. consumers revealed an all-time-high willingness to pay for meat and poultry products, Steve Meyer and Len Steiner noted in the "Daily Livestock Report."
Global consumers also helped boost U.S. meat and dairy exports. At the end of October, the U.S. beef export volume was up 3% from the previous year, whereas U.S. pork export volume was up 4% for the same time period.
Although U.S. dairy exports have been sluggish in recent months, the first half of 2014 showed outstanding growth for dairy products, especially for butter (up 57%) and cheese (up 34%).
With the calendar flipping to 2015, the continuation of excellent returns for livestock producers will hinge on several factors.
The expansion gears are already turning for pork and poultry production, which will pressure prices lower and create strong competition for beef. However, both species will be on guard for disease threats.
At this point, porcine epidemic diarrhea virus levels are below the previous year's rate. Still, it is too early to determine if the disease's impact will be as destructive in the upcoming year.
Increased outbreaks of avian influenza overseas will be a driving factor for the poultry industry, and it may actually benefit U.S. poultry producers.
The new requirement for roomier cages for egg-laying chickens in California is forecasted to raise egg prices 10-40% for California consumers.
Meanwhile, improved pasture conditions supported heifer retention and cattle herd expansion. Nevertheless, it will still take time to sharply increase the U.S. cattle inventory, so it is reasonable to project cattle and beef prices to remain at higher levels in 2015.
In late 2014, growth in domestic milk production drove down U.S. milk prices to more affordable levels for global customers. Still, milk is expected to stay at profitable prices in the new year.
Be that as it may, demand is still the biggest wild card in 2015 for the meat, poultry and dairy markets. Only time will tell if consumers are comfortable with higher prices for animal proteins. Global demand will also be vital for supporting meat, poultry and dairy prices.
Stabilizing food prices
Although beef prices are expected to inch higher this year, signs of stability surfaced in USDA's Economic Research Service (ERS) "Food Price Outlook" report.
Overall, prices for food purchased in grocery stores dropped 0.2% in November from the previous month, but prices still were 3.4% more than a year ago. On the other hand, the food-away-from-home consumer price index (CPI) climbed 0.4% in November and was up 2.9% from last November.
Meanwhile, ERS adjusted its food price forecasts to reflect the feed, grain and crop outlook. Food prices, food-at-home and food-away-from-home expenditures at the end of 2014 were expected to show an increase of 2.25-3.25% over 2013 levels, with meat prices registering the largest gain (Figure).
Looking ahead to 2015, ERS forecasts supermarket prices to stabilize and drop slightly lower than average food price inflation, increasing only 2.0-3.0%. Nevertheless, meat prices are expected to remain higher in the short term.
Carving deeper into the individual food categories, pork prices were lower again in November, dropping 2.1% from the previous month. Even so, pork prices for the year are up 9.9% from 2013. With signs of the pork industry expanding, ERS is projecting pork prices to increase 4.5-5.5% this year, compared to 8.35-9.25% in 2014.
Poultry prices in November rose just 0.7% from October and were up 2.5% on the year as production in the last half of 2014 increased. ERS is now predicting poultry prices to be up 1.5-2.5% in 2014 and up 2.5-3.5% in 2015.
For eggs, November prices were 6.2% higher than the November 2013 level and increased 2.8% for the month. The monthly increase was a result of more eggs being broken and increased egg exports. ERS expects egg prices to have increased 7-8% for 2014 but to advance only 1-2% this year.
Beef and veal prices showed the largest year-over-year increase, climbing 18.1% from November 2013. Most retail beef prices, on average, are at record highs, ERS noted. Prices are forecasted to remain high, with ERS predicting beef and veal prices to have risen 11-12% in 2014 and to increase 4.5-5.5% this year.
In contrast, dairy product prices actually declined 0.2% from October to November and were 5% above November 2013 levels. ERS projects dairy prices to have ended 3-4% higher in 2014 but to increase only 2.5-3.5% this year.
ERS also measures the average change in prices paid to domestic producers for their output — the Producer Price Index, which is more volatile than CPI.
The U.S. cattle inventory remains low, and inflation rates for farm-level cattle and wholesale beef remained high in 2014.
Cattle prices in November climbed 3.3%, pushing the year-over-year gain 30.1% higher. Wholesale beef prices for 2014 rose 28.6% from 2013. Farm-level cattle prices are expected to have increased 21.5-22.5% overall in 2014 and should rise 17.5-18.5% in 2015, ERS stated.
Wholesale pork prices decreased 8.9% in November and were up only 9.3% from November 2013. After a 20-21% jump in wholesale pork prices for 2014, ERS predicts a 4-5% increase this year.
Increased egg exports boosted farm-level egg prices 2.7% higher than the year-ago level. ERS estimated a 13.5-14.5% increase in farm-level egg prices for 2014.
In November, farm-level milk prices fell 7.5% but were still 8.3% higher year over year. ERS estimates that farm-level milk prices increased 20.75-21.75% for 2014 but will increase only 0-1% in 2015, while wholesale dairy prices are expected to increase 10-11% in 2014 and 1-2% this year.