'Culprits' for beef

'Culprits' for beef

- Beef demand steady despite price and supply issues. - Beef and pork export markets becoming "critical profit centers." - Markets wat

FOR beef producers, bearish stories were everywhere last week: Cattle weights continued to be record heavy, beef production continued to exceed year ago and packer margins remained poor, all of which canceled out expectations for a cattle price rally on limited fed and beef supplies.

Chicken and pork production was increasing or preparing to do so.

Beef demand suddenly was becoming an issue, according to Feedstuffs sources.

In one commentary, Steve Meyer and Len Steiner, in an edition of their "Daily Livestock Report," noted that beef, pork, chicken and turkey production -- total meat and poultry production -- currently is running 3% more than year ago while consumer prices are record high.

Accordingly, consumers are being asked to pay higher prices for more product while the economy remains stuck in neutral and while consumers are paying higher gasoline prices and taxes, the latter a consequence of higher payroll taxes for Social Security, Meyer and Steiner said.

Accordingly, the issue is not demand but prices and supplies, they said.

In a second commentary, Oklahoma State University extension livestock marketing specialist Derrell S. Peel noted that beef production this year is still expected to decrease 3% from last year and potentially could drop another 5% next year, which means pressure will continue to grow on wholesale and retail beef prices in the months to come.

The question often posed, he said, is whether beef is pricing itself out of the market.

However, Peel reported that beef demand is recovering from the 2008-09 recession and, based on a demand index maintained by the Livestock Marketing Information Center, was at its highest level in five years during the 2012 fourth quarter.

Nevertheless, beef demand may not be keeping up with beef prices, which undoubtedly will be record high over the next two years, Peel said. Demand, therefore, will be influenced by chicken and pork supplies, which are expected to be "on either side of unchanged" this year, and large chicken and pork supplies will temper beef price strength, he added.

Beef demand also will be influenced by international trade. Exports, if checked by bans in China and Russia on meat from ractopamine-fed livestock, and imports, if encouraged by high U.S. beef prices that will attract increasingly more imports from Australia, New Zealand and other suppliers, will temper beef price strength, he said.

The issue is not demand but beef, pork and poultry prices and supplies, Peel said.

In a third commentary, Mississippi State University agricultural economist John Michael Riley explained that beef demand is not a measurement of consumption or a percentage of beef consumed versus chicken or pork consumed.

He said the "leading culprits" in the current discussion include the increase in Social Security taxes -- from 4.2% to 6.2% -- that went into effect on Jan. 1 as a consequence of the fiscal cliff negotiations.

This represents $1,000 less spending power per household per year, or $83 per month, Riley said, and "across all households, that adds up." It pushed consumers to make spending decisions, including switching to cheaper beef products and/or to cheaper chicken and pork products, he said.

The flu outbreak and storms in the Northeast this winter also have "displaced beef consumption," but the main worry is the decrease in take-home pay that could price consumers out of the beef market, Riley said in reference to Peel's question.

 

Export profits

In the cattle markets last week, cattle did not trade in sufficient volume through Thursday to establish prices and, at week-before levels, were $123.00/cwt., 0.4% lower than at this time last year.

In the hog markets last week, hogs fell hard, dropping $5.00-6.00 across the Corn Belt to $76.58-77.27/cwt. on a lean carcass basis last Thursday, prices that were equivalent to a $58 live cash hog market and 6.4% lower than year ago.

Analysts had expected higher prices due to cold and snow in the Midwest that they thought would force packers to pay up to get hogs in off the farms.

Analysts also had factored the good news about beef and pork exports into their forecasts for the week.

In 2012, beef exports set a new value record, and pork exports set both value and volume records (Tables 1 and 2), according to data from the U.S. Meat Export Federation (MEF).

Export markets represent "a critical profit center" for beef and pork producers, MEF chief executive officer and president Phillip Seng said, pointing to how last year's cattle and hog export values also set new per-head records, returns "that were sorely needed" for producers challenged by high corn and feed ingredient costs.

MEF said beef exports increased the per-head value of cattle by $10.36 to $216.73/cwt. last year from 2011, and pork exports increased the per-head value of hogs 1.0% to $55.87/cwt. last year from 2011.

However, the markets instead watched the announcements concerning ractopamine from China and Russia, which reported that they will no longer accept beef or pork from ractopamine-fed animals. China represents the sixth-largest export point for U.S. beef and Russia the sixth-largest export point for U.S. pork.

Neither country explained certification protocols, although it was understood late last week that China was extending its deadline for protocols from March 1 to May 1.

Ractopamine is a feed additive that enables lean muscle growth in animals, including turkeys. The U.S. Food & Drug Administration has found ractopamine to be an effective and safe product for animals, and has determined that residues in meat -- at minimum, specified limits -- are safe for human consumption.

FDA's conclusions are supported by the U.N.'s food standards body.

Accordingly, observers called the bans "saber rattling" designed more to protect domestic cattle and hog industries than consumers.

The bans would adversely affect the U.S. beef industry the most since there are pork producers in the U.S., including leader Smithfield Foods Inc., and turkey producers that already have dedicated ractopamine-free feed mills, farms and processing plants.

Smithfield issued a statement last week emphasizing the effectiveness and safety of ractopamine but explaining that it is prepared to meet customer requirements for ractopamine-free pork. Smithfield also encouraged the U.S., Chinese and Russian governments to expeditiously negotiate certification protocols.

Beef packers, meanwhile, did acknowledge last week that they have been talking with feedlots about the extent to which ractopamine use can disrupt important export markets and about the need for at least some feedlots to dedicate operations to a ractopamine-free model. However, packer spokespeople told this column that they have not placed any restrictions on their suppliers.

 

Market roundup

Elsewhere in the markets last week, the chicken markets were quiet and unchanged in end-of-the-month, needs-only buying that was balanced by limited supplies, sources said.

Chickens were $1.02-1.06 and 91-99 cents/lb. in the eastern and midwestern regions last Thursday, 12.4% higher than year ago.

Breast meat was $1.29-1.38/lb., 19.7% more than year ago, and full wings, after dropping 57 cents over the two previous weeks, held at $1.50-1.60/lb., down 3.1% from year ago. However, sources acknowledged that wings still were available and that they were not sure if the product has settled.

The egg markets were settled and steady in modest demand for manageable supplies, sources said. Eggs were $1.07-1.11/doz. and 99 cents to $1.01/doz. for large-sized eggs delivered to eastern and midwestern store doors last Thursday, 6.9% higher than year ago.

The turkey markets were unchanged for the sixth straight week at a national average offer of 92-99 cents/lb. for hens and retail-sized toms last Thursday, 5.4% lower than year ago. Sources said processors were working to book turkeys at current levels to establish a floor for the markets.

Fresh tom breast meat remained very weak, dropping another 2 cents to $1.65/lb. last Thursday, down 35 cents this year, down 65 cents from last fall and down 17.5% from year ago. Sources said the breast meat "problem" is becoming more and more worrisome, and the industry needs "a nice, warm, early spring" to increase breast meat demand for sandwiches.

In the dairy markets last week, butter slipped 0.25 cent to $1.60/lb. last Thursday, and barrel and block cheeses dropped 1 cent and 4 cents to $1.63/lb. and $1.6350/lb. However, butter was 14.5% more than year ago, and barrels and blocks were 10.1% and 9.9% over year ago.

Sources suggested that the butter and cheese markets were doing well in light of increased milk production, especially east of the Rocky Mountains, but noted that the drop in demand following the Super Bowl was being offset by an increase in demand for Easter and Passover.

However, sources also pointed to a big negative in the fact quick-service restaurants are shifting away from burgers due to high beef prices and switching to chicken and fish. This could have a long-term impact on cheese demand and prices, according to dairy market analyst Jerry Dryer.

Fluid (beverage) milk sales continued to decrease last year, according to the U.S. Department of Agriculture, with fluid milk sales down 3.0%. USDA said conventional milk sales were down 3.3%, while organic milk sales were up 2.3%.

 

1. U.S. beef exports (2002-12)

 

Volume (mt)

Value (billion $)

2012

1,130,000

5.510

2011

1,287,259

5.420

2010

1,067,279

4.078

2009

897,376

3.082

2008

984,712

3.619

2007

771,196

2.617

2006

655,920

2.041

2005

472,668

1.365

2004

321,967

0.809

2003

1,274,098

3.856

2002

1,233,769

3.204

 

2. U.S. pork exports (2002-12)

 

Volume (mt)

Value (billion $)

2012

2,260,000

6.300

2011

2,255,334

6.108

2010

1,917,649

4.781

2009

1,865,745

4.329

2008

2,052,447

4.884

2007

1,305,622

3.154

2006

1,262,499

2.864

2005

1,157,689

2.634

2004

1,023,413

2.227

2003

757,406

1.582

2002

726,357

1.504

Source for Tables: U.S. Meat Export Federation.

 

Volume:85 Issue:08

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