Data finally change

Data finally change

- Supply/demand situation suggests rising production. - Beef exports to Japan a long way from recovery. - Beef and pork fundamentals n

DATA on meat and poultry supplies issued by the U.S. Department of Agriculture last week indicate that producers, especially chicken and pork producers, are finally starting to bring meat and poultry production into line with consumer demand.

Corn prices -- and costs for other feed ingredients -- spiked in 2008 and continued to increase in subsequent years due to the draw on corn for ethanol production and, last year, the drought in the Midwest.

In response, livestock and poultry producers decreased production enough to increase prices for their animals enough to cover higher feed costs. As a result, meat and poultry supplies dropped significantly behind the population growth rate, and prices rose for livestock and poultry as well as for consumer prices of meat and poultry.

However, producers are learning to deal with higher feed costs and responding to expectations for record-large corn production this year, so livestock and poultry production this year will approach or exceed 2008 levels. It won't come around full circle due largely to beef production that will continue to shrink as farmers and ranchers, for a number of reasons, hesitate to build herds.

This supply and demand situation is shown in the Tables.

Increasing production may be one reason why waiting for the seasonal spring rally in beef and pork demand and prices is like watching grass grow, according to Feedstuffs sources.

There are other reasons, too. Ron Plain at the University of Missouri, in his weekly notes, said the March employment numbers were disappointing, with just 88,000 jobs created, while almost 500,000 people either quit working or quit looking for work, putting the workforce at its lowest level in more than 30 years. "It's people with jobs that drive meat demand," he said.

Plain also said the Bank of Japan is pursuing a monetary stimulus that will lower the value of the yen and make imported products, like U.S. beef and pork, more expensive. Japan was the largest export market for U.S. pork and the second-largest market for U.S. beef last year, he noted.

The stimulus may result in preventing the U.S. beef industry from realizing expectations of recovering the Japanese market it lost following the discovery of bovine spongiform encephalitis (BSE) in the U.S. cattle herd in 2003.

Domestic beef production in Japan is relatively expensive because the country has little land on which to graze cattle, so the cattle, therefore, are fed intensively from weaning to slaughter, according to John Dyck and Rachel J. Johnson at the U.S. Economic Research Service (ERS).

Japanese consumers eat domestic beef for celebratory or special occasions, which is why a market opened there for less-expensive imported beef for casual occasions, they said in an article in the ERS March "Livestock, Poultry & Dairy Outlook."

By 2000, Japan was importing about two-thirds of its beef supply, about half of which was U.S. beef because grain-fed U.S. beef tastes the closest to grain-fed Japanese beef, they said.

Data finally change
However, U.S. beef was banned following the BSE discovery and remained banned until 2005, when Japan permitted imports of beef from 20-month-old or younger U.S. cattle, they said. Since then, the U.S. has recovered 41% of the market it once had in Japan -- or 26% of the total Japanese market for imported beef (Figure), they said.

In February, Japan and the U.S. reached an agreement allowing beef from U.S. cattle under 30 months old to be exported to Japan, which gave rise to hopes of recovering the rest of the market, Dyck and Johnson said, but those hopes may need to wait now because of the yen/dollar relationship.

Furthermore, Japan has an aging and shrinking population, which may dampen beef demand in the country, and the U.S. has important markets to maintain in other parts of Asia and the Pacific, they said.

The U.S. beef industry will need several years to rebuild the Japanese market, sources said.

Fundamentally, the beef and cattle markets should be into their spring rally as cattle supplies and beef production tighten and beef demand picks up for grilling and the Memorial Day weekend, according to Bob Price at North America Risk Management Services Inc. However, the weather has been just lousy for grilling, and there are reports that "a fair amount" of beef has already been booked for Memorial Day, he said.

The cattle supply tightness will be confirmed -- again -- in this week's feedlot inventory report that's expected to show the lowest March placements in the history of the report, which began in 1996, and the smallest April 1 inventory since 1999, analysts said in pre-report estimates.

Fundamentally, the hog and pork markets should also be into their spring rally as hog supplies and pork production tighten and pork demand picks up, but the weather is just as lousy for pork as it is for beef, according to Dennis Smith at Archer Financials. Additionally, while avian influenza in China could push consumers there to pork, food price inflation there is slowing, which decreases the competitiveness of U.S. pork against Chinese pork, he said.

Another issue that may hit beef and pork hard is the growing possibility that Canada may retaliate against what it calls the discriminatory U.S. country-of-origin labeling law by assessing $1 billion in tariffs on U.S. exports to Canada, including beef and pork.

The measure restricts Canadian and Mexican exports of cattle, hogs, beef and pork to the U.S., and Mexico could very well follow Canada's lead, sources said. Last year, Canada was the largest export market for U.S. beef and the second-largest market for U.S. pork, and Mexico was the number-three and number-two market for U.S. beef and pork, in that order.

The cattle markets decreased $1.00-1.50 last week and were $127.50-128.00/cwt. in the North last Thursday and $127.00 in the Southwest last Wednesday, 3.9% higher than year ago.

The hog markets rose 33 cents to $2.72 last week and were $76.35-81.52/cwt. on a lean carcass basis last Thursday, equivalent to a $58-62 cash hog market and 1.0% lower than year ago.

The chicken markets were mostly unchanged last week, down 1 cent to up 1 cent at $1.05-1.10 and 99 cents to $1.04/lb. in the eastern and midwestern regions last Thursday, 25.7% more than year ago.

The egg markets lost another 22 cents last week and were 94-98 cents and 84-86 cents/doz. for large-sized eggs delivered to eastern and midwestern store doors last Thursday, 2.0% under year ago. Egg prices have now plunged 52 cents in four weeks as markets restructure following Easter, but sources said last week's drop should be "about" it.

The dairy markets continued to rally last week, with butter and cheese prices more than 20% higher than year ago as global demand for U.S. dairy products picks up, sources said.

 

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

37.202

5.791

43.514

92.746

196.2

6.590

2012

25.913

23.251

49.437

37.039

5.967

43.523

92.960

200.3

6.722

2013

24.880

23.505

48.654

37.910

6.110

44.535

93.189

201.8

6.810

2013 as % of 2012

96.0

101.1

98.4

102.4

102.4

102.3

100.2

100.7

101.3

2013 as % of 2008

93.7

100.7

96.9

102.7

97.8

99.6

99.8

106.2

106.4

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

247.7

2012

57.4

45.9

104.5

80.4

16.0

97.8

202.2

249.7

2013

55.7

46.8

103.6

82.6

16.6

100.5

204.1

251.1

Note: Meat and poultry consumption is retail weight basis.

 

3. Meat, poultry, milk and egg prices

 

Steers

Hogs

Chickens

Turkeys

Milk,

Eggs,

Year

-$/cwt.-

-Cents/lb.-

$/cwt.

$/doz.

2008

92.27

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

18.51

1.17

2013

128.50

59.0

100.5

101.0

19.70

1.17

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:15

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