AFTER several challenging years with high input costs, livestock producers should see some improvement in farm income for 2014 due to lower feed costs, according to a new farm income forecast from the U.S. Department of Agriculture's Economic Research Service (ERS).
Although two major expenses — feed and livestock/poultry purchases — are anticipated to move in opposite directions, the net result is expected to yield a $5.1 billion decline in overall expenses for both livestock and poultry producers.
Dairy producers are forecasted to have the best year, with a calculated increase in dairy receipts that will more than counterbalance a decline in egg and hog receipts for the year.
Based on pork producers' farrowing intentions and expectations for greater slaughter weights, production will increase slightly, while anticipated lower annual hog prices will decrease hog receipts. Still, porcine epidemic diarrhea virus will create uncertainty.
For poultry, ERS predicts that more eggs will be sold at lower prices in 2014 than last year. Annual broiler prices for the year will also be lower, with increased production anticipated and 2014 starting with higher stocks.
According to ERS, more turkey receipts signal higher estimated prices and production. However, the export market for turkey may be negatively affected by lower-cost broiler products that can be easily substituted for turkey products.
Cattle receipts are projected to be stable this year, with the gain in price offsetting the decline in beef and veal production.
Improving returns for livestock producers will provide an incentive to increase production, but the progress will be slow, according to ERS.
As such, total U.S. red meat and poultry production is forecasted to increase through 2023, based on the 10-year projection ERS released last week (Figure 1).
A long-term upward trend for the next 10 years is in store for milk production, with growth in output per cow coinciding with rising dairy cattle numbers through 2017, after which numbers will decline.
An increase in pork production over the next decade will be supported by productivity gains in the breeding herd, coupled with an increase in slaughter weights, ERS said.
Over the next 10 years, poultry production is also anticipated to rise, but at a slower rate than in the 1980s and 1990s, with both broiler and turkey meats expected to expand due to an increase in the number of birds and higher average slaughter weights. ERS projects that increased demand will strengthen broiler prices, but after 2016, poultry will encounter strong competition from increased red meat production.
Beef production is projected to continue to decline through 2016 due to historically low cow inventories and higher heifer retention. The total cattle inventory is expected to expand from 88 million head at the start of 2014 to 96 million in 2023.
As a result of lower overall meat production and an increase in net exports that has driven consumer prices higher since 2007, the annual average per capita consumption of red meats and poultry is forecasted to be less than 203 lb. in 2014, down from more than 221 lb. in 2004-07. Nevertheless, according to ERS, with production growth during 2014-23, per capita consumption of red meats and poultry is estimated to increase to 215 lb. by 2023.
Throughout the projection period, poultry consumption is expected to increase, surpassing levels of previous decades, while per capita pork consumption will rise through 2017 and taper off starting in 2018. On the other hand, per capita beef consumption is expected to decline through 2016 before a moderate rise for the remaining seven years.
Likewise, domestic use of dairy products is forecasted to climb faster than the U.S. population growth. Although per capita consumption of fluid milk products is expected to continue to decline, demand for cheese will grow.
Nominal farm-level milk prices will continue to decline through 2016 but should rise for the remaining projection period. As stated in the ERS report, real price decreases largely reflect efficiency gains in production. In the last several years of the next decade, nominal milk prices are estimated to exceed $20/cwt.
As production for hogs and broilers increases in the initial years of the projection period, prices will decline, but in the last half, as production gains slow, prices for hogs and broilers will increase slightly. Beef cattle prices, on the other hand, will increase as production declines.
Over the next 10 years, U.S. dairy exports are forecasted to increase steadily, with both fat and a skim-solid basis reaching record levels. The dairy industry is in a position to expand exports while growth in competing countries is projected to lag.
Robust global economic growth at a time when the U.S. dollar is weak will drive increased exports of U.S. red meat and poultry over the next decade (Figure 2).
Pacific Rim nations and Mexico will be key markets for long-term growth in U.S. pork exports, but Russia's attempt to expand domestic pork production will affect pork exports for the U.S. and Brazil. Still, ERS is projecting a rise in U.S. pork exports over the next 10 years.
A lower cost compared to beef and pork will keep international demand for broilers high. Thus, U.S. broiler exports are anticipated to increase throughout 2014-23, with major markets including China and Mexico.
In general, U.S. beef exports are expected to grow, especially for high-quality, grain-fed beef. However, the U.S. will import more processed beef due to low beef cow slaughter during the herd rebuilding period.
With limited movement of animals, especially hogs, and lower restaurant sales associated with the continuous cycle of cold temperatures and winter storms, most markets were reporting limited trading activity last week, with light demand.
Weather forecasters are projecting an improvement in the weather pattern in the last half of February, which will provide relief to hog slaughter activities. Last Thursday, hog slaughter was down 87,000 from a year ago, with slaughter totaling 1.585 million for last week.
The bulk of the hogs were purchased at the top end of the price spectrum, especially as packers in the Southeast tried to secure enough supplies before the storm hit the region. At last Thursday's close, the eastern Corn Belt was bidding $2.37 more, at $82.92/cwt., and the western Corn Belt was bidding $2.04 more, at $85.20/cwt., than at the start of the week.
Pork cutout values steadily increased last week, and lean hogs ended mostly higher.
Fed cattle rallied last Thursday and finished the week trading almost $1 higher than the previous week, but well below two weeks ago, in hopes for firmer cash trade and steady demand.
After a decline of $30/cwt. over the past three weeks, some market observers perceive stabilization in wholesale beef cutout values and see returning demand from grocery stores and restaurants for ground beef, roasts and other products, according to John Otte, Farm Progress market analyst.
For the chicken market, activity last week was reported as slow to moderate due to weather conditions. Breast meat finished strong last Thursday at $1.955/lb., while wings were holding steady post-Super Bowl at $1.30/lb.
The turkey markets have been unchanged for four weeks straight, with a national offer of 96 cents to $1.04/lb. for hens and 96 cents to $1.02/lb. for retail-size toms.