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Beef cow, hog breeding inventories will contract soon

Producer net returns in both industries have declined sharply from levels that began recent expansion.

Beef cow and hog breeding inventories have increased for the fifth consecutive year to begin 2019, economists with the University of Missouri Food & Agricultural Policy Research Institute (FAPRI) and Agricultural Markets & Policy (AMAP) team noted in the newly released annual “U.S. Baseline Outlook” report. However, the report noted that as producer net returns in both industries have declined sharply from the levels that began the recent expansion, herd sizes will begin to contract soon.

According to the authors, however, the extent of the reductions will depend upon pasture conditions and feed prices. Additionally, productivity growth will partially offset breeding herd declines.

Regarding prices, the report said cattle prices will drift lower through 2020 before inventory reductions lead to beef production declines. In fact, fed cattle prices have already fallen for three of the past four years, it said.

Still, continuing strong consumer demand for beef, particularly high-value cuts, has supported prices well above the levels of previous decades, the report pointed out.

For the hog sector, it said hog prices have struggled due to burdensome domestic meat supplies and trade challenges.

“Prices this year and in 2020 are projected to be at or near the lowest since 2009. This has led to financial losses for many producers, even as feed prices remain relatively stable,” the report stated.

The report said additional hog slaughter capacity has allowed record-large numbers of hogs to be processed, but domestic demand for pork has not supported hog prices to the same extent that beef demand has supported cattle. African swine fever also continues to be a wild card as potentially large export gains due the spread of the disease in China remain a possibility, the outlook added.

According to the report, the amount of meat available for U.S. consumers has fully recovered from the 8.8% decline experienced from 2007 to 2012, when the combination of large meat supplies and the economic recession that started in 2008 resulted in sharp downward corrections to livestock prices in 2009. Although the economy and meat demand appear to be on more solid ground than the case was then, there is growing concern regarding the amount of additional growth that can be sustained without sharp price declines.

Regarding meat exports, the outlook reported that meat exports have grown in recent years, with total beef, pork and chicken shipments reaching a record 16.2 billion lb. in 2018. However, the report emphasized that continued export growth is crucial for livestock and meat industry profitability, especially since further increases in meat production are expected for the next couple of years.

Overall, the report said total livestock receipts less feed and purchased livestock expenses form a rough margin calculation for profitability, even though livestock producers incur many other expenses outside these two categories.

“Livestock industry net returns are expected to remain mostly flat through 2020, below the record highs of 2014-15 but above levels prior to 2011,” the report said. “Strong consumer demand for meat and dairy products drive projected increases in the long term, though many uncertainties exist regarding economic and trade issues.”

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