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Johansson USDA Outlook 2020 FDS.jpg USDA photo by Lance Cheung

Livestock sector poised for continued growth

USDA projects record livestock production with improved trade outlook and low feed costs.

The outlook for livestock and dairy is for another year of record total meat and dairy production, with projected total meat and poultry production projected to reach nearly 109 billion lb. in 2020 as production of beef, pork, broilers and turkey all increase, according to U.S. Department of Agriculture Chief Economist Robert Johansson while speaking Feb. 20 at the Agricultural Outlook Forum in Alexandria, Va.

Many questions remain for the 2020 Agricultural Outlook, probably none more important than the outlook for trade, Johansson said. The three trade deals with China, Japan and the U.S.-Mexico-Canada Agreement alone cover over half of U.S. agricultural exports.

Johansson did project an overall increase in agricultural exports at $139.5 billion, up $4 billion from 2019, with nearly all of that increase due to higher projected exports to China. However, this is far from the $40 billion promised under the phase one trade deal between the U.S. and China.

In response to questioning, Agriculture Secretary Sonny Perdue said the estimates do not account for the China deal, but he expects “exports to be much greater.” He also remained confident that the enforceability provisions included by U.S. Trade Representative Robert Lighthizer will allow China to meet those commitments of $40-50 billion per year.

Both Johansson and Perdue said they expect purchases from China to pick up this spring, depending on the ongoing impact of the coronavirus outbreak. Johansson said he projects increased purchases to pick up in the second quarter and on into the fourth quarter of 2020.

The Japan free trade agreement should begin to spur rising demand for U.S. meat products and subsequent price increases, the chief economist noted.

The losses in China from the African swine fever are far larger than all of global pork trade. “This situation will take time to resolve and will continue to affect prices for animal proteins,” Johansson said, adding that the shortage will create a significant hole in proteins that could be filled by U.S. beef, poultry and higher exports of pork coming from the U.S.

Steady growth in production

The modest growth in beef production in the first part of the year reflects a higher rate of marketings and heavier carcass weights. However, with a smaller calf crop in 2019, placements and late-year marketings are expected to slow in the second half of the year.

Johansson said current projections for fed steer prices average $117.00/cwt., about the same as 2019, supported by solid demand.

Broiler production is also expected to rise as the sector continues to expand the laying flocks.

Prices for broilers, however, are facing increased pressure from expanding production. Prices declined in 2019 and are expected to decline further in 2020 to average 87 cents/lb.

Milk production is projected to reach 222 billion lb. in 2020. With the dairy herd virtually unchanged from last year, the increase will be driven by continued gains in milk per cow and the extra milking day associated with a leap year.

The all-milk price is expected to rise just over 1% this year to $18.85/cwt. Butter prices and whey prices show some decline as large supplies clear the markets, but cheese prices are expected to be higher as stocks have been worked down and as demand improves, Johansson said during the outlook’s opening session. Nonfat dry milk is expected to show price strength on improved prices in the global market.

“With an improved forage base and improved milk prices, margins are expected to improve modestly in 2020,” he said.

Johansson said dairy production is expected to grow 13% over the next 10 years, but milk prices are expected to increase only 5% -- harmed by its own improved efficiencies of producing twice as much total milk with 60% fewer cows versus 90 years ago. The majority of dairy operations have costs of production that are greater than the all-milk price, but the majority of milk production is occurring on operations with costs lower than the all-milk price.

“Based on this, we would expect to see continued consolidation in the dairy sector,” Johansson said.

The rate of growth in pork production in the near term largely will reflect increased supplies of slaughter hogs as producers continue to expand production.

“Although producers have indicated that they will be cautious in their farrowing plans, gains in pigs per litter will support growth in hog supplies,” Johansson said. “That growth largely parallels increased demand globally for pork as China and other Asian countries are affected by the outbreak of African swine fever.”

Hog prices are expected to increase to $49.00/cwt., up 2% from last year. Despite higher production, increased demand -- both foreign and domestic -- will support higher pork prices, Johansson said.

Productivity increases

From a long-term perspective, animal production over the 10-year baseline projection period is characterized by amazing progress in productivity with subsequent declines in real prices. Over the past half-century beef, pork and chicken prices have fallen by more than 50%, and output in the U.S. has more than doubled. These trends are likely to continue.

“For example, over the next 10 years, we expect U.S. pork production to increase by 12%, exceeding 32 billion lb. As a share of production, pork exports increased from 19% in 2010 to 23% in 2019 and are forecasted to be 33% by 2029,” Johansson said.

In the beef cattle industry, the feed price ratio (cattle price to feed price) is expected to decline over the next 10 years, reflecting both modestly lower cattle prices and slowly rising feed prices and suggesting lower production returns. In the hog industry, the feed price ratio is expected to start strong and then decline before recovering some of its value by the end of the decade. The broiler industry’s feed price ratio is also expected to start strong but decline for the remainder of the decade.

Meanwhile, both domestic and global demand for total meat and dairy products are expected to remain strong. U.S. red meat and poultry production is expected to increase over the projection period due to efficiency gains and structural change. Milk production is also anticipated to rise, with gains in both the dairy herd and milk per cow rates, along with higher farm prices.

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