THE U.S. economy is growing, and a growing economy is generally good for meat demand, according to Len Steiner, pork industry economist with Steiner Consulting Group. Some positive indicators include a stock market that has hit an all-time record high in the last few weeks and consumer confidence that remained good during a brutal presidential election, he said.
"Now that we know who the next President will be, we expect consumer confidence to be further increased. The American public likes certainty and dislikes unknowns. With certainty should come good meat demand," Steiner said, adding that unemployment is also down.
The increased corn supply means more meat availability for U.S. consumers, Steiner said. Corn production in the 2012-13 marketing year was 10.7 billion bu. In the three years after this, average corn production was 13.9 billion bu. This year, U.S. farmers are going to harvest more than 15 billion bu., and "most is in the bin at this time," Steiner said.
Corn prices peaked at $8.00/bu. in 2012, but they currently are in the $3.00-3.50 range around the Corn Belt. "You can see the impact of the lower corn price in total meat protein output as producers convert the mountains of corn into meat," Steiner said.
Total meat production in 2014 following the corn price spike was 90.9 billion lb. "By 2018, we expect beef, pork and poultry output to exceed 101 billion lb. You have to go back to the mid-1990s to find a similar four-year jump in meat production (Figure)," he noted.
In 2016, U.S. pork production will set an all-time record at 24.96 billion lb. "With more pork expected in 2017, we're currently estimating that at 25.6 billion lb.," Steiner said.
Sticky retail prices have also affected wholesale pork prices and hog values in the short term, according to Steiner, and as "much as we would like prices at retail to adjust quickly so consumers can increase their meat consumption at least when prices are coming down, history tells us that those adjustments take time."
Steiner said the average retail price in October this year was about $3.74/lb., 5.8% below a year ago but still 8% higher than where it was five years ago. The value of the pork cutout is currently down about 16% from a year ago and 26% lower than five years ago.
Why this sticky price? Steiner said retailers have learned over the years that consumers do not make abrupt changes to their eating patterns. "Retailers will initially focus on special holiday promotions and then, over time, lower the overall base price of the various items they sell in the meat case," he explained.
For foodservice operators, the decline is even slower, Steiner added. "Due to printed menus and fixed menu boards, it takes several months for larger foodservice operators to develop new menu items and coordinate with their marketing," he said.
The good news, according to Steiner, is that both retailers and foodservice operators feel more secure about the supply prospects in the medium term, which "means continued declines for meat prices at retail and broad promotion activity."
Steiner estimates that per capita meat consumption for pork, beef and poultry will be about 262.3 lb. per person in 2017 and 264.6 lb. in 2018.
A challenge for producers is that processing capacity has not kept pace with the supply growth, Steiner said.
Last year and this year, U.S. pork production will once again exceed beef production levels. "As supplies have expanded, processing capacity has lagged a bit behind," he said. "In the short term, that has put downward pressure on hog prices this fall, but new plants are scheduled to be opened in the next 18 months, which should alleviate some of the pressure and help narrow the gap between hog prices and the price of pork at wholesale and retail."
Steiner also emphasized that exports remain key for the U.S. pork industry outlook. In 2016, more than 20% of the pork produced in the U.S. will go to export markets, he said, which compares to about 16% for chicken and less than 10% for beef and turkey. "As the pork industry expands, robust exports remain key for a healthy and profitable pork industry in the U.S."
Steiner said there are certain headwinds for U.S. exports, including a strong U.S. dollar, weaker demand in some emerging markets and increased 2016 competition from Europe. The competition from Europe is expected to subside somewhat in 2017.
"The reality is that U.S. hog producers are some of the most efficient and low-cost producers in the world and should be able to successfully compete in the global marketplace with their internationally recognized safe and nutritious products," Steiner said.
While the high value of the U.S. dollar and competition from other countries in key export markets have curbed U.S. pork export demand, there are positive signs on the horizon.
"About 25% of U.S. pork production goes overseas, and we need to keep moving product to keep producers profitable," said Becca Nepple, vice president of international trade for the National Pork Board. "Mexico, China, Japan, Korea and Canada are our big five buyers, and the pork checkoff — through the U.S. Meat Export Federation — continues to invest in pork promotions overseas."
Patrick Fleming, director of market intelligence for the National Pork Board, said the fourth quarter is consistently the strongest for pork sales.
"In 2015, fourth-quarter pork sales totaled $3.6 billion, with the 1.125 billion lb. representing 28% of the sales for the entire year," he said. "The industry is prepared for a similar situation in 2016."
Fleming added that in foodservice, pork is on trend to be the fastest-growing protein.
December live cattle futures posted some gains in the month of November after falling to a monthly low of $101.65/cwt. on Nov. 7. Nearby contracts closed higher Nov. 30 at $110.75/cwt.
January feeder cattle futures followed the same trend. Nearby contracts fell to $116.25/cwt. on Nov. 7 but closed higher Nov. 30 at $128.425/cwt.
The beef cutout was fairly steady during the past month. On Nov. 30, Choice closed at $189.95, up from $187.44/cwt. on Nov. 2, and Select closed at $172.77/cwt., down from $173.93/cwt. on Nov. 2.
December lean hog futures were mixed for the first half of November, hitting a low of $46.125/cwt. on Nov. 15. However, the market has since posted gains, closing higher at $51.025/cwt. on Nov. 30.
The wholesale pork cutout finished at $73.32 on Nov. 30, up from $72.58/cwt. on Nov. 2. Loins were sharply lower at $64.31/cwt., down from $69.20/cwt. on Nov. 2. Hams were higher at $76.85/cwt. Bellies fell during the month from $108.80 on Nov. 2 to $97.47/cwt. on Nov. 30.
Hogs delivered to the western Corn Belt closed at $44.01/cwt. on Nov. 30, down slightly from $44.63/cwt. on Nov. 2.
In the poultry markets, the Georgia dock was $1.0975/lb. on Nov. 28, down slightly from the Nov. 2 price. Breast meat prices fell from $1.59/lb. on Nov. 2 to $1.36/lb. on Nov. 28. Leg quarters were slightly lower at 28 cents/lb., while wings increased to $1.57/lb. The U.S. Department of Agriculture reported the Northeast region whole broiler/fryer weighted average price at 83.47 cents/lb. on Nov. 25.
Egg prices were mixed over the past month. Large eggs delivered to the Northeast were 52-56 cents/doz. on Nov. 30, down from 69-73 cents/doz. on Nov. 2. Prices in the Southeast and Midwest were higher at 51-54 cents and 44-47 cents/doz., respectively. Large eggs delivered to California were $1.10/doz., compared with $1.28/doz. the prior month.
In the turkey markets, prices for hens and toms were slightly lower than the previous month, at $1.09-1.15/lb. and $1.045-1.145/ lb., respectively.