Producer prospects finally improving

Producer prospects finally improving

- Beef industry preparing to make "slow turn." - Pork industry expected to see additional profits in second half. - Stronger poultry p

WHAT a difference a year can make. Last year, the nation was gripped in a back-breaking drought, livestock producers were dealing with record-high feed costs and expansion was the furthest thing from most analysts' minds.

Now, the drought has long since passed for the eastern half of the country, feed costs are on their way down and herd and flock expansion is a very real prospect — if not already occurring — at least for the pork and poultry sectors. Even prospects for beef producers, who a year ago were facing a pretty gruesome outlook for the latter half of 2012, may be ready to turn the corner.

In the "Cattle on Feed" report released July 19, the U.S. Department of Agriculture reported a feedlot inventory of 10.4 million head as of July 1 (Table 1), down 3% from year ago. This was on par with what traders had anticipated ahead of the report.


1. Feedlot inventory, July 1 (million head)





2013 as %





of 2012

June 1 inventory





June marketings





June placements





July 1 inventory






Placements fell 5%, marking 1.59 million head during the month, also in line with pre-report expectations.

Fed cattle marketings fell 4% during the month, and though that was slightly better than analysts had anticipated, the 1.9 million head marketed was the smallest number for the month of June since USDA began the data series in 1996.

High feed costs, not surprisingly, have put cattle feeders in a pretty sour mood over the past couple of years. Economists Len Steiner and Steve Meyer noted in the "Daily Livestock Report" that the USDA report illustrates that reality.

"Faced with a sharp increase in feed costs and the resulting jump in the cost of gain, producers have sought to maximize the pounds they put on cattle outside of feedlots," they wrote. "Despite an ever-shrinking calf crop, the supply of cattle outside of feedlots as of Jan. 1 was ... 0.7% larger than the previous year. Those extra feeders have been coming to market at weights well above year-ago levels."

In some cases, improved pasture and forage availability has allowed cow/calf producers to keep calves on grass longer. Unfortunately, USDA discontinued its July 1 cattle inventory report as part of its sequestration-related budget cuts, so the market will have to wait until January to get a full picture of the actual cattle herd.

Meyer and Steiner predicted that, going forward, feeder supplies will be notably tighter, paving the way for smaller placements and reduced slaughter for 2014.

Last week, USDA also released its June "Livestock Slaughter" report, showing that commercial red meat production in the U.S. fell 4% from the previous year to 3.86 billion lb. Beef production was down 4%, with cattle slaughter down 5% at 2.73 million head.

While feeders are moving fewer head than they were a year ago, they're adding a few more pounds to each carcass: The average liveweight was up 17 lb. from the previous year, clocking in at an average 1,307 lb. per head slaughtered.


'Slow turn'

Despite the persistent doom and gloom, however, the beef industry may be poised to make what one leading economist last week called "a slow turn."

Purdue University professor Chris Hurt said while the number of beef animals in the U.S. has been in a downward spiral since 2007 due to drought and high feed costs, the industry is about to reverse course.

"Pastures and ranges have returned to favorable conditions for much of the country," Hurt said. "Nationally, 73% of pastures are rated in the fair, good or excellent condition categories this year, compared to only 46% at this time last year."

With new-crop corn prices already at a $2/bu.-plus discount to current supplies and fall soybean meal bids as much as $200 per ton cheaper, Hurt said operations might find feeding that cattle will become more affordable sooner rather than later. Markets could drop even harder when harvest starts later this fall.

Unfortunately, pasture and range conditions have not improved as rapidly in the central and southern Plains and the western cattle-centric regions of the country. Those regions are home to 43% of the nation's beef cows and have seen a 14% drop in cow numbers since 2007.

Beef cow numbers have declined in the Southeast by about 700,000 head, or 12%, during that same time frame. Numbers in the Midwest are down 14%, or roughly 680,000 head. Both regions have seen considerable pasture improvements during the first half of 2013.

Hurt said heifer retention will be a slow process at first and most likely will commence this fall in the eastern half of the U.S. and perhaps in the western Corn Belt and northern Great Plains; those regions are home to 46% of the cow herd.

"Lower feed prices alone will not be enough to get retention started, but higher calf prices will be required as well," he cautioned. "That process is also under way."

He noted that prices for 500 lb. calves in Oklahoma have increased by about 15 cents/lb. since early June, with 600 lb. steers worth about 13 cents more over that six-week period. Prices closer to $2/lb., however, may be needed to convince cow/calf producers to more aggressively retain heifers.


Rosier pork outlook

All signs point to a far rosier outlook for hog production in the latter half of 2013. While the effects of porcine epidemic diarrhea virus remain an open question, improved margins are expected shortly, if they haven't already shown up in producers' profit-and-loss statements.

"With declining feed costs resulting from bumper harvests, a subdued price increase will support a much-needed margin recovery around the globe," Rabobank analyst Albert Vernooij said. "However, due to both the slow increase of pig prices and slow decline of fed costs, it is questionable whether this will be enough to fully cover losses endured in the first half of 2013."

Vernooij forecasted a shallower recovery in the second half than had been anticipated previously, and lower hog prices are to blame.

With production expected to ramp up slightly, large supplies of pork could keep a lid on prices.

Year over year, U.S. hog prices are up 3% from 2012, and prices improved a whopping 12% in the second quarter of 2013 (Table 2).

A somewhat smaller improvement in Canada also helped drive Rabobank's five-nation finished hog price index higher despite challenges in other parts of the world (Figure).

According to USDA, pork production in June fell 4% from the previous year as hog slaughter dropped 4% from the previous June to 8.2 million head. Average liveweights held steady at 274 lb.

From January through June, total commercial red meat production was off just 1% from last year, at 24.1 billion lb. Beef production through the first half was off just slightly, pork production was down 1% and lamb production actually gained 1% on the year.


2. Global average hog process, including quarter-over-quarter (QOQ) and year-over-year (YOY) growth, second quarter 2013









































European Union






Sources: Bloomberg, European Commission, USDA.

Producer prospects finally improving


Poultry positive

Chicken prices are strong, and companies appear to be ready to take advantage of cheaper feed costs. Meyer and Steiner noted earlier this month that the national composite broiler price is running at least 22% higher than it was last year, with breast prices up as much as 32%.

Hatcheries recorded 762 million broiler-type eggs hatched in June, up 1% from last year, with eggs set up 3%.

What was perhaps even more telling was that breeders placed 7.01 million pullet chicks for future breeding during June, up 3% from 2012.

Poultry slaughter during the month was down 4% from last year, following a revised 1% decline in May. Slaughter totaled 3.53 billion lb. last month, with average liveweights up 1% for both young and mature chickens.

Turkey slaughter, meanwhile, fell 7%, although average weights were up slightly from last year.

Turkey eggs set as of July 1 were down 9% from last year at 27 million. The number of poults hatched was off 15%, and net placements were down 16% to 21 million. 

Volume:85 Issue:30

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