farmgate: Livestock Producers: Assume Your Defensive Positions
Farm prices are unbelievable…unless you are a livestock producer on the consuming end of corn and soybean meal, and that high price is a high cost, and instead of piling up profits you are loading up losses. Fortunately, domestic and foreign consumers are still creating strong demand for beef and pork, but the high numbers of animals heading to slaughter and the high cost of production have changed the bottom line color from black to red. So, what are the prospects for reversing that trend?
USDA last week released its latest Livestock, Dairy, and Poultry Outlook and Feed Outlook. They indicate livestock numbers are increasing which will decrease prices and grain fundamentals are pointing to higher prices; neither of which is friendly to a livestock producer.
Pork market. Farrowings, pig crops, and litter rates were all projected upwards in the December Hogs and Pigs report which pointed to continued production increases in 2008, along with lower prices and financial losses for producers. The December report adjusted the June 2007 reports to add 1.1 million head that were previously unreported and another 941,000 to the September report, and those adjustments added to the 9.5% increase in fourth quarter production. USDA economists say the farrowing intentions now for 2008 will raise production by 3.7% over 2007. Resulting market prices are forecast to be 9% below 2007 with lean hog prices ranging $41 to $44 per cwt. With the help of an Iowa State calculation http://www.econ.iastate.edu/faculty/lawrence/EstRet/FA/FA07.pdf USDA says slaughter hogs marketed in December probably lost $25.28 per head. One bright light was the pork export market, which was 4% above equivalent 2006 figures for the first 11 months of 2007, and the currency exchange rate may boost 2008 exports by 17% above 2007.
Beef market. Unlike pork production which is increasing, beef production is decreasing, but the anomaly of drought-impacted range has resulted in higher numbers of beef cattle being marketed ahead of schedule. Additionally, high rates of beef cows and dairy cows are being slaughtered because of high prices of forage. Feedlot placements have also increased because of the lack of winter pasture and producers not wanting to graze wheat in an effort to protect that high-valued crop. The high rate of placements will mean earlier marketing than usual. Livestock economists believe the winter timing of the feedlot placements will mean lower grading and reduced export demand because of poor performance and body condition. Consumer beef demand may also weaken because of the declining domestic economy and plentiful supplies of pork and poultry.
Dairy market. Dairy product prices have been less than stellar from the vantage of the producer: cheese prices have been strong but volatile, butter prices have fallen, and nonfat dry milk exports have fallen 13% and stocks are up 227%. The softening of product prices points to lower milk prices substantially below 2007 values.
Poultry market. In the fourth quarter of 2007 egg set was up 3.7% and chick placement was up 4% over 2006 pointing to higher broiler meat production. Both slaughter rates and meat production are up, as well as frozen stocks. The increased production has translated into lower broiler prices. In the turkey market, USDA economists forecast first quarter 2008 prices above 2007, but then falling 5% below last year for the balance of 2008 because of increased production of both birds and meat.
Feed market. Feed grain supplies are up 16% from 2006/2007, but multiple sources of demand have pushed prices above year ago levels. For the Sept. to Aug. grain marketing year, feed use per grain consuming animal unit is 1.71 tons, but less than the 1.82 ton level in 2005/2006 when prices were lower and DDGS were less plentiful. Feed needs are expected to be strong throughout 2008 and will surpass 2007.
1) 2007 corn production was a record and the surplus will be nearly 1.5 bil. bu. USDA recently raised expected feed use by 300 mil. bu. because of more livestock, but estimates for ethanol production were not raised. A strong export demand is also present, helping push estimated cash prices higher into a $3.70 to $4.30 range for the year.
2) Sorghum yield and production declined in 2007 leading to lower supplies and ending stocks. Both feed and export demand will increase, pushing prices 40¢ higher to a range of $3.60 to $4.20 per bushel
3) Barley and oat supplies remain unchanged, but smaller stocks will mean smaller use. The competing demand from the brewing industry is expected to decline from the slowing economy, but barley price forecasts are up 10¢ to a range of $3.80 to $4.40 per bushel, compared to a season average of $2.85 last year, and oat prices are forecast up 10¢ to a range of $2.20 to $2.80, compared to $1.87 last year.
4) Hay stocks are up 8% compared to last year and disappearance is down compared to last year as well. Yields and acreage were both up in 2007 compared to 2006. Alfalfa and corn silage production were both up in 2007. So far in the hay marketing year, alfalfa hay has averaged $26 per ton above year earlier prices.
Summary:
The outlook for production and cost in the US livestock industry could nearly be the “perfect storm.” Pork production continues to rise, beef cattle are being forced to the market earlier than would be expected, and poultry production remains high with more anticipated. At the same time, high feed costs have continued to increase further because of demand from competing purchasers. While feed supplies will be restocked next fall, demand will remain high, but reduced livestock production is not foreseen in calendar 2008.
Posted by Stu Ellis on January 21, 2008 12:16 AM to farmgate