farmgate: Profitability For Livestock Producers: Is There Any Hope?
High input prices, marginal to poor market prices, distant prospects for price improvement, all paint a drab picture of the livestock industry. Pork and beef producers have tried to remain afloat while production cycles put more meat into the market and spoil the prospects for profitability. With the seasonal shifts in livestock production and feed availability, let’s take a look at the near term economics for the US meat production industry.
Beef
The beef production cycle had just been expanding when high feed prices hit, and following a static period in production rates, higher slaughter rates for beef cows and fewer heifers being retained have marked a downtrend in the beef herd. And USDA economists say that points to the likelihood for higher cattle prices in 2009. USDA’s monthly Livestock Outlook indicates that pressure may ease a bit on producers. Part of the help came from the hurricanes that brought moisture to pastures and fields where winter wheat could be grazed. Recent rains mean feeder calves can be kept on pasture longer than expected and that will keep costs down. USDA prices have stayed in the upper $90 range, despite lower values for meat. However, selling prices remain below break-even values. One glimmer of hope is the growing beef export market, helped by the lower dollar and higher overseas demand.
Dairy
The dairy herd continues to grow from the high milk prices of the past several years, but a slight contraction is expected by USDA next year, resulting from high feed costs and low milk prices. While overall milk production will be slightly higher next year, the increased production per cow will be relatively small, and economists say that indicates larger dairies are lowering their breakeven points. Demand growth is slowing for dairy products because the slowing economy has curtailed restaurant needs for butter and cheese. Large export demand ignited the dairy market two years ago, but that has slowed. USDA believes the slower growth in milk production should limit declines in prices.
Poultry
Broiler meat production is up slightly, but from heavier birds and not increased inventory. However 2009 production is expected less than 2008. USDA says chick placements are sharply lower than year ago levels, and the growth in numbers of broilers slaughtered has been from very heavy birds. Those trends point to reduced production. Broiler integrators are looking at a slowing demand for meat and higher feed prices. Exports, however, are up 13% over last year, but exports to China are expected to slow with the conclusion of the Olympics. Turkey production is up 9% from year ago levels, due to the increased number of birds slaughtered, but prospects are down for 2009 due to weaker demand and higher feed costs.
Pork
The pork market is a picture of strong export demand, causing strength in hog prices and keeping retail pork prices up. Despite lower domestic consumption, prices remain competitively priced with ground beef and chicken. July exports were 86% above July of 2007 with 23% of US pork being exported. Helping the pork economy is a 17% decline in imports because of the low dollar value. Similarly live hogs from Canada are down 5% from year ago levels.
Feed Outlook
Supplies of feed grains will be down for the coming year, the function of dry weather in the Cornbelt during August. USDA’s Monthly Feed Outlook says along with the lower supply is a reduced demand for domestic feed grains. The index of grain-consuming animal units is forecast by USDA to be down by 1.51 million over last year, spread over all animal groups. Additionally, grain consumed for feed will be down, but will be replaced, in part, by distillers’ grains. USDA is forecasting the season average corn price for 2008 corn at $5-$6 per bushel and sorghum at $4.45-$5.45 per bushel, with barley and oat prices unchanged from last year.
Summary:
Challenges to profitability remain ahead for US livestock producers. While feed costs may be slowly stabilizing, domestic demand is softening, which will curtail price strength for many meat products. Surprisingly, prices will remain relatively strong, helped by the low value of the dollar that will continue to spur export demand, particularly for pork. Beef production is beginning to decline, and with less beef and poultry on the market, consumer prices will not fall quite as fast as if production had remained at high levels.
Posted by Stu Ellis on September 24, 2008 12:08 AM to farmgate