For the past year, there has been a queasy feeling within the livestock industry. A group of entrepreneurs which adds value to agriculture, has been looking at its investment wither in the wake of a hot market for livestock feed. Now with acreage known and yield estimates in hand, the production cost uncertainties have been reduced. But how is the livestock industry reacting to the new era in agriculture?

The outlook for the US livestock industry is a bit more relaxed than it was six months ago when grain prices were rising and no one knew when they would peak. USDA’s Livestock, Dairy, and Poultry Outlook indicates transitions are being made by livestock producers to regain control of their economic lives.

The pork industry is growing according to the June 29th Hogs and Pigs Report, with a 1% increase in the breeding herd. At the same time, litter rates continue to grow with the second quarter reaching 9.15 pigs per litter. That is nearly 1 additional pig since 1995. USDA says that implies almost 22 billion pounds of pork to be produced in 2008, up 1.5% from 2007 production.

The export market slipped a bit in recent months due to 20-30% reductions in demand from Mexico and Russia, which are two major markets. Mexico’s economy is softening, but Russia business is responding to aggressive Brazilian pork exporters. Overall, pork exports are expected to be flat for the balance of 2007 compared to 2006, however USDA says lower pork prices from increased 2008 supplies will regenerate export business.

For the second half of 2007, pork supplies will grow and prices are expected to be $51-53/cwt, compared to a range of $45-49 for the fourth quarter. At the meat counter, retail pork has been more expensive than last year due to higher marketing costs.

For the beef market price volatility has corresponded to grain price volatility. Higher feed prices, reduced hay stocks at the end of the winter, and flood-prone pastures resulted in increased cow slaughter this year compared to the past two years. USDA says that sets the stage for a slower expansion in the cattle inventory. Despite high feed prices, the low inventory of feeder calves has supported that market. Fat cattle prices are 7% above last year and that corresponds to lower slaughter, lower slaughter weights, and overall lower beef production. Lower heifer retention and higher cow slaughter indicates a decline in the breeding herd.

Beef prices at the meat counter have been volatile, in part by lower supplies of choice beef. Retail prices currently are 1% above 2006, and the spread between wholesale cutouts and retail beef is narrowing. The increasing demand by Japan and Korea will help to keep upward pressure on retail beef.

Dairy prices are at record highs, not because of my consumption of ice cream, but due to tight world supplies of dairy products and the weak US Dollar that causes buyers to come first to the US. USDA says 2007 milk production is steady with 2006 at 184.3 billion pounds. However, the higher milk prices and lower feed costs will combine to increase dairy herds. The international demand results from low availability of dairy products in Europe and the inability of Australia to quickly increase supplies. USDA says milk prices will continue at current high levels and should average over $19.00/cwt for the year.

US lamb producers are rebuilding herds, and lambs kept from the market will be replaced by imported lamb and mutton, despite adverse currency issues.

Broiler production is down 2.4% compared to 2006, but with the breeder flock up and trends in place, production in the second half of 2007 should be 2.3% above 2006. Production declines had resulted from lower meat yields per bird. Turkey production is up about 3% over 2006, due to more birds and higher weights. However, prices are considerably higher than last year due to a strong export market for turkey meat. And egg production continues to decline month to month due to fewer birds in the laying flock. Egg prices are strongly higher, due to lower numbers and a stronger export market.

Summary:
The biofuels industry created economic issues with livestock feeds, but going into the second year of higher grain prices, the US livestock producer is making decisions based on those economics. The pork industry is expanding, the beef industry expansion may be over, the lamb industry is rebuilding, dairy is enjoying record high prices for milk and will expand, and poultry meat is in a transition from lower production to increased production.