Summary

Beef/Cattle: Drought continues to dominate non-fed slaughter, despite recent rains that provided temporary relief and promoted emergence of winter wheat in the Southern Plains. One result of the continuing drought is that proportionally heavy cow and bull slaughter rates and declining supplies of Choice-grade cattle have decreased the relative supply of Choice beef and contributed to a widening spread between Choice and Select steer and heifer cutout values. Wal-Mart’s decision to sell Choice beef has also contributed to the demand for Choice beef.

Beef/Cattle Trade: US beef exports are 27 per cent above a year ago and growth in exports is expected to continue into 2012. Cattle imports from Mexico were 25 per cent higher, through September, but were offset by the 40 per cent decline in cattle imports from Canada.

Pork/Hogs: Strong foreign demand for US pork products will support hog prices for the balance of the fourth quarter and keep retail pork prices at unusually high levels well into 2012.

Poultry: Broiler meat production in fourth-quarter 2011 is forecast at nine billion pounds, down five per cent from the previous year. For 2011, broiler meat production is forecast at 37.3 billion pounds, one per cent higher than in 2010. Broiler meat production is expected to decrease to 36.7 billion pounds (down 1.7 per cent) in 2012 due to high prices for both corn and soybean meal and a very slow-growing economy. Turkey meat production in fourth-quarter 2011 is expected to total 1.5 billion pounds, marginally higher than the previous year. Turkey meat production in 2011 is forecast at 5.8 billion pounds, up 2.9 per cent from 2010. Wholesale prices for whole hen turkeys in fourth-quarter 2011 are expected to be $1.08-$1.12 per pound, six per cent higher than in fourth-quarter 2010 and up 35 per cent from fourth-quarter 2009.

Poultry Trade: Broiler and turkey shipments in September 2011 rose from a year earlier. Broiler shipments totalled 637 million pounds, a 3.1 per cent increase from September 2010 shipments. Turkey shipments totalled 58.8 million pounds, an 18 per cent increase from last year.

Dairy: Milk production is forecast to rise in 2012, albeit at a slower rate than in the last two years. The dairy herd will be slightly smaller in 2012 but increased milk per cow will boost milk production above 2011. Higher availability of dairy products worldwide combines with additional US supplies to pressure product prices next year.

Pork/Hogs

Pork Exports Continue to Support Strong Hog Prices in the Fourth Quarter

Strong demand – both domestic and foreign – will likely support hog prices at very healthy year-over-year levels for the remainder of the fourth quarter – the period of the year when producers typically face the lowest yearly prices. October prices for live equivalent 51 to 52 per cent lean hogs were $68.44 per cwt, almost 31 per cent higher than a year ago, at the same time that estimated weekly federally inspected pork production during the month was about one per cent above that of a year ago. Higher hog prices, concurrent with increased production, suggest that pork demand has increased, compared with a year earlier. While hog prices alone are not indicators of producer profitability, hog producers’ estimated fourth-quarter 2011 feed cost spread will likely be positive. More typically, fourth-quarter feed cost spreads are negative, due largely to seasonal increases in hog supplies, and, consequently, lower hog prices.

Fourth-quarter hog prices are expected to be $64-$66 per cwt, about 30 per cent above the same period last year. Commercial pork production is expected to be about 6.1 billion pounds, about a half a per cent below last year’s fourth-quarter production.

September Pork Exports Strong on Asian Demand

US pork exports in September were 442 million pounds, more than 37 per cent above September 2010. Increased demand for US pork products in Asia – from Japan and China in particular – largely accounts for the sharp year-over-year increase. Third quarter exports were 1.26 billion pounds, about 33 per cent larger than in the same period last year. In effect, US companies shipped almost 23 per cent of US commercial pork production to foreign destinations in the third quarter, versus about 18 per cent in the third quarter of 2010, and almost seven per cent in the third quarter of 2000. The strong year-over-year volume increase, together with export share growth, shows the importance that exports have assumed in aggregate demand for US pork products.

The largest foreign destination for US pork products in September was Japan – which imported 121 million pounds and accounted for 27 per cent of US pork exports. China came in second with more than 82 million pounds, followed by Mexico (81 million pounds) and Canada (50 million pounds). One of the explanatory factors for strong September exports is the continued low-valued exchange rate of the US dollar. In particular, the very favourable US dollar-Japanese yen rate is likely a key factor in strong Japanese demand for US pork. Since January 2011, the value of the yen has increased almost seven per cent against the US dollar, enhancing the competitiveness of US pork compared with pork exported from countries with stronger currencies – Canada and Denmark, in particular. Also, strong September exports to China and South Korea come about largely as government responses to internal policy problems: inflation and disease problems in China, and disease problems in South Korea.

Fourth-quarter exports are forecast at 1.3 billion pounds, more than 13 per cent higher than fourth-quarter 2010. Total US pork exports for 2012 are expected to increase almost three per cent, to 5.1 billion pounds.

September Retail Prices Record High

One result of strong pork exports can be a lower level of pork products available for domestic consumption, and higher commensurate retail pork prices. This scenario appears to describe what is happening currently on the domestic pork market. Third-quarter domestic pork availability, measured on a per-capita basis at 11 pounds, was more than six per cent below the same period last year. Fourth-quarter availability is expected to fall by more than three per cent below a year ago, to 12.4 pounds per capita. With foreign demand bidding US pork away from domestic markets, lower availability of pork for domestic consumers likely explains the string of record-high retail prices that continued into September. September retail pork prices averaged $3.56 per pound, almost eight per cent higher than in September 2010. Retail pork prices should continue to average in the low-to-mid $3.50s in the fourth quarter.

Further Reading

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November 2011