U.S. Meat Production Levels Off

U.S. red meat and poultry production in 2002 is expected to show little change after posting a less-than-1- percent gain in 2001. Another 3-percent decline in beef production this year, reflecting several years of cattle herd reductions and continued high heifer slaughter, will mostly offset the gain in broiler production. These are the smallest annual meat production increases since the mid-1980s.

Despite the plateau in meat production, lackluster growth in exports and a relatively weak U.S. economy may pressure prices. In 2002, broiler and turkey prices are likely to remain about steady, while hog prices fall and cattle prices continue rising. In 2001, prices were higher than a year earlier except for turkeys, which posted a 4-cent-per-pound decline. Corn prices are expected to post a small gain in 2002, squeezing producers' returns.

Red meat and poultry exports in 2002 are expected to rise less than 1 percent over 2001, the smallest increase since the decline in 1985. U.S. meat is facing increased competition in world meat markets and slowing demand. Red meat exports are expected to decline 3-4 percent, which nearly offsets the expected 3-percent increase in poultry exports. In 2001, red meat and poultry exports rose about 7 percent (includes forecasts for November-December), compared with a 5-percent increase in 2000. Pork, broiler, and turkey exports rose at double-digit rates, while beef exports registered a double-digit decline.

Large stocks of soybeans and corn are expected to keep feed prices relatively low this year, barring any major weather problems in the 2002-growing season. Record and near-record soybean crops over the past 5 years are boosting expected 2001/02 ending soybean stocks about 15 percent over a year earlier. U.S. soybean meal prices are expected to average $150 to $165 per ton in 2001/02, compared with $174 in 2000/01. The average farm price of corn in 2001/02, given expected lower ending stocks, is expected to average $1.85 to $2.15 per bushel, compared with $1.85 in 2000/01.

Hog Producers’ Returns Remain Favorable

In 2001, the $1 per hundredweight (cwt) rise in hog prices nearly offset increased hog production costs (cash expenses), giving hog producers 2 years of favorable returns. Returns in early 2000 were above breakeven for the first time since late 1997. In 2002, hog prices are expected to decline about $1-2 per cwt, and given expectations of slightly higher corn costs, producers’ returns are likely to be squeezed somewhat compared with the past 2 years.

Despite relatively favorable returns in recent years, producers have not responded to the improved returns as they have done in the past. Historically, producers have increased the number of sows farrowing after 6 to 9 months of above-breakeven returns. In 2001, the number of sows farrowing was below a year earlier in each quarter, except for a slight increase in September-November. However, according to the recent Quarterly Hogs and Pigs report, producers intend to have more sows farrow during December-May than a year ago.

In addition to a smaller number of sows farrowing in 2001, annual average pigs per litter declined slightly for the first time since 1988 and for only the third time in the past 20 years. As a result, the 2001 pig crop was down 1.274 million head from 2000. However, hog imports rose by more than a million head, of which almost 60 percent were feeder pigs. (Hog exports were insignificant.) This left hog slaughter in 2001 virtually unchanged from 2000. A 2-pound gain in dressed weights boosted pork production by 1 percent over 2000.

Hogs and Pigs Report Suggests Larger Pig Crop in 2002

The Quarterly Hogs and Pigs report released on December 28 suggests a larger pig crop in 2002. Producers indicated intentions to have 3 percent more sows farrow in December-February than a year ago and 1 percent more in March-May. The December 1 breeding inventory was down 1 percent from a year earlier, but up about 1 percent from September. Sows farrowing as a percentage of the breeding inventory continues on an upward trend (44.5 percent in 2001 versus 41.5 percent in 1996). The inventory of all hogs and pigs totaled 58.8 million head on December 1, 1 percent below a year ago and slightly below September 1.

Pork Production To Be Nearly Unchanged

Based on the market hog inventory, pig crops, and farrowing intentions reported in December, commercial pork production in 2002 is forecast at 19.165 billion pounds, only slightly above 2001. If the 2002 forecast is realized, production would be just over 110 million pounds short of the record set in 1999. Commercial hog slaughter is expected to be slightly lower than in 2001, with heavier slaughter weights supporting production levels.

The June-August pig crop implies a first-quarter 2002 slaughter of about 24.15 million head, assuming slaughter is about 96-97 percent of the pig crop (5-year average). Given the upward trend in weights and relatively cheap feed, the average dressed weight is expected to rise about a pound, which will only partially offset lower slaughter. As a result, pork production in the first quarter will likely be down about 1 percent from a year ago.

Most of the September-November pig crop will be slaughtered in second-quarter 2002. Dressed weights are expected to decline from the first quarter but still be about a pound above a year ago. The expected reduction in commercial slaughter due to a smaller pig crop will likely be offset by heavier weights. As a result, commercial pork production is expected to be about the same as a year earlier.

Based on December farrowing intentions and expectations that pigs per litter will be slightly below a year ago, the December-February pig crop is expected to be up about 3 percent. Using a slaughter rate of 98 percent (the 5-year average), the implied third-quarter slaughter is 24.25 million head. The average dressed weight for the quarter is expected to climb about 2 pounds. Third-quarter pork production is expected to total about 4.7 billion pounds, up 3 percent from last year.

The December farrowing intentions for March-May imply about a 1-percent increase in the pig crop. If these intentions are realized, fourth-quarter slaughter would total about 26 million head, as the percentage of the pig crop slaughtered is expected to drop to 101 percent, compared with an extraordinary 104 percent in 2001.

Hog Prices To Decline

Although hog prices were in the high-$30s per cwt early in 2002, prices in the first quarter are expected to average in the low-$40s (about the same as last year) as pork production declines from a year ago. Price gains may be limited by competing meat supplies, which are expected to register year-over-year increases, and continued weakness in the economy. In the second quarter, prices are expected to climb seasonally into the high $40s per cwt. In 2001, second-quarter prices averaged $52 per cwt. If the economy remains weak, consumers are likely to scale down their food purchases, pressuring prices.

In the third quarter, a year-over-year increase in pork production is expected to pressure hog prices into the mid-$40s, compared with $51 a year ago. In the fourth quarter, hog prices are expected to average about $40 per cwt, compared with $37 in 2001. Moderately low pork production, sharply lower beef production, and a strengthening economy will likely boost prices. As slaughter rises seasonally in the fourth quarter, weekly federally inspected slaughter rates are expected to exceed 2 million head for several weeks, but not enough to strain capacity. When slaughter rates exceed 2 million head per week for an extended period, slaughter capacity is strained, and hog prices are bid down.

Retail Pork Prices To Remain Unchanged

Retail pork prices (as measured by the Bureau of Labor Statistics price index) are expected to average about the same in 2002 as in 2001. With the farm value expected to decline, the farm-to-retail spread is expected to widen. In 2001, retail prices rose 3 percent after a sharp rise of 7 percent in 2000. The farm-to-retail spread likely widened 10 cents a pound after a penny increase in 2000.

Pork Exports To Remain Strong

In October 2001, the United States exported more than 125 million pounds of pork, 29 percent higher than September and 17 percent more than a year earlier. Japan accounted for 50 percent of total U.S exports; Mexico, 21 percent; and Canada, 10 percent. Expectations through first-quarter 2002 are for continued strong international demand for U.S. pork products. The world economic slowdown and the relatively high value of the U.S. dollar bear watching, however. These two factors have the potential to slow foreign demand for U.S. pork products in 2002.

Japan is expected to continue to import large quantities of U.S. pork despite the fact that the Safeguard-- currently in effect until March 31--increases the minimum price at which pork can be imported into Japan. The primary factors driving Japanese demand for imported pork right now are BSE-related concerns, and the consequent shift of Japanese consumers away from beef consumption. Fallout from BSE in the Japanese cattle herd will likely continue to trump higher imported pork prices. However, continued strong demand for imported pork could trigger additional components of the Safeguard and further increase minimum import prices (i.e., the Annual Safeguard, and the Super Safeguard).

Mexico imported just over 26 million pounds of U.S. pork in October. Although U.S. exports to Mexico were 15 percent higher than October 2001, it is likely that total year-over-year export increases for 2001 will be about 5 percent. Increases in Mexican demand appear to be slowing from the late 1990s, when year-over-year increases averaged more than 45 percent. Factors contributing to the slower growth are competition from Canadian pork products and slower growth of the Mexican economy.

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Source: Livestock, Dairy and Poultry Situation and Outlook - U.S. Department of Agriculture, Economic Research Service - January 29, 2002