US - Following the release of the USDA supply/demand estimates, we thought it would be appropriate to take a few minutes to review the outlook and implications for prices in 2017, write Steve Meyer and Len Steiner.
There are a lot of numbers in the attached summary table but what jumps out at us is the dramatic recovery in US red meat and poultry supplies.
USDA projects that red meat and poultry production in 20199.235 billion pounds, an 8.3 billion pound (+9 per cent) increase in a matter of three years.
During this three year span (2014-17) beef production is projected up 6.6 per cent, chicken production is up 9 per cent and pork production is up 12.3 per cent. And if we add to this the production of veal, lamb, mutton and other poultry, total meat supplies in the US next year will exceed 100 billion pounds. That is a truly impressive number.
The key driver behind this surge in production is the decline in input costs. Corn prices in Omaha are hovering around $3.50/bushel these days, compared to as high as $8.20/bu in the summer of 2012.
In the summer of 2012 soybean meal prices in Central Illinois hit $570 per ton and today prices are down to $343 (they were 270 in April).
But it is not just the cost of feed that is down. Weather conditions have been favourable for pastures, helping bolster hay stocks and, even more importantly, providing cattle producers with enough grass to allow them to expand.
Energy costs are also down and that filters through the agricultural economy in a number of ways.
Bottom line is that the cost structure today is much different than it was a few years back, it has allowed producers to bring a margin back in the business and this has helped bolster the supply of meat coming to market.
Meat prices today are quite a bit lower than what they were a couple of years ago but the decline should be viewed in the context of this expansion in meat supplies. After all, by next year per capita consumption is expected to be 15 pounds larger than it was in 2014.
There have been a lot of stories in recent years about US consumers eating less meat. The reality of the matter, however, is that the reduction in consumption was a direct result of the decline in meat availability rather than a weaker demand.
There is one item that is worth pondering over when you look at the data. The US meat industry is particularly dependent on exports as a key marketing channel.
USDA forecasts US red meat and poultry exports in 2017 to be 15.6 billion pounds vs. imports of 4 billion pounds.
In the three year span, imports are projected to be down 225 million and exports are projected to be down 47 million. The lack of export growth (production after all is up 8 billion pounds) reflects ongoing challenges in our export markets.
It is imperative for US red meat and poultry producers to enjoy expanded access to export markets, something that may be lost in the current anti-trade political environment. Without a positive trade environment it will be difficult to sustain growth in this industry.
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