Carcass weight gains increase meat production
The most recent World Agricultural Supply and Demand Estimates report (WASDE) was released Friday, Feb. 8. It did not include many surprises, but some changes to corn and soybean estimates made some waves in what has been called the overly sensitive grain market. Beef estimates were mostly unchanged from earlier reports.
Overall meat (beef, pork, other red meat, and total poultry) production estimates were raised for both the sum of 2012 and for the projections for 2013. Most of these increases came from increases in the production estimates for pork and chicken. U.S. meat imports are expected to remain the same as earlier predictions, but increases in overall export are expected for 2013, largely due to export of broilers. Overall domestic meat consumption estimates for 2013 were raised 1.7 pounds per person.
Estimates for the 2012 beef production year were shifted downwards in the most recent WASDE by 4 million pounds (mp). Conversely, production predictions for 2013 were raised by 290 mp to 25.19 billion pounds (bp). This increase was based mostly on heavier carcass weights and forecasts of increased first-quarter cow slaughter.
Very little was altered of relevance regarding trade expectations posted in earlier WASDEs. Beef import and export predictions remained unchanged at 2.57 bp and 2.45 bp, respectively, in 2013. The export numbers for 2012 were reduced by 10 mp to 2.47 bp but that was the only change made.
Export numbers were left unchanged due to the expected balancing effect of recent trade activity. On the positive side, Japan’s easing of the age restrictions on U.S. (and Canadian and French) beef is projected to increase beef trade as far as the depreciation of the Japanese yen will allow. On the negative side, Russia’s ban on meat from the U.S. under its “zero tolerance” policy for ractopamine will drag down trade. In 2012, beef and veal exports to Russia represented 6 percent of the overall U.S. beef export market by volume. See Kerry Halladay’s story on the Russian ban over ractopamine on page 11 of this week’s edition of WLJ.
Beef per capita availability estimates in 2013 were increased slightly to 56.1 pounds of beef per person. This came entirely from increases made to the beginning beef stocks estimate— up to 606 mp compared to the earlier 575 mp—the aforementioned increased production, and no changes to trade.
Whether consumer demand will support that increased supply at retail prices which are workable for the industry is uncertain. Demand remains the biggest concern relative to the overall health of the industry.
Pork and chicken
Both pork and chicken (broiler) production predictions were adjusted upward for both 2012 and 2013, these increases being what led the overall meat production jumps. Pork production estimates for 2012 rose 3 mp and chicken rose 96 mp.
For 2013, production estimates rose 140 mp to 23.44 bp for pork and 495 mp to 36.90 bp for chicken. Pork production estimate increases came in expectation of continued increases in carcass weights and the increases in chicken came from both flock expansion behavior and heavier birds at slaughter.
Import predictions of both pork and chicken remained unchanged for 2013 at 800 mp and 112 mp, respectively. Pork export expectations for both 2012 and 2013 were lowered, mostly on word of trade restrictions to Russia. Pork’s 2012 export numbers were lowered 10 mps and expectations for 2013 exports were reduced 30 mp to 5.46 bp.
Chicken export expectations, on the other hand, were raised for both 2012 and 2013. For 2012, the anticipated final export levels rose 70 mps, and projections for 2013’s chicken export increased 200 mp to 7.25 bp.
The increases in chicken exports were more than enough to absorb the export decreases from pork.
Both pork and chicken per capita availability are expected to rise in 2013. Pork per capita availability is projected to increase a half pound to 46.1 pounds per person, and chicken is expected to gain nearly an entire pound, going from 80.1 to 80.9 pounds per person.
Corn and other crops
The crop results reported in the most recent WASDE did not differ too much from pre-report analyst estimates. Despite this, corn prices especially reacted with some noteworthy drops in near term futures values. Even though this was a negative reaction, CME analysts called the change bullish as lower corn prices might spur more interest.
Corn numbers remained largely unchanged in the most recent WASDE. Production, planting, harvesting and yield numbers remained as they were and imports and most usage figures were left as they were. The lone usage change—under the food, seed and industrial— increased 20 million bushels (mb) at 5.89 billion bushels (bb). The usage increases were said to have come from expectations of higher cornbased sweetener production.
On the other hand, export expectations were reduced by 50 mb at 900 mb in response to “sluggish pace of sales and shipments to date and prospects for more competition from Brazil,” according to the report. If the estimates come to pass, this is the lowest level for corn exports in 31 years.
The overall result of the two changes to supply results in a 2013 ending stocks estimate being up 30 mb.
“That’s not a big change,” commented CME analysts of the increases. “but corn users—including ethanol plants—will take any help they can get at this point.”
The estimates of on-farm prices paid for corn in 2013 were reduced likely due to the expectations of increased availability. Compared to January’s WASDE, which predicted a range of $6.80-8 for corn, the February WAS- DE predicted $6.75-7.65, a 20-cent reduction in the averages between the two months.
A lot of attention has been on the world corn situation, particularly South America and its recent weather surprises. For the most part, the USDA forecasts were larger for the South American corn countries than the pre-report estimates.
Overall world increases in corn production were estimated at up 2.08 million metric tons (mmt) for a total of 854.38 mmt. Increases in production estimates for Mexico, Brazil and the former Soviet Union countries (particularly the Ukraine) offset and eclipsed decreases seen in Argentina. This latter detail was attributed to unexpected dryness in Argentina in January and the first part of February which is expected to damage yields, especially of late-planted corn.
“USDA cut 1 [mmt] off both the corn and soybean crop estimates for Argentina, reflecting continued concerns over wet planting weather and now hot, dry conditions in major growing areas,” said CME analysts.
Even with the decreased corn production estimates out of Argentina, the 2012/2013 corn crop out of that country is still projected to be 29 percent larger than the con firmed 2011/2012 Argentinean corn crop of 21 mmt.
Domestic soybean projections changed very little in the most recent WASDE. In terms of soybeans specifically, the only alteration was a 10 mb increase in crushing expectations, bringing the number to 1.62 bb. This, of course, had the cascade effect of decreasing ending stock estimates by the same amount and increasing soybean oil production to 18.98 bp.
CME analysts voiced some concern over this relatively small change, however.
“U.S. year-end soybean stocks were lowered by 10 [mb] to only 125 [mb] in Friday’s report. In the past 25 years, that figure is second only to 2003 year-end stocks of 112.4 [mb] and this year’s forecast 4.1 percent year-end stocks/use ratio is the lowest ever.”
Soybean meal production was increased 250 short tons (st) to 38.45 million (st). Increased expectations of domestic use and export—increasing 150 st and 100 st, respectively—are projected to keep both prices and ending stocks of soybean meal steady with prior report estimations. The increase in domestic use is hinged on the expectation of the increased meat animal production, and the export increases came from increased demand abroad earlier in the year coupled with Argentina’s soybean issues.
Weather conditions in Argentina have been behind most of the concern and subsequent decreases in their soybean crop. Despite their decrease, however, increases in Brazil’s soybean crop were sufficient to offset the losses to overall global soybean production.
“The forecast soybean crop [for Brazil] of 83.5 MMT would be 25.5 percent larger than last year’s crop,” CME analysts pointed out. “That 83.5MMT represents 3.067 billion bushels, making Brazil’s output indeed larger than that of the U.S. for the first time ever.”
According to Andrew Gottschalk of Hedgers Edge, the weather conditions—particularly rain and temperatures—of these key South American countries will continue to dominate trade interest. — Kerry Halladay, WLJ Editor