Poultry has potential to pressure beef

Markets
Mar 15, 2013

The most recent World Agricultural Supply and Demand Estimates (WASDE) report was released Friday, March 8. The report held few surprises in red meat and crops, but poultry changes—particularly of broilers and turkey— drew attention. The most recent Crop Production report was released the same day and had the most recent planting numbers for winter wheat in 2013.

USDA did not make many or surprising changes to its red meat (beef and pork) projections in the most recent report. Production estimates dropped 34 million pounds (mp) from drops in pork production estimates not offset by expected gains in beef production, and both import and export projections of red meat dropped 22 mp and 100 mp, respectively. Poultry, however, led the way for gains in overall meat (red meat, chicken and turkey) production and gains in per capita meat consumption estimate increases.

Projections of beef production for 2013 rose 15 mp to 25.21 billion pounds (bp) compared to last month’s WASDE report. Beef production rose from last month largely due to heavier expected carcass weights. Additionally, while steer and heifer slaughter is expected to

be down for the first quarter, cow slaughter is expected to be up. This production number is down from estimates of 2012’s production rate (26 bp) and 2011’s confirmed production of 26.29 bp.

While production is expected to be up, trade is projected to be down. Beef import expectations were reduced to 2.56 bp from last month’s 2.57 bp. The beef trade forecasts for 2013 were lowered based on slower than expected shipments in January, much of this coming from the recent announcements made by Russia and China to enforce their ban on meat from animals fed beta agonist growth promotants.

Other issues which have slacked the recent pace of beef trade include the strength of the dollar versus the currencies of U.S. trade partners and competitors, as well as changes in the domestic supply of some of the U.S. meat importers. See the U.S. Meat Export Federation’s article regarding beef and pork trade challenges and highlights on page 8 of today’s WLJ.

However, exports were reduced a commensurate 10 mp, so the full amount of the increased production—plus an additional 2 mp from an increase in beginning stock estimates—went to increase the overall “total use” projections from 25.36 bp to 25.38 bp. Per capita availability, however, remained at 56.1 pounds of beef per person.

Cattle prices for 2013 are lowered from last month, reflecting slightly weaker demand for fed cattle into the second quarter of the year. Estimated annual average for a steer in the 5-Area Direct, across all grades, was reduced to $125-132 for 2013, a $2 decline in the upper limit of the estimate compared to last month.

Pork and poultry

Projections of pork production for 2013 fell in the most recent WASDE report compared to the prior report, but not to levels approaching production rates of recent years. The annual production expectation for pork in 2013 fell 50 mp to 23.39 bp. This is compared to last year’s estimated production of 23.27 bp and 2011’s confirmed 22.78 bp of pork produced. This cut in production estimates came from lower than expected slaughter rates in pork seen so far this year.

Pork trade numbers were soft, with import projections remaining unchanged at 800 mp, but export expectations dipping 90 mp from weakening demand abroad. Many of the factors affecting U.S. beef exports are similarly affecting pork. Bans over beta agonists and the strengthening of the local swine herds in usual pork import countries have had a hand in projected pork export decreases.

As with beef, decreased exports will leave more pork in the domestic market. Ending stock estimates for pork rose 25 mp to 650 mp compared to the prior WAS- DE report, and total use rose slightly from 18.79 bp to 18.80 bp.

The production of poultry estimates saw some sizeable increases. Overall poultry (broilers and turkeys) production projections jumped by 767 mp. In volume, this increase was led by production jumps in broilers, which went from 36.9 bp in the last WASDE to 37.52 bp in the most recent report. Turkey production estimates went up 148 mp, and while not large in volume relative to broilers’ impact on the increased poultry production figures, this is a 2.5 percent increase over last month’s estimates and a 3.5 percent increase over last year’s turkey production numbers.

According to the report, the broiler production forecast was raised as producers are expected to respond to stronger forecast first-half broiler prices and lower projected second-half feed meal prices. And turkey production is expected to be up on both increased weight and number of birds coming to slaughter.

Poultry trade was left unchanged from the prior report, at 112 mp imported for broilers and 7.25 bp exported, and 20 mp and 830 mp for turkey, respectively. The expected increase in production, however, did up the ending stock, total use, and per capita availability estimates. This latter detail moved the overall per capita meat availability number upwards by 2 pounds, from 201.9 pounds per person estimated last month to 203.9 pounds per person estimated this month.

“A number of factors likely have contributed to the steady gains in broiler and turkey production,” said CME’s Daily Livestock Report’s Steve Meyer and Len Steiner. They cited historical factors, particularly the 2008 feed price spike and subsequent bankruptcy of Pilgrim’s Pride, as having schooled the poultry industry in how to protect itself from feed price jumps.

“The industry has become better at hedging its exposure to feed price risk both upstream and downstream in the marketing chain. Gone are the times when suppliers would offer prices forward for multiple and prices are more closely linked to the grain market. This has likely made poultry industry demand for feed more inelastic. And then there is the normal stickiness in price adjustments, especially as feed costs drift lower.”

They also mentioned the tradeoff between poultry and beef and pork at the retail level, where—even with higher chicken and turkey prices lately than in years past—chicken and turkey are frequently less expensive to the consumer.

The report noted that despite greater availability of chicken, prices were increased for the first half of the year on strong demand, but are reduced in the second half on production increases, while turkey prices were lowered on greater production.

Crops

Changes were made on the corn trade numbers from the U.S., which had a trickledown effect on domestic supply and usage numbers.

Import projections for the 2012/2013 year increased by 25 million bushels (mb) to 125 mb, and export estimates for corn were reduced 75 mb to 825 mb. Increased feed and residual use estimates saw the full 100 mb increase from the combined trade changes. This increased availability served to reduce the estimated upper limit on the annual average farm price range drop by 20 cents to $6.75-7.45.

World corn production estimates dipped slightly— from 854.38 million metric tons to 854.07 million metric tons—due mostly to weather-related decreases in yields in the major export countries of Argentina and South Africa.

The March Crop Production report placed estimated acres of winter wheat at 41.82 million acres so far for 2013. In 2012, that number was 41.32 million. Overall wheat production estimates across classes for this year expect 55.7 million acres planted in wheat, for a production 2.27 billion bushels.

Projections of world wheat production for the 2012/2013 growing period rose 1.87 million metric tons. Most of this came from increased production estimates from the EU, India and the former Soviet Union countries. As a result, domestic feed usage of wheat around the world is expected to increase, as are world ending stocks and general trade in wheat. — Kerry Halladay, WLJ Editor

{rating_box}