Beef production up, others falter
—Increased corn export surprises, reduces ending stocks
The most recent World Agricultural Supply and Demand Estimates (WASDE) report held few surprises. The biggest movers, however, were the increased export estimates for corn and the increased production of beef being offset by decreases in pork. Both items, if they prove true, have the potential to influence the market for cattle and consumer beef demand.
Overall projections for red meat (beef and pork) and poultry (chicken and turkey) were down for 2014 with increases in estimated beef production more than being wiped out by production declines in the other three proteins. The February estimate for all meat production dropped to 92.98 billion pounds (bp) compared to the January estimate of 93.18 bp.
Beef production was estimated up 30 million pounds for 2014, from 24.03 bp to 24.33 bp. This was attributed to higher than expected placements in the last quarter of 2013 and favorable cull cow prices keeping cow slaughter higher than it might be otherwise.
Pork estimates by comparison declined 160 million pounds with estimated production standing at 23.44 bp in February. The decline has been attributed to the impact of the Porcine Epidemic Diarrhea virus (PEDv) which has been killing American piglets for the better part of a year now. PEDv has recently been found to have spread into Canada and at least one additional strain has been identified in the U.S.
Beef trade projections for this year remained unchanged in the most recent WASDE—at 2.29 bp for imports and 2.34 bp for exports—but were revised for last year in the most recent report. The 2013 imports estimate went down by 4 mp to 2.25 bp and exports were revised up 49 mps to 2.58 bp.
The increased production expectations for 2014 made for a slightly higher projection of beef availability. For 2014, the availability estimate increased 0.1 pounds to 53.7 pounds per person. Revisions in the 2013 numbers, due largely to the changes made to trade, resulted in lower projections for the 2013 availability, which decreased from 56.5 pounds per person to 56.4 pounds per person.
Though WASDE doesn’t give estimates on retail prices for beef, it does offer hundredweight price estimates for fed steers around the country. For 2013, the estimated average was $125.89.
For 2014, the February estimate increased the price range for steers to an annual average of $132-140. It estimates prices to be highest in the first quarter, ranging from $137-141.
The comparative prices on the pork side—hundredweight values for fed barrows and gilts—were also estimated up in February compared to January for 2014. The new estimated annual average for the year stood at $61-65, compared to $60-64 predicted in January and compared to the $64.05 for 2013. The highest average prices are expected to occur in the second and third quarter of the year.
This shifting availability of pork versus beef, as well as the timing of the price highs could prove beneficial to beef demand. As beef often loses market share to pork when retail beef prices are high, the market situation plus the surprisingly resilient domestic beef demand could see more consumers selecting beef rather than pork when given the option.
Along with declines in pork production, broiler (chicken) production for 2014 was estimated down 25 mp to 38.46 bp. Turkey production was similarly revised down 45 mp to 5.85 bp. For pork the estimated availability for 2014 is 46.7 pounds per person, down 0.3 pounds from the January estimate. Due to declines in expected broiler exports for the year, chicken availability stayed pat at 83.7 pounds per person. Turkey availability declined only slightly to 15.9 pounds per person.
For both pork and chicken, 2013 import estimates were raised and export projections for 2014 were lowered. For pork, the export expectations were reduced due to tight production making for unattractively high-priced product and for broilers the numbers were reduced, given recent weakness in leg quarter trade, suggesting slowing demand.
Corn and crops
The only change that came to the corn column of the WASDE report was in the trade section, specifically exports. The February report saw a 150 million bushel (mb) increase in expected corn exports, bringing the number to 1.6 billion bushels (bb). There were corresponding changes to the total use and ending stocks, which ended at 1.48 bb, down from 1.63 bb. This change in domestic availability also had the effect of shifting the average annual price paid for corn up 10 cents on either end of the range to $4.20- 4.80.
“In 10 of the previous 12 years final corn demand was below the level estimated in February,” Andrew Gottschalk of Hedgers Edge reminded, however.
The export change was made due to the fast pace of corn exports so far and the declined export (real and potential) of usual competitors.
“Corn production is lowered 1.0 million tons for Argentina as additional dryness in January reduces expected plantings and trims yield prospects. Production is lowered 0.3 million tons for Russian corn based on final official estimates,” read the report. “With stronger foreign corn use, increased U.S. exports fill the gap between higher foreign corn imports and lower foreign corn exports.”
Steve Meyer and Len Steiner of CME’s Daily Livestock Report pointed out an amusing detail in the most recent WASDE where corn use for feed and residual is concerned. Namely, despite reductions in the hog and broiler production areas— both very corn-heavy systems—the feed and residual use category for corn has been left unchanged at 5.3 bb.
“It goes without saying that there will be a lot of attention paid to the next quarterly stocks report to validate that the current projected path of feed use can be sustained,” they said.
As with corn, little changed for U.S. soybean estimates with the exception of trade alterations. Imports were estimated to increase 5 mb to 30 mb, though increases to exports—up 15 mb to 1.51 bb—more than used up that increase. The additional 10 mb taken out of domestic use came from residual use expectations, which went from 22 mb in the January WAS- DE to 12 in the most recent report.
Despite the comparatively low level of residual use, the report points out that it is still above the exceptionally low level of the past two marketing years. — Kerry Halladay, WLJ Editor