Exports may not be the only key to the measure of success for poultry and red meat producers in 2017, but robust overseas sales will clearly be the most critical component, according to the “Outlook for Animal Protein and Feedstuffs” panel at the National Chicken Council’s annual conference in late October of 2016.
How strong the export tailwind proves to be in the months ahead will depend on competitive pricing in world markets, the strength of the U.S. dollar, and the pace of economic growth in major global destinations, said panel experts on poultry, beef, pork and grains.
While abundant grain and oilseed crops in the 2016-17 harvest should make navigating these challenges more manageable, unexpected risks always remain, they added.
Chicken firms operating with "new mindset"
U.S. and global grain stocks have been replenished thus providing a signal for a period of reduced feed cost volatility, Will Sawyer, analyst for animal proteins with Rabobank, explained.
Will Sawyer, poultry analyst, Rabobank International
Drilling down on the export issue, Sawyer predicted China will be the “biggest story” for global poultry during the year ahead. But, will U.S. poultry exporters “play a role” by participating in the significant increase of expected imports China will need to fill the shortfall being experienced in the Chinese domestic chicken production?
Despite the China question, Sawyer sees favorable poultry prices and producer net margins for U.S. chicken companies again in 2017. He credits continued high prices of competing meats for much of his optimistic outlook, albeit 2017 results may not match 2016.
Despite uncertainty about exports to China, Sawyer sees favorable poultry prices and producer net margins for U.S. chicken companies in 2017.
Downturns in the U.S poultry sector in 2008 and 2011 resulted in the surviving chicken firms being “stronger than ever” and gave them a “new mindset.” Through mid-2016, the average operating profit of pubic U.S. chicken companies has been positive for 18 consecutive quarters, he noted.
Pork exports continue strong but moderating
Exports of pork continue to increase in 2016 but not at the more significant rate experienced in 2015, Dr. Steve R. Meyer, vice-present for pork analysis with EMI Analytics, explained to the conference. Like exports, domestic U.S. consumer demand for pork is “still solid” but more restrained than in 2015.
Steve Meyer, vice president, pork analysis, EMI Analytics
Per capita expenditures for pork are running down more than 2 percent compared with a year earlier. But, chicken and beef expenditures are even more tepid, slipping about 7 percent and 5 percent, respectively, below year ago, Meyer noted. Combined expenditures for chicken, pork and beef are off almost 6 percent, he added.
With 2017 farrow-to-finish hog operations costs near the mid-$60 per hundredweight, the lowest since 2010, U.S. pork will have a better opportunity to compete in world markets, including China. While U.S. pork exports to China/Hong Kong are up double digits, there are signs that these exports are coming “back to earth,” the panelist believes.
With 2017 farrow-to-finish operations hog costs near the mid-$60 per hundredweight, U.S. pork is better positioned to compete in world markets.
With too many live hogs testing recent and ongoing slaughter capacity, packers have been able to maintain comfortable operating margins. This live hog/slaughter capacity imbalance will begin to shift later in 2017 and most certainly in 2018 when at least five new planned packing capacities come on-stream, Meyer pointed out.
Beef industry seeking supply adjustment
Continuing increases in average beef carcass weights have allowed annual beef production to generally increase since the early 1980s, Kevin Good, senior analyst-fed cattle market specialist/manager of corporate accounts for Cattlefax, noted and added this trend toward heavier average weights has also been experienced by other major agricultural animals.
Kevin Good, senior analyst, Cattlefax
In 2017, he expects the beef cow inxventory to be slightly over 31 million head, up 850,000 head from 2016 and very comparable to the inventory in 2010. The low point in beef cow inventory since 1980 was in 2014 with 29 million cows, while the peak was in 1982 with over 39 million head.
Dramatic declines in cash prices for fed cattle and feeder cattle have been experienced over the past two years, Good said. From October 2014 to October 2016 fed cattle prices have decreased 40 percent while feeder cattle prices have dropped 47 percent over basically the same time period. Most likely, the slippage in these cash prices will continue for the months ahead, he added.
Slippage in fed cattle prices will continue for the months ahead as the market seeks a sustainable balance between supply and demand.
Beef has had a tough time competing on price at the supermarket meat department with retail beef prices increasing 49 percent since 2010 compared with a 32 percent increase in retail pork prices and only a 10 percent rise in the chicken price. Comparing the wholesale prices of 81 percent lean coarsely ground beef to the Northeast price for jumbo boneless/skinless chicken breast meat during the time period from 1995 to 2016, Good found the ratio to average about 0.4. However, when beef prices were unusually high during certain times in 2014 and 2015, the ratio was over 2.0.
The cattle market is in a severe adjustment phase as it tries to find the new sustainable balance between domestic consumer demand/export sales and the supply of fed cattle, Good concluded.
Feed grains and oilseeds
Favorable growing conditions are stimulating higher yields for essentially all grains and oilseeds this harvest, and that story may continue to play out in future USDA crop reports, Dr. Bill Lapp, president of Advanced Economic Solutions, told the conference. He advises users of corn and soybean meal to fully consider buying opportunities that will be available through year’s end and into early 2017. If the old adage of big crops getting bigger proves correct again this crop year, Lapp sees favorable feed costs for most of 2017.
Dr. Bill Lapp, founder and president, Advanced Economic Solutions
Although the U.S. dollar has been more stable since 2014, a sharp move in its value would impact agricultural commodity prices, a scenario that cannot be ruled out in the year ahead. Also easing the pressure on the upward movement of corn prices is the slowing growth in ethanol usage of corn with usage stabilizing at 5.2 to 5.3 billion bushels of corn. The 10 percent “blend wall” is the limiting factor, Lapp noted. With the corn stocks to usage ratio most likely to be over 12.5 percent for 2016-17 the historical pattern is for lower corn prices. By comparison, the recent low was in the 2012-13 crop year with a ratio of 7.4 percent.
If the old adage of big crops getting bigger proves correct again this crop year, Lapp sees favorable feed costs for most of 2017.
For world soybean trade, China dominates with Chinese share consistently at 62 percent since 2013-14. This year should prove no different with 86 million metric tons expected to be imported by China. Ample soybean supplies in the United States will need the Chinese demand to underpin soybean prices. But, with the soybean stock-to-usage ratio anticipated to be 10.7 percent in 2016-17, the highest since 2006-07 when it was 18.7 percent, history suggests both lower soybean and soybean meal prices. Lapp indicates the upcoming South America soybean crop is an important risk factor in his analysis. Soybean meal prices have remained above $300 per metric ton despite the record harvest, although the trend since mid-2016 is for prices slipping toward a level under $300, he concluded.
U.S. total red meat and poultry production is forecasted to be up 3 percent in 2017, which is expected to lead to lower prices.
Total poultry/red meat production in 2017 will top 100 billion pounds for the first time ever. All animal proteins are increasing and generating a combined increase of 3.0 percent over 2016. Like production, USDA forecasts all meats to increase in exports and consumption with combined average consumption over 217 pounds per person, a gain of 3.1 pounds over 2016. All prices are seen slipping with the abundance of production.
Presentations from the “Outlook for Animal Protein and Feedstuffs” panel can be viewed/downloaded from the following links:
Poultry: Will Sawyer
Pork: Steve Meyer
Beef: Kevin Good
Grains: Bill Lapp
