The supply glut that plagued U.S. beef, pork and poultry markets last year and ratcheted down margins is expected to ease in 2016, according to a new research report from CoBank. The bank, a major agribusiness lender, says leading indicators point to animal protein supplies transitioning toward a better balance in the marketplace, with protein stocks more in line with overall levels of demand.

"It's clear that in the coming year, the headwinds and adverse conditions created by excessive protein stocks are clearing," said Trevor Amen, animal protein economist with CoBank. "Surprisingly strong U.S. consumer demand helped lay the groundwork for improving market conditions in the coming year, combined with the fact that the net trade balance is expected to shift toward growing exports and fewer imports. This is welcome news for U.S. beef, pork and poultry producers."

On the horizon

In the first half of 2016 protein exports are expected to remain somewhat of a challenge. "But conditions are predicted to improve over depressed 2015 levels due to improving price competitiveness of U.S. meat products," added Amen.

Meanwhile, imports of lean beef should slow significantly and domestic consumer demand for beef, pork and poultry is anticipated to remain strong and supportive of prices. Supply imbalances have already begun the correction phase, with supply and demand expected drift closer to equilibrium by about mid-year. Just how far and how fast U.S. meat prices change in the coming months will depend critically on the resilience of protein demand.

Price outlooks for 2016 and beyond are mixed:

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  • Pork and chicken prices have upside potential compared to 2015's fourth quarter lows, based on adjustments made for future production.
  • Beef prices will likely remain under pressure for the next two years, however, as the industry is coming off cyclical highs of 2014.

Of course, optimism for 2016 should be tempered by the oversupply lessons of 2015.

"Total red meat and poultry production set an all-time high in 2015," said Amen. "Combined with fewer exports and more imports, total domestic meat supplies surged by 4.4 percent, the highest year-over-year increase in 40 years." That increase in supply translated to an additional 9 pounds of protein per person--historically, protein supplies rose an average of 0.8 pounds per person per year from 1960 to 2015.

As the market works through the recent protein oversupply hangover, the long-term outlook remains positive, especially with continued global middle class growth. "The increasing demand for a higher-quality diet likely provides domestic protein producers with significant opportunities in the next decade," concludes Amen.

A synopsis of the 2016 Protein Demand Outlook Report is available at www.cobank.com.