Too much meat is chasing the consumer’s inflated dollar at a time when the U.S. economy is growing at a slower pace. This has pushed broiler part prices sharply lower into a seasonally slow demand period. At the same time, feed ingredient costs have soared to 22-year highs. The third largest corn crop according to the November 9 USDA estimate will likely leave ending stocks below a billion bushels for the first time since September 1, 2004. This could be only a 28-day supply versus 34 days in 2004. And a huge growing ethanol industry may use 2.15 billion bushels this year but possibly 3.1 billion bushels in crop year 2007.
Phenomenal growth in demand for a basic feed ingredient means farmers need to plant 5 to 6 million more acres of corn than they did in 2006. Prices above $3 will likely be the economic incentive to persuade such an increase in acres to occur. Once the crop is planted and growing well, prices will likely fall sharply like they did after reaching $5 in 1995-96. No shortage is foreseen in 2006-07, but future growth in ethanol output will require more corn in 2007-08.
Red meat production through November 11 was up a huge 3.7 percent from a year ago. Through September, broiler RTC output was up 1.9 percent and turkey off by 3.1 percent from last year. Recent weekly egg sets indicate the broiler industry will cut output these next several months in an effort to achieve some profitability. In recent years of high feed costs, the chicken industry expanded well below the five-year average growth rate. They may have to reduce live weights as well as head numbers to get ready-to-cook pounds just equal to a year ago. So far in 2006, that has not been done, especially on weights, as it represented 1.7 percent of the increase in tonnage.
I expect little reduction in red meat output these next seven months, in fact a slight increase is foreseen. This is true also for turkey, but maybe high grain prices will encourage the broiler industry to adjust output downward enough to turn per capita supply negative in first half of 2007. Weaker exports since September have caused cold storage stocks to build again. This is a detriment to prices.
World supply of coarse grain fell 33 million tons but expected ending stocks could be down a huge 45 million tons, creating a 44-day supply worldwide. A year ago, there was a 62-day supply. Oilseed world supply continues to grow as fast as demand. Projected ending stocks these last three years represent 56 to 59 days of supply.