For U.S. broiler producers, 2018 couldn’t end soon enough. In December, wholesale prices for boneless skinless chicken breast meat and chicken leg quarters dipped to $0.84 and $0.28 per pound, respectively. Egg producers fared better as the Egg Industry Center estimates that U.S. egg producers were, on average, profitable in 2018. The December 2018 U.S. Department of Agriculture World Agricultural Supply and Demand Estimates (USDA WASDE) report forecasts that the U.S. production of chicken meat and table eggs will grow by 1.2 and 1.5 percent, respectively, in 2019. Poultry economists have identified three key factors that should have the biggest impact on whether 2019 is a good one or not for U.S. poultry producers.
1. Record animal protein production
U.S. per capita red meat and poultry meat consumption reached a peak prior to the Great Recession in 2006 at 220 pounds, but then fell nearly 10 percent to 200.2 pounds by 2013. If the December 2018 WASDE report is correct, U.S. per capita red meat and poultry meat consumption will reach a new record high of 222.4 pounds in 2019. This same report forecasts U.S. per capita egg consumption at 279.2 in 2019, up 20 eggs (7.8 percent) since 2013.
Economists expect all these production levels to have a negative impact on meat and egg prices in 2019. Mark Jordan, executive director, LEAP Market Analytics, said he expects composite chicken prices (weighted by category and respective values for each) to be about 5 percent lower overall in 2019 than the unprofitable levels they had in 2018. He expects composite weighted turkey prices to increase about 10 percent in 2019 over 2018.
“I have serious doubts about the 2019 USDA meat and poultry production forecasts,” said Tom Elam, Ph.D., president of FarmEcon. “For the last several years, those forecasts have faded over time. I do not see how the broiler forecast can come about, 3 to 4 percent is more likely, and that depends on several new plant projects getting off to great starts. Keep in mind that as antibiotics are taken out [of poultry feeds], productivity is declining and death losses are increasing.”
Paul Aho, Ph.D., economist, Poultry Perspective, thinks the USDA’s forecasted increase in U.S. chicken meat production might actually be high because broiler producers will cut back in response to poor returns resulting from low breast meat and leg quarter prices. He said that chicken meat production in the U.S. might not increase at all, even with six new slaughter plants expected to open in the next 12 months. Because of poor returns, some aging U.S. broiler plants might be retired as new plants are opened.
“We are seeing signs of declining hog and broiler margins,” Elam said. “If you use consumer spending as your demand indicator this should not be happening. There is a gap between buying power and consumption that was not there 10 years ago. I think that may mean that we are at a demand-based ceiling on per capita consumption that is very near the 2007 record level when all measures of economic activity were lower than current levels.”
U.S. per capita consumption of red meat and poultry meat is forecast to reach a record high of 222.4 pounds.
The December 2018 USA WASDE report forecasts the wholesale Grade A large New York egg price for volume buyers at between $1.19 and $1.28 per dozen for 2019. Jordan said: “I'm actually a little more bearish than USDA on egg prices. I've got large grade A eggs averaging mostly in the US$1.10 to $1.17 per dozen area, depending on the regions, reflecting a good 17 to 20 percent drop from 2018 levels. I'm expecting a bigger increase in table egg production than USDA (3 versus 1.5 percent), but here's why. The table egg flock skewed a little older this year, which hurt productivity a bit — egg production per layer is poised to be down 0.5 to 1.0 percent overall in 2018 from 2017. We've been looking at fairly aggressive egg-type hatching rates that should both boost layer inventories next year, 2 percent or more, and productivity as well with the flock skewing younger again. Also, wholesale table egg demand has been fantastic this year — something of a ‘rebound’ after hitting rock bottom in late 2016 and early/mid 2017 — but is starting to slow down a little. I think we see bigger supply gains and we're also looking at weaker demand overall in 2019 to bring about a near 20 percent decline in egg prices."
U.S. per capita egg consumption is forecast to be approximately 279.3 eggs in 2019, the highest is has been since the early 1970s.
2. Slower economic growth
The December 12, 2018, Conference Board report forecast real GDP growth for the U.S. in 2019 at 2.9 percent. Elam said, “GDP growth in the 2.5 to 3.5 percent range seems reasonable, but the uncertainty around federal policies raises the risk in any forecast.”
Jordan was more bearish on the prospect for continued strong GDP growth. “I don't want to say we're headed for a downturn/recession/setback just because we're supposedly due, or overdue, for one, but this expansion is a bit long in the tooth, and we're seeing some early indicators — with interest rates/yields, volatility in equity markets, and initial jobless claims inching higher, albeit from very low levels — pointing to at least a slowdown. I think we're all a little gun-shy after what happened in 2008 and 2009, and then what followed, and I don't believe anything like that's pending, but I'm leaning towards thinking we see something close to the 2002-03 recession or maybe a little better, 0 to 1 percent GDP growth.”
3. Slight upside risk on grain prices
The USDA projects an average U.S. farm price for corn of between $3.25 and $3.90 per bushel in the 2018/2019 crop year versus an average price of $3.36 in the 2017/2018 crop year, according to the December 2018 WASDE report. Jordan said that we are probably at greater risk of corn prices "bubbling up" a little in the summer of 2019 than we've had in a while.
“There's less wiggle room in the balance sheet than we've been accustomed to the past two marketing years with carryover stocks well above the 2-billion [bushel] mark,” he said. “We're looking at a 2018/19 carryout in the ballpark of 1.7 billion bushels. That's still pretty solid, but if unforeseen forces — a yield miss that's uncovered in the final crop report or larger-than-expected animal feed usage or ethanol production or larger-than-expected exports — start driving that carryover forecast toward the 1.5 billion mark and we start seeing acreage and/or yield issues with the 2019 crop, corn above $4 per bushel is a virtual certainty around May to July next year, and a rally into the $4.50 to $5 range is well within reach.”
Elam said, “In general, much in [the] corn and bean markets depend on next summer’s weather. Until we get into the growing season, price action will focus on trade issues. Unless we gain some soybean export volume, I expect a shift into corn [acreage].”
The USDA is forecasting $7.85 to $9.35 per bushel range for the farm price of soybeans in the 2018/2019 crop year, versus a $9.33 per bushel average price in the 2017/2018 crop year.
Jordan said that his forecast for the 2018/2019 crop year cash farm price for soybeans in Decatur-Central Illinois is $8.80 per bushel. “However, unlike corn, the bias is that there's greater downside than upside risk to this forecast,” he said. “Staring at a carryout possibly approaching a billion bushels and all the trade drama, this thing could roll over at some point and take another leg down.” Jordan explained that a stocks-to-use ratio of greater than 20 percent, as might be the case in the U.S., could lead to a soybean price the $7 to $8 range.
Learn about animal feed trends for 2019: www.WATTAgNet.com/articles/36190
