Poultry profits could be hurt by excess pork supply in second half of 2013

With U.S. pork exports to China and Russia halted due to the use of ractopamine in pigs, rising pork inventories may depress poultry prices in the second half of 2013.

Just as high grain prices show signs of moderating, U.S. poultry producers have a new worry about their profitability – excess pork supplies. Excess pork on the U.S. market in the second half of 2013 could spoil prices and profitability for all meat proteins, including chicken and turkey, warned an economist speaking at a meeting of the USA Poultry & Egg Export Council.

Brett Stuart of Global AgriTrends forecast U.S. pork exports to fall by 9.9 percent in 2013 as a result of China’s and Russia’s ban on U.S. pork produced from pigs fed ractopamine. His forecast calls for exports of broiler meat to be up 3.3 percent and beef up 2.2 percent.

“There has been only one year in 22 years that pork exports have declined, but I am forecasting the biggest decline in U.S. pork exports yet this year. That is mainly due to China’s and Russia’s restrictions on the importation of U.S. pork from pigs fed ractopamine,” he said.

“If you believe my forecast, it means there is going to be 530 million excess pounds of pork on the U.S. or global market in 2013. U.S. pork producers don’t have a potential export market that can absorb that much pork.”

Stuart estimated that only around 11 percent of U.S. pork is currently produced without ractopamine, a beta-agonist approved by FDA for use to help pigs build lean muscle.

Poultry demand remains strong, but Mexico presents hidden risk

Rising pork supplies are not the only economic hurdle ahead for U.S. poultry producers, according to Stuart, who foresees a potential downturn in demand for U.S. poultry in Mexico.

Growth in Mexico’s demand for U.S. poultry has been phenomenal in recent years, and especially so as a result of the avian influenza outbreak there which has reduced domestic supplies.

“Since 2000, per capita consumption of broiler meat in Mexico has increased by 20 pounds. It is absolutely phenomenal to see that kind of growth in a market.”

However, over the last three years, income growth rates have been falling in Mexico. Growth in incomes in Mexico is now close to 1 percent growth, and the Mexican economy is stagnating.

“We are kind of blinded to that because we are seeing all this demand for poultry driven avian influenza-created shortages.”

Poultry’s overall outlook is positive

World demand for U.S. poultry and meat is on an upward trend, Stuart told USAPEEC members. “There is more meat and poultry being produced every year, and prices have still gone up. In an economic sense that says we are not producing enough,” he said.

Plus, he said, the beef supply situation is supportive of poultry markets. “We have had record beef prices, and the beef supply is not turning the corner anytime soon.”

“Based on recent corn futures, the U.S. poultry industry’s cost of production in 2013-14 is going to be at the lowest level since 2010. What does it mean if the industry gets its costs and prices down when world population and incomes are growing? If U.S. poultry producers reduce their prices overseas, they are going to see higher export volumes,” Stuart said.

U.S. pork producers reducing the use of ractopamine

U.S. pork producers Smithfield Foods and Tyson Foods have reportedly begun eliminating ractopamine from their operations. Smithfield is said to have removed ractopamine from over half its pork operations, while Tyson has removed the drug from around 10 percent of its pork operations.

Stuart estimated that only around 11 percent of U.S. pork is currently produced without ractopamine.

Ractopamine is a beta-agonist initially developed to treat asthma in humans and subsequently used to help pigs build lean muscle. The FDA approved the use of beta-agonists in pigs in 1999 for cattle in 2003 and for turkeys in 2008. FDA has said it remains confident in the use of the drug when used in accordance with the approved labeling.