Meat protein market outlook 2015

by Steve Kay
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Meat and poultry prices are expected to creep in 2015.

WASHINGTON — Americans will have to open their wallets even more this year to buy their favorite protein. That’s after stomaching extremely high beef and pork prices in 2014. Consumer prices for meat, poultry and fish will increase 3% to 4% this year from last year, predicts the U.S. Department of Agriculture’s Economic Research Service (U.S.D.A.-E.R.S.). That’s despite the U.S. meat and poultry industry producing 1.6% more red meat and poultry. Smaller beef production year-on-year and continued strong demand for protein at home and abroad will be the key drivers in pushing wholesale and consumer prices higher.

U.S.D.A.’s consumer-price forecasts appear to be positive for pork and poultry processors, and neutral for beef processors. Pork and chicken production will be higher this year, but consumers will pay more — not less. Beef production will be lower, but consumer prices will increase far less than they did in 2014.

That increase caused concerns about consumers’ willingness to keep paying more for beef to emerge last fall. Consumers kept buying beef, but sales slowed and fed-beef processors were forced to cut production. This scenario will continue in the first half of this year. Production will be down versus last year and retail prices will remain at record levels. But production in the second half should increase versus last year, suggesting consumers might see price relief.

U.S.D.A. forecasts that beef prices will increase 4.5% to 5.5% this year from last. That’s far less than the 11% to 12% increase it forecast for prices in 2014 versus 2013. This should be positive for fed-beef processors as they might have to pay record prices for live cattle in the first half of the year and will need to get higher boxed-beef prices as a result. The second-half increase in production suggests larger live-cattle supplies than they saw last year and a decline in cattle prices. This would be in contrast to the record-high cattle prices during 2014’s fourth quarter.

Consumer pork prices will also increase 4.5% to 5.5% this year from last, despite production increasing 5.6%, says U.S.D.A. It is counting on the same factors for pork as for beef, stronger demand at home and abroad. It is also assuming that prices will increase as red-meat supplies remain tight relative to historical levels. U.S.D.A. is applying the same logic to its poultry-price forecasts. They will increase 2.5% to 3.5% this year from last, despite broiler production increasing 3% and turkey production increasing 3.2%, it said.

Consumers in 2015 will thus continue to eat more chicken and pork — and less beef. That’s not because of price but because of availability of those proteins. U.S.D.A. forecasts that beef disappearance will be 52.2 lbs per person, versus 54.1 lbs last year. Consumers will eat an average 85.3 lbs of chicken, up from 83.4 lbs in 2014, and 46.6 lbs of pork, up from 45.3 lbs the previous year. Turkey consumption will edge up to 15.8 lbs per person from 15.7 lbs, and lamb and mutton consumption will remain unchanged at 0.9 lbs per person.

Chicken and pork were the star performers for meat processors in 2014 and will be strong profit centers again this coming year. Conversely, beef profits will be smaller. Fed-beef processors have just come off their toughest fourth quarter in years, with operating margins negative by $80 per head at times. The first quarter may be a repeat of this, as occurred in 2012’s first quarter.

Chicken production is expected to rise to 39.63 billion lbs this year.

Chicken production climbing

Chicken production this year will be 39.63 billion lbs, up 1.146 billion lbs from 2014, the U.S.D.A. said. The average national price of a wholesale broiler will decline marginally to $1 to $1.08 per lb from $1.05 per lb in 2014. Broiler exports will be 7.4 billion lbs versus 7.319 billion lbs in 2014. U.S.D.A. assumes that Russia’s ban on U.S. poultry last August will remain in place for one year, it said. But it noted the ban led to large increases in exports to Asian, former Soviet Union, Middle Eastern and Sub-Saharan African markets, which mostly offset the Russian ban.

Poultry processors around the country should have another banner year. Tyson Foods in its fiscal 2014 had an operating income for chicken of $883 million versus $683 million in 2013. Sales were $11.116 billion versus $10.988 billion for the year. So, the operating margin was 6.2%. Due to the relative value of chicken compared to other proteins, demand will increase 3% to 4% in fiscal 2015, according to Tyson’s reports. So, if all goes well, its margin could be above 10% for 2015. All processors will be helped by lower feed costs. Tyson’s fell by $600 million in 2014 versus 2013 and it expects another $350 million decline in fiscal 2015.

Pork production heading up

Pork production this year will be 23.620 billion lbs, up 958 million lbs from 2014, said U.S.D.A. The average live price of a market hog will decline sharply, to $63 to $68 per cwt from $76.60 in 2014. Pork exports will be slightly higher at 5.250 billion lbs versus 5.066 billion lbs in 2014. This year could see a 7% decline in pork cutout values versus 2014, said analysts. But if live-hog prices decline as much as U.S.D.A.’s forecast, pork-processing margins will be even better than last year.

Last year, Tyson Foods had its second-best pork year since it acquired I.B.P. in 2001. It had pork operating income of $455 million versus $322 million in 2013. Sales were $6.304 billion versus $5.408 billion. Margin for the year was 7.2% versus 6.1% in 2013. Tyson expects its pork margin in fiscal 2015 to be in its normalized range of 6% to 8%.

Tyson and other pork processors will take a cautious approach to increased production. Last November, Hormel Foods Corp. said it looked for pork commodity prices and pork operating margins to normalize as 2015 progresses. It plans to increase pork production by 1% to 2% over its 2014 numbers even though it expects to see hog numbers increase 3% to 3.5%.

Beef production is expected to dip to 23.665 billion lbs this year.

Beef production will slip

Beef production this year will be 23.665 billion lbs, down 794 million lbs from 2014. The average live price of a fed steer will be $154 to $165 per cwt, versus $154 to $155 in 2014. Beef exports will be slightly lower at 2.525 billion lbs versus 2.599 billion lbs in 2014, U.S.D.A. said.

Tyson, the industry’s largest fed-beef processor, had its best beef year in 2014 in three years. Its beef operating income was $347 million versus $296 million in fiscal 2013. Sales were a record $16.177 billion versus $14.400 billion. Beef had a 2.1% operating margin, the same as the year before. Margins in 2015 will be slightly below this. Tyson expects cattle supplies to decline 4% in fiscal 2015 from the year recently ended. But that should be the worst of it, Tyson said. Other beef processors hope that’s the case.

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