Animal protein providers take the brunt of soaring grain prices

by Ron Sterk
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Livestock feeders and poultry producers have and will continue to take the brunt of record high corn, soybean meal and other ingredient prices, which combined, mean record high feed prices. And ultimately, what consumers are willing to pay at the meat counter may be tested with meat prices already at or near record levels.

“Next year, per capita consumption of red meat and poultry is expected to drop below 200 lbs per capita for the first time since 1990,” the U.S. Department of Agriculture said in its August Livestock, Dairy and Poultry Outlook.

Total red meat and poultry consumption was forecast at 197.7 lbs in 2013, down 5 lbs, or 2%, from 2012, and down 11.2 lbs, or 5%, from 208.9 lbs in 2010. U.S.D.A. per capita consumption estimates and forecasts are arrived at mathematically using production and population data, without consideration for consumer reaction to price levels.

The potential effects of the drought on livestock and meat production outlined in the U.S.D.A. Outlook were eye opening:

• “Drought-motivated increases in cow slaughter and feeder cattle movements have adversely affected all cattle and beef prices and plans to increase the national cow herd.”

• “High feed costs ... are expected to reduce U.S. pork production in 2013.”

• “With sharply higher prices expected for corn and soybeans, poultry meat and egg production forecasts were lowered for 2013. The broiler meat production forecast was lowered in 2013 by 600 million lbs to 36.5 billion lbs.”

• “The severe drought ... is already lowering milk yield per cow and next year will lower herd size and milk production. Prices will be higher than forecast earlier but still below 2011 prices.”

In total, the U.S.D.A. projected a 1,949 million lb decline, or 2%, from 2012 in red meat and poultry meat production in 2013, compared with a mere 203 million lb drop in 2012. Production in 2012 is skewed from additional red meat being added to the pipeline as hog and cattle producers sell off livestock directly because of the drought or because of high feed costs, also the result of the drought.

Perhaps setting the stage for what lies ahead, data from the Bureau of Labor Statistics on Aug. 15 indicated U.S. ground beef prices averaged a record high $3.085 a lb in July, up from $3.007 in June, which was the first time prices had ever risen above $3. Ground chuck was a record $3.449 in July, the B.L.S. said. When the B.L.S. began tracking 100% ground beef in January 1984, the price was $1.29 a lb, rising to $2.357 a lb in January 2009. Prices for 100% ground chuck were $1.821 when tracking began in January 1980, and $2.961 in January 2009.

Adding to hog producers’ woes were outbreaks of H3N2 (swine flu) in Indiana, Ohio and Minnesota, seasonally rising hog slaughter numbers and increased stocks of frozen pork pressured lean hog futures prices to 20-month lows last week. The nearby October lean hog contract tumbled to a low of $73.10 a cwt on Aug. 22, down 19% from a high of $90 a cwt on Feb. 22.

In its Aug. 22 Cold Storage report, the U.S.D.A. said frozen pork stocks totaled 547 million lbs on July 31, up 20% from a year ago, although supplies were down 8% from June 30, mainly the result of the seasonal drawdown of belly stocks.

Frozen beef stocks on July 31 were up 10% from a year ago at 456 million lbs, the U.S.D.A. said, with total red meat stocks at 1,031 million lbs, up 15%. Rising freezer stocks can sometimes be an indication of weak demand.

Behind most of the run-up in prices is the worst drought since 1956 across the Midwest Corn Belt. The U.S.D.A. in its Aug. 10 Crop Production report forecast U.S. 2012 corn outturn at 10,779 million bus, down 13% from 2011 and down 27% from what was projected in May as the largest crop ever at 14,790 million bus. The soybean crop is expected to feel slightly less impact from the drought as recent rainfall has been marginally helpful, but production still was forecast at 2,692 million bus, down 12% from 2011. Wheat prices have been pulled sharply higher, mainly by corn, despite production of 2,268 million bus, up 13% from 2011. For corn, many analysts expect the crop size will shrink still further because they believe the U.S.D.A. overstated average yield and understated abandoned acres in August. The next U.S.D.A. Crop Production report will be Sept. 12.

The U.S.D.A. in late July forecast food prices would rise 3% this year and 3.5% in 2013, compared with increases of 3.7% in 2011 and 5.5% in 2008, the last time record high grain prices were set. Red meat prices were forecast to increase 4% this year and 3.5% next year, compared with 8.8% in 2011. Poultry meat prices were seen rising 4% this year and 3.5% in 2013 compared with 2.9% in 2011. The U.S.D.A.’s meat price forecasts were unchanged in August when updated Friday.
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