Prices and drought batter meat production for 2012

By STEVE BINDER
Illinois Correspondent
10/05/2011

WAHINGTON, D.C. — Continuing high grain prices will contribute toward an estimated 5 percent drop in beef and poultry production next year, according to a recently released report titled Where’s The Beef? from Rabobank International.

Hog producers, meanwhile, are weathering higher feed prices well enough to keep production levels at about the same level as this year. What it means is higher prices overall for retailers and consumers.

“Barring major economic disruption, Rabobank believes that this will lead to another year of record prices in most markets for most proteins around the world,” the report states. “The big picture is that global meat and poultry production is in the midst of a multiyear process of adjusting to higher and more volatile feed costs.

“We believe that long-term prices for key protein-production inputs such as corn and soybeans will gravitate towards the incremental cost of production. Despite a large rebound in crop production from the Black Sea region in 2011, there is still no margin for error for global crop supplies, due primarily to poor yields in the U.S.”
Overall, Rabobank is predicting a drop of 5 percent for beef, chicken and hogs combined by the last quarter of 2012. Beef, however, will take the biggest hit, dropping an estimated 7 percent by the last quarter, the report states.

Driven in part by horrible drought conditions, cattle producers were placing animals into feedlots at a much higher clip this summer, up 22 percent in July.

“While this clearly indicates that U.S. beef supplies will be plentiful when these placements come to market late in 2011 and into 2012, the liquidation of breeding stock at this level will have a long-term impact, and, we believe, cause a potentially dramatic decline in beef production by mid-2012,” the report explained.

Not helping matters is the continuing slide of beef consumption in the United States. While emerging countries continue to be prime buyers of U.S. protein products, American consumers are eating less beef. For next year, consumption of beef in the U.S. is estimated at about 80 pounds per person. Ten years ago, U.S. consumers ate about 97 pounds of beef per person, per year.
Chicken production, meanwhile, is expected to be down slightly in part because of low prices for breast meat as well as leg quarters. Poultry producers have been struggling, mainly because of feed costs, but a drop in production should help.

“Despite some cutbacks in bird production, we believe profits will remain under pressure into early 2012 as bird weights (up an average 3-4 pounds per bird) have provided a significant offset,” according to the report. “We believe that the industry can return to profitability some time next spring.”

Financial analyst Shawn Hackett, author of the Hackett Commodity Report based in Florida, said recently one solid year of grain production will help everyone down the line. A good growing year should help to replenish U.S. stocks and drive prices down, possibly creating a “corn glut” that should help livestock farmers. “Chicken producers are collapsing right now, and dairy farmers are having difficulty. When feed prices get this high, it starts to hurt,” Hackett said.