Prices for protein under pressure
Nov. 1, 2016
by Ron Sterk
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KANSAS CITY, Mo. – Protein — red meat, poultry and egg — supplies are ample and seemingly increasing while prices are falling or already at multi-year lows, according to the US Dept. of Agriculture.
Egg prices are at decade lows. Live cattle futures recently hit five-year lows. It is a far cry from record high egg prices in the summer of 2015 and record high retail beef prices just a couple years back. Commercial red meat and pork production were record high for the month of August, the USDA said.
The USDA in its Oct. 12 World Agricultural Supply and Demand Estimates (WASDE) report summed it up:
“Cattle, hog, broiler and turkey prices for the last quarter of 2016 are reduced from last month (September’s forecast) as supplies of product are large. For 2017, the continued large supplies of beef, pork and broiler meat are expected to pressure prices through the year. Egg prices are also reduced for both 2016 and 2017.”
Prices in 2016 were forecast down 18 percent from 2015 for slaughter steers, down 8 percent for slaughter hogs, down 7 percent for broilers and down 53 percent for eggs. For 2017, prices were projected to drop 4 percent from 2016 for steers, 11 percent for hogs and 3 percent for broilers, while eggs were expected to recover 13 percent.
The USDA forecast commercial red meat and poultry production in 2017 at 100,319 million lbs., up 78 million lbs. from its September projection, up 3 percent from 97,439 million lbs. forecast for 2016 and up 6 percent from 94,630 million lbs. in 2015.
If realized, it would be the first time in history that total red meat and poultry output has topped 100 billion lbs. in a year.
Higher total red meat and poultry exports will take some, but not nearly all, of the increased production. Exports in 2017 were projected at 15,703 million lbs., up 5 percent from 2016 and up 10 percent from 2015.
The data are stacking up against a recovery in protein prices anytime soon.
The question is, why are producers continuing to increase red meat, poultry and egg production as prices are falling?
That question has puzzled the egg industry for months with processing egg prices at just a fraction of production costs. The American Egg Board said recently that egg production recovered from last year’s devastating laying flock losses caused by the widespread outbreak of highly pathogenic avian influenza about six months sooner than expected (in 12 months rather than 18 months).
Also contributing to the oversupply of eggs, some industry observers contend, is the buildup of cage-free laying flocks while producers maintained traditional laying flock sizes rather than cutting back by a like amount.
While eggs are in a unique position with recovery from avian influenza and a shift in production methods, other factors also have combined to boost meat and egg production and limit exports.
A primary “culprit” is cheap feed. The USDA since August has forecast record 2016 US corn and soybean production, while a historically low protein hard red winter wheat crop also has added to the feed mix. Primary feeds for cattle, hogs and poultry are corn and soybean meal.
Historically, when grain prices (particularly corn) were low, farmers “walked” their crop to market by feeding it to livestock rather than selling it directly. Many farmers now are specialized into either crops or livestock, so that option is somewhat limited per individual producer, but commercial livestock operations also have access to cheaper grain.
Continued strength in the US dollar, meanwhile, makes US products more expensive abroad and has slowed the growth of exports to some degree. The value of the dollar has moderated some in recent weeks, and lower prices are expected to further boost meat and egg exports in coming months.
It remains to be seen by how much grain, livestock, poultry and egg producers will adjust production in 2017 to improve sagging profit margins.