Rabobank: US protein production to decline sharply in 2012

by Meat&Poultry Staff
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ST. LOUIS – Rabobank International Food & Agribusiness Research and Advisory (FAR) group researchers anticipate US meat and poultry production is headed for what could be a “precipitous fall” by mid-2012. Beef and broiler supplies are expected to tighten as production increasingly lags behind GDP growth.

Their “Where’s the Beef?” study, released Sept. 29, states although drought in the US is a major contributor to the production decline, global meat and poultry production is also in the midst of a multi-year process of adjusting to higher and more volatile feed costs. Since the US is a large and significant exporter of meat protein, the decline will also affect world markets as well as demand for feed, notably for corn.

“The drastic decline in protein production we anticipate will be felt in a number of industries,” said David Nelson, Global Strategist with the Rabobank Food & Agribusiness Research and Advisory team. “We expect the decline will create concerns for everyone from foodservice operators to corn producers.”

Domestic and global consumption trends are included in the study. Per capita meat consumption in the US appears to have peaked. The US poultry industry, in particular, should no longer count on rising domestic demand as a means of growing its way out of over-production situations, the study warns. However, a rising GDP in the developing world is contributing to an increasing global for meat protein.

“The greater global demand for meat protein is the key driver to rising feed costs, which in turn drive up the cost of raising animal protein,” Nelson says. “Global meat and poultry production continues to significantly lag GDP growth, which is, of course, the key factor behind rising prices.”

The beef sector is least able to cope with structurally higher and more volatile corn prices, given the long cattle-production cycle plus a relatively high feed conversion ratio. Extreme drought conditions in the South and Southwest and many areas, specifically Texas, are resulting in significant herd liquidation. As a result, US beef supplies will be plentiful when the cattle currently in feedlots come to market, but the long-term impact will include a dramatic decline in beef production by mid-2012, the study predicts.

“US beef production could be running as much as 7 percent below comparable 2011 levels by the third quarter of 2012,” Nelson said.

US beef per capita consumption will continue in a gradual decline, so the reduction in supplies will be most notable for importers of US beef. There could be a double-digit percentage decline in beef available for export in the second half of 2012, the study indicates.

The US broiler industry is suffering some of its worst-ever financial losses, the report states. Industry has expanded breast meat output at a time when demand has been softening due to the weak economy.

Despite some cutbacks in bird production, profits will remain under pressure into early 2012 as bird weights have provided a significant offset plus due to a large increase in breast meat inventory, the study predicts. Barring further market dislocation, the study authors believe industry can return to profitability some time next spring – but only if the more aggressive cutbacks that FAR expects actually take place.

US swine, however, is the bright spot in the report. In 2012, hog prices could end up on average 10 percent higher than even the record levels seen in 2011, the study suggests.

The current US pork supply and demand situation is much more stable than for beef or poultry. Strong export demand – currently accounting for roughly 25 percent of output –- coupled with solid domestic pricing has allowed producers and packers to weather the storm of rising feed costs. However, the deterioration in US crop conditions – leading to higher corn prices – has somewhat dampened the outlook.
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