NAMA report: Slow, steady and positive

by Erica Shaffer
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Outlook for the meat industry remains positive; challenges to herd rebuilding means tight supplies of beef in the near term.

CHARLESTON, SC — Economic growth in global meat market is expected to improve during 2014 into 2015, said Len Steiner, industry analyst with Steiner Consulting Group. Steiner presented an analysis of the meat segment’s fortunes during the 2014 NAMA Outlook Conference held in Charleston, SC Sept. 11-14.

Tailwinds for the meat industry, among other factors, include domestic and global economic growth; currency changes; tight supplies of proteins; and feed input costs.

Steiner said the US economy will continue to improve at or near 3 percent for the next few quarters. Growth in the US gross domestic product (GDP) accelerated in the second quarter with an annualized rate of 4 percent. Also, higher consumer spending, faster job growth and subsiding fiscal austerity problems also supported growth, Steiner said.

Labor markets will be a key growth driver for meat demand, according to Steiner. But red flags in the labor market include underemployment as well as the number of people who are no longer in the work force.

"The disparity of incomes continues to widen," Steiner added. "We're seeing some decline in the job participation rate."

But while the meat industry as a whole can expect lower prices for corn, producers may not see lower prices for cattle and consumers may still pay a premium for beef. The US Department of Agriculture recently raised its yield expectations. If realized, corn and soybean production and average yields all would be a record high.

"At this point in time, we're going to have more grain than we know what to do with," Steiner said.
But what are the implications for prices of cattle and for beef? Lower corn prices will result in strong feedlot demand for feeder cattle, Steiner said. Cow-calf operators will see margins improve on lower corn prices, which will provide impetus for herd rebuilding, he added. However, lower prices for corn hasn't resulted strong gains in herd rebuilding.

"Producers wiped out by the drought are not coming back," Steiner said. The barrier to re-entering the industry is just too high. Also, weather remains a major variable that has producers wary of extreme weather conditions. Producers who are renting their land may hesitate to give up rental income and run cows, while some producers are looking to cash out of the industry.

"US beef production is like priming the pump: In order to get beef down the road, you've got to have water in the pump today," Steiner said. He added that "beef is becoming more and more an exclusive product to consume. It is not keeping up with world growth."

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