November 18, 2004
Market Advisor: Livestock Meat Production and Prices on Wild Ride
U.S. commercial beef production in 2004 will average about 6 percent lower than 2003, but fed cattle prices are now averaging about 11 percent lower than last year. U.S. commercial pork production will be more than 3 percent higher in 2004, but barrow and gilt prices will likely average 30 percent higher than in 2003. Broiler (chicken) production will average more than 4 percent higher in 2004, but broiler prices will average close to 20 percent higher than a year earlier.
Some livestock producers and meat consumers are wondering what happened to the opposite relationship between production and price that is taught in Economics 101 classes.
Normally, most observers of livestock prices have faithfully followed changes in production and related supply as a good barometer for prices moving in the opposite direction.
However, both supply and demand are the key fundamental factors that affect livestock and meat prices. Observers historically paid less attention to demand because it tended to change by a lesser extent than supply during a given time period.
During the past year, however, changes in demand for meat have been instrumental in livestock price changes. Both export and domestic demand are important to the livestock and meat sector.
Beef prices in 2004 have been pressured by a sharply reduced export demand caused by the single case of BSE that was discovered in a cow late in 2003. All countries immediately closed their borders to U.S. beef and getting those markets back has been a slow process. Important Pacific Rim countries, in particular, are still not accepting U.S. beef; but negotiations are continuing on a daily basis.
Typically, the U.S. exports about 10 percent of beef production, but that will fall to about 2.5 percent in 2004. So, even though beef production is lower this year, U.S. consumers will purchase about the same amount of beef that they did last year.
In 2003, there was a robust demand for beef exports. BSE was discovered in a Canadian cow with a resulting loss in the country’s beef export market. The U.S. was able to capture some of the markets that Canada had previously served.
Domestic beef demand is also faced with ample supplies of competing, lower-priced meats, such as pork and chicken. Sharply higher energy prices are also negatively affecting consumer budgets.
On the other hand, U.S. pork export demand is flourishing. Exports in 2004 may be close to 20 percent higher than in 2003, with increasing amounts of pork going to countries that reduced or, in some cases, eliminated U.S. beef imports.
Broiler export demand struggled early in the year when avian influenza was discovered in major U.S. broiler production regions. However, export demand has been sparked recently by increased sales to Mexico, Canada and the Commonwealth of Independent States (former Soviet Union countries).
The success of the low-carbohydrate diets in the United States is also stimulating the demand for all meat products.
Many demand-related questions for the U.S. livestock and meat sector in 2005 remain to be answered.
Will international trade in beef return to a more normal situation? What will be the fate of demand-enhancing meat check-off programs? Will pork exports continue their record pace? Will the U.S. economy rebound? Will broiler exports flourish? Will additional livestock disease outbreaks occur and, if so, where? Will low-carb diets continue to be embraced by U.S. consumers? What will energy prices do?
Hang on! Next year may be another wild ride for livestock and meat prices as demand continues to be impacted by ever-changing domestic and international events.