Even though frozen inventory levels were higher for most broiler parts at the beginning of 2013, the somewhat lower broiler production that is expected during the first half of the year will likely provide adequate market support to move broiler prices higher, especially with lower production also expected for beef products, according to the “Livestock Dairy and Poultry Outlook” report issued yesterday by USDA’s Economic Research Service, (ERS).
Commenting on the relationship between frozen stock levels of the various chicken parts and wholesale broiler prices, ERS explained that the cold storage inventory of whole carcass broilers was “down sharply” in late 2012, thus supporting in December an average price of $0.98 cents per pound for whole broilers, up 21 percent from a year earlier. This same relationship can also be seen for breast meat products, where stocks were down and prices for boneless-skinless breasts rose. One notable exception for the stocks-price relationship was for wings, ERS noted.
Wing stocks at the end of November were 56 percent higher than the previous year, but prices in December averaged $1.90 per pound, 26 percent above where they were in 2011. In the past, wholesale wing prices have gradually strengthened in the fall, peaked in late January or early February, and then declined. In 2012, wing prices remained strong all year, ranging from $1.76 to $1.91 per pound.
ERS suggested the cattle cycle may continue to be delayed in terms of moving to the upward part of the cattle curve. Analysts said that, as the drought continues, potential for more cow liquidation increases and prospects for herd rebuilding deteriorate. Drought-affected pastures could result in further placements of lightweight feeder cattle in feedlots and further reduce the supply of heavy feeder cattle for placement. Negative packer margins and record high retail beef prices could dampen rising fed cattle prices, ERS added.
Annual 2012 commercial cow slaughter is expected by ERS to be below slaughter in 2011. This level of slaughter would represent 16.8 percent of the January 1, 2012 total cow inventory and is near the 17.1 percent for 2011, both of which exceed the 16.2 percent for 2010, and more significantly, the 16.3 percent for 1996, when a summer drought and a spike in corn prices set off an extended period of cow-herd liquidation. Prior to the 1996 liquidation rate, the highest rates of cow slaughter since 1980 occurred in 1984 (17.8 percent of January 1 cow inventory) and 1986 (17.7 percent).
For most of 2012, dairy cows accounted for a larger proportion of slaughter, although drought throughout the year also motivated a steady stream of beef cows going to slaughter. Unlike the last several years when beef cows represented unusually large shares, dairy cow slaughter during at least the last part of 2012 was atypically high, largely due to the effects of high feed costs and other factors on profit margins for milk producers.
A number of factors are potentially affecting cattle and beef markets adversely, such as record-high retail Choice and All-fresh beef prices in November; concerns about consumers’ disposable income; prospects for higher pork production; adequate supplies of poultry; and the near-term prospects for continuing negative beef-packer margins. ERS sees difficulty in fed cattle prices going much higher, except at the expense of a significant reduction in slaughter numbers. December 2012 retail Choice and All-fresh beef prices, at $5.12 and $4.77, were already below November 2012 prices.
USDA’s quarterly hogs and pigs report on December 28th told pork industry observers two important things about the direction of hog production in 2013, ERS said. First, U.S. breeding inventories have not declined, despite very high feed costs; and secondly, U.S. litter rates have not yet topped out. With the hog breeding herd expanding, analysts believe pork producers are assuming that high feed costs are temporary, and that pork demand in 2013 will continue strong.
Despite the tight feed ingredient supplies indicated by USDA’s grain stocks report on January 11, hog producers’ apparent assumptions are supported by calculated spreads between live hog prices and feed costs based on USDA price forecasts for 2013. These calculations show a negative spread in the first quarter of 2013, followed by positive spreads for the remaining three quarters of the year. Spreads calculated with current futures market prices show positive quarterly spreads between lean hog prices and feed costs for all quarters of 2013 and for the first two quarters of 2014. It is likely that the stable to slightly higher December inventory of breeding animals reflects producer expectations for lower feed costs from higher than expected 2013 corn production in particular and for higher average hog prices in 2013, bolstered by declining beef production, ERS concluded.
