Wholesale broiler prices in general are expected to be facing “some downward pressure” but this situation may be countered by relatively high prices for competing meats, a growing economy, and a continued strong market for broiler exports, USDA’s Economic Research Service (ERS) explained in its “Livestock, Dairy, and Poultry Outlook” report issued yesterday. Higher broiler production is expected by ERS during the first half of 2013, and 10 percent higher cold storage inventory at the beginning of this year, will be the primary factors tilting prices lower.

ERS sees a relatively small increase in broiler production this year compared with 2012. There is, however, uncertainty about the “course of feed prices” in the coming year. At the same time, prices for a number of broiler products have been strengthening and the forecast is for exports to be again strong. The number of chicks being placed for growout currently has only been slightly higher than for the same period the previous year. In 2013, most of the increase in broiler meat production is expected to come from a larger number of birds slaughtered, but some added production will come from higher bird weights at slaughter, especially during the first half of the year.

In its analysis of the beef situation, ERS referred to “the incredible shrinking cow inventory.” Since 2010, drought has reduced pasture availability, forcing cows to slaughter, feeder cattle out of Mexico, and feeder cattle into feedlots prematurely. The drought has also resulted in successively smaller calf crops.

Inventories of all cattle and calves of 89.3 million head on January 1, 2013 reached their lowest level since 1952, when the January 1 inventory of all cattle and calves was 88.1 million head. The January 1, 2013 inventory of beef cows was 29.3 million, the lowest since 28 million in 1962. Total commercial cow slaughter in 2011 and 2012 was 17.0 and 16.6 percent of January 1 total cow inventories—well above the more typical rates of 12 to 15 percent of January 1 cow inventories. This rate of cow slaughter, combined with a smaller percentage of heifers entering the beef cow herd, left the January 1, 2013 beef cow inventory 2.9 percent below the revised 2012 inventory. Beef replacement heifers were up, but only by 1.9 percent over the revised 2012 inventory. This level of heifer retention is not likely to lead to an increase in beef cow inventories in 2013, ERS added.

As the drought continues into 2013, liquidation of cows has remained relatively high. Cow slaughter may add to near-term beef supplies, particularly of processing beef if forage supplies tighten. Feeder calves may continue to be placed in feedlots earlier and at lighter weights than would be the case if pasture conditions allowed them to be grown on pasture rather than on high-priced corn.

While fed cattle prices seem to have recovered for the most part from the abrupt decline that followed the announcement of the Cargill plant closure, ERS reported the current price picture for the beef complex is not bright. Steer and heifer slaughter appears to be flagging in the face of continuing negative margins for meat packers, and wholesale cutout values have not recovered from their recent declines. This deteriorating situation has likely been exacerbated by the continued economic weakness. Retail beef demand will likely face continued price pressure as a result, the report concluded.