Broiler companies are expected to reduce production in 2012 and the “magnitude of the decline will depend on a number of factors,” according to the “Livestock, Dairy, and Poultry Outlook” report issued this week by USDA’s Economic Research Service (ERS). Any improvements in overall economic conditions and consumer confidence will help moderate downward pressure on broiler production from the higher grain prices, ERS said.  Over the five weeks (from September 10 to October 8, 2011), the number of broiler chicks placed for growout has been 6 percent lower than in the same period in 2011. Over the last several months, the number of chicks placed has been declining compared with the previous year. This trend is expected to continue through the fourth quarter and into 2012, the ERS report said.

Analyzing cold storage holdings of broiler products at the end of August 2011, ERS explained that stock changes were strongly divided between higher inventory levels for breast meat and wings and lower holdings of most leg meat products. Breast meat stocks were up 46 percent from the previous year and wing stocks were 25 percent  higher. These increases were offset by declines in stocks for leg quarters (down 24 percent), thighs (down 22 percent), and drumsticks (down 32 percent), according to the ERS report.

The changes in cold storage stock levels have been reflected in wholesale price changes. In the Northeast market, the wholesale price for boneless-skinless breast meat averaged $1.31 per pound during September, down 22 percent from a year earlier, and the price for breast meat with ribs was down 17 percent. Rising stocks for wings also put downward pressure on prices, with whole wing prices averaging $1.09 per pound, down 15 percent from September 2010. The falling stocks for most leg meat products were also reflected in their prices. Prices for bulk leg quarters, boneless-skinless thigh meat, and drumsticks were 31, 32, and 24 percent higher, respectively, than the previous year. With broiler production and ending stock levels both expected to be lower in the fourth-quarter 2011, many broiler product prices are expected to gradually strengthen but much will depend on the health of the U.S. economy, ERS reported.

In addition, ERS said that, while monthly average five-area fed cattle prices have increased by $9.24 per hundredweight (8.6 percent) from June to September, margins for cattle feeders remain negative, by more than $100 per head in some cases. This is largely because of high feed costs, primarily corn and roughages, and feeder cattle prices that have remained high even as fed cattle prices have fluctuated because of a volatile futures market. Those cattle feeders familiar with hedges have had some opportunities over the last several months to lock in profitable price levels.

ERS also noted that the average monthly wholesale price spread between Choice and Select cutout values has widened to over $14 per hundredweight for the first week of October.  By comparison, the spread in February 2011 was $0.87 per hundredweight.  Several factors are contributing to the widening spread.  Marketings from feedlots of 1,000 head or more have been such that fed cattle have not been allowed to put on any extra weight–partly because of high costs of gain, adversely affecting total beef production. However, feedlots have remained relatively current despite heavy placements of feeder cattle–especially the drought-induced light-weight placements–for much of the past year or longer. The shortened feeding periods and some pulling of cattle forward (marketing them earlier in the feeding-finishing period) have also resulted in slightly fewer carcasses grading Choice and more Select grading carcasses, which has affected the Choice-Select spread since July 2011, ERS said.

ERS forecasts 2011 pork slaughter to be just over 110.6 million head, with 22.6 billion pounds of commercial pork production, 0.9 percent above the 2010 level.   Looking at next year, marginally larger breeding herd inventories and farrowings indicate to ERS that the industry is likely expanding. In light of a large pig crop in late 2011 and early 2012, 2012 hog slaughter was revised upward by 510,000 head to 112.6 million head. Dressed weights in 2012 should, on average, be marginally larger than 2011 because of lower than expected feed costs in 2012. Commercial pork production in 2012 is forecast to be 23.1 billion pounds, an increase of 1.8 percent over this year.