Lower wholesale prices for whole broilers in recent weeks are the “hardest to explain” USDA’s Economic Research Service (ERS) said when reviewing weekly chicken price movements in its “Livestock, Dairy, and Poultry Outlook” report this week. Despite reduced slaughter of broilers and cold storage inventories of whole birds being lower at the beginning of October, USDA’s 12-city wholesale price for whole broilers in October slipped to 73.7 cents per pound, down over 8 percent from October 2010 and about 7 cents per pound less than in August 2011.

With estimated broiler meat production up slightly in October and with most of that growth coming from heavier birds, ERS noted that, in addition to prices for whole broilers, prices for a number of other broiler products have been under downward pressure.  For example, after rising in September, prices for boneless-skinless breast meat fell to $1.21 per pound in October 2011, down almost 10 percent from the previous year. On the other hand, reflecting generally reduced cold storage holdings, prices for leg meat products were all considerably higher in October than the previous year. Prices for whole wings in the Northeast market averaged $1.20 per pound in October. While this wing rise is still down about 10 percent from October 2010, prices for wings have risen by 23 cents per pound over the last two months.

ERS is forecasting a 5.1 percent decline from a year earlier for fourth-quarter 2011 broiler meat production.  The lower fourth quarter production is expected to be driven by sharp declines in the number of birds slaughtered, but these declines are expected to be somewhat offset by an increase in average live weights. However, ERS explained that over the last several weeks preliminary slaughter data indicates lower overall pounds slaughtered driven by reduced numbers of lighter birds.

Next year’s broiler production is forecast to decrease 1.7 percent from 2011. The decline in broiler meat production is expected to come mainly from a lower number of birds slaughtered, as bird weights are expected to be close to or slightly higher than in 2011. Broiler companies are not expected to have any strong incentive to expand production, due to the combination of continued high prices for corn and soybean meal and relatively low broiler product prices at the wholesale level, ERS added. Demand growth will likely be dampened by relatively slow economic growth and continued high unemployment.

 Weekly broiler hatchery reports indicate that, for the five weeks October 8 through November 5, the number of chicks placed for growout averaged 7.9 percent lower than in the same period in 2010. The five-week moving average has become more strongly negative over the last several months. The number of chicks placed for growout is expected to remain well below year-earlier levels through the remainder of 2011 and into 2012, but gradually to become closer to year-earlier levels in mid-2012, the report predicted.

Regarding beef, ERS reported that drought continues to dominate non-fed slaughter, despite recent rains that provided a temporary relief of conditions and promoted emergence of winter wheat in the Southern Plains. One result of the continuing drought is that proportionally heavy cow and bull slaughter rates and declining supplies of Choice-grade cattle that has significantly decreased the relative supply of Choice beef and contributed to a widening spread between Choice and Select steer and heifer cutout values. Wal-Mart’s decision to sell Choice beef has also contributed to the demand for Choice beef, the report noted.

 Choice retail beef prices set another record in September at $4.91 per pound, while the retail price for all-fresh beef declined 4 cents per pound from the high of $4.48 per pound in August. After a potential dip this winter, retail beef prices are expected to increase year-over-year into 2012.

With respect to pork, strong demand, both domestic and foreign, will likely support hog prices at very strong year-over-year levels for the remainder of the fourth quarter.  Typically, this time period is when there are the lowest yearly prices. October prices for live, lean hogs were $68.44 per hundredweight, almost 31 percent higher than a year ago.  Higher hog prices, concurrent with increased production, suggest to ERS that pork demand has increased, compared with a year earlier. While hog prices alone are not indicators of producer profitability, hog producers’ estimated fourth-quarter 2011 feed cost spread will likely be positive. More typically, fourth-quarter feed cost spreads are negative, due largely to seasonal increases in hog supplies, and, consequently, lower hog prices.

With foreign demand bidding U.S. pork away from domestic markets, lower availability of pork for domestic consumers likely explains the string of record-high retail prices that continued into September. September retail pork prices averaged $3.56 per pound, almost 8 percent higher than in September 2010.  Retail pork prices should continue to average in the low-to-mid $3.50s in the fourth quarter, ERS estimated.

 Turkey production in 2012 is forecast by ERS at 5.85 billion pounds, which would be an increase of just under1 percent from 2011. Even though turkey prices have remained strong through all of 2011, turkey producers will be faced with the impact of high grain prices and a relatively sluggish domestic economy, ERS concluded.

 

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