by: Wes Ishmael

“Large year-over-year increases in U.S. chicken and pork production have been a theme across all meat and poultry markets, and rightly so. Those increases, compounded by lackluster exports, have dropped wholesale pork and chicken prices dramatically,” say analysts with the Livestock marketing Information Center (LMIC), in the organization's recent Livestock Monitor. “U.S. pork production (carcass weight) is forecast to be 23.4 billion lbs. this year, nearly seven percent above 2014's and setting a new record high. Federally inspected chicken production less condemnations (often referred to as net production) in the U.S. is expected to be 40.6 billion lbs., five percent above a year ago and record large.”

According to LMIC forecasts for 2015, U.S. per capita disappearance (consumption) for pork and chicken—estimated on a retail-weigh basis—are 49.6 and 90.1 lbs., respectively. Compared to 2014, that represents an increase of 3.2 lbs. (6.9 percent) in pork consumption and 5.5 lbs. (6.5 percent) more chicken consumption.

“In terms of per capita disappearance, an important difference in 2015 is that pork will be returning to a historically normal level while chicken climbs to new highs,” LMIC analysts explain. “Per-person pork disappearance in 2015 is expected to be the largest since 2009, but for the prior 30 years (1997 to 2009) that number was near 50 lbs., very similar to what is expected this year. So, pork is not overly burdensome compared to historical levels. In contrast, U.S. chicken disappearance will likely exceed the prior high, set in 2006, by more than 2 lbs.”

Of course, the impact of highly pathogenic avian influenza (AI) remains a key wild card for the price of all domestic meats. On the one hand, export markets are being shuttered against U.S. poultry, leaving more supply in the domestic market. On the other hand, it's unclear how much the disease will impact domestic production, and as important, domestic consumption.

Since the first detection reported in December, highly AI H5 has been reported in 13 states (poultry flocks), affecting 29.9 million turkeys and chickens, mostly located within the Mississippi Flyway. That according to the May 10 Update on Avian Influenza Findings, Poultry Findings Confirmed by USDA's National Veterinary Services Laboratories.

Of that total figure, 24.3 million are laying hens located in Iowa, according to the Iowa Department of Agriculture.

Domestic Beef Demand Remains Robust

The good news is that beef demand continues to remain stronger than many would have anticipated with such steamy retail prices.

“In the first quarter of 2015, beef prices increased by 13.48 percent and per capita consumption increased slightly (+0.01 percent) compared to 2014 levels,” says Glynn Tonsor, Kansas State University (KSU) agricultural economist, in the latest In the Cattle Markets. “While the change in consumption was small, it is imperative to note both prices and consumption volume increase ONLY if beef demand improves. That is, if demand was unchanged (or declining) a lower beef price would be necessary to facilitate purchase of the increased beef volume available.”

According to Tonsor, “The KSU All Fresh Beef Demand (AFBD) index estimates the first-quarter demand increase at 15.5 percent, the largest quarterly increase in the price series going back to 1990.

“In fact, the AFBD has increased in 18 of the most recent 19 quarters,” Tonsor explains. “Implications of this demand improvement are best highlighted by two interpretive examples.

“The AFBD index was 80.3 in the first quarter of 2014, implying that retail beef prices were 19.7 percent lower than they would have been had beef demand been at its 1990 level. Fast forward to the most recent quarter and the AFBD index of 92.8 implies first quarter 2015 beef prices were only 7.2 prcent lower than they would have been had beef demand been at its 1990 level.”

Tonsor explains closing the gap between current and past periods of demand strength is critical.     

“As higher retail prices are realized, the derived demand increases throughout the industry from wholesale beef to seedstock producers, leading to higher sales prices,” Tonsor says. “As the industry proceeds to likely continue the process of expanding the breeding herd and hence beef production, the recent period of substantial supply-side price support will at least partially subside in coming years. During this process, the ever-present but often overlooked role of beef demand strength will become increasingly clear.”

Demand for U.S. Beef Grows, Too

Though still facing plenty of headwinds wrought by such forces as trade barriers and the high value of the U.S. dollar, U.S. beef exports are also showing signs of resurgence, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF).

March beef exports (86,774 metric tons)—the most recent data—were seven percent less than a year ago but were five percent more than in February. Export value was $527.3 million, up two percent year-over-year but down slightly from February.

March beef exports accounted for 10 percent of total production and 13 percent for muscle cuts only, slightly more than first-quarter ratios but down 11 percent and 14 percent from the previous year, respectively. Export value per head of fed slaughter was $284.30 in March, up five percent from a year ago. For the first quarter, per-head export value was $290.32, up nine percemt.

Also beneficial to beef was the fact that pork export volume was the largest in 11 months (191,041 metric tons) though nine percent less year-over-year. Exports were 10 percent more than in February. Pork export value of $495.3 million was down 18 percent year-over-year, but up five percent from February.

The March results reflect some degree of relief from the West Coast port congestion that plagued red meat exports in January and February, according to USMEF. Port traffic began to improve after a tentative labor contract was reached in late February, though congestion lingered for several weeks at some major ports.

“Port congestion remained an issue well into March – and even into April in the Southern California ports – but the announcement of the new labor contract certainly improved the business climate,” says USMEF President and CEO Philip Seng. “After months of frustration, the U.S. meat industry was finally able to reassure Asian buyers that the worst of the crisis was behind us and that they could once again count on the U.S. to fulfill its role as a reliable supplier. This was especially important for customers purchasing chilled pork and beef, which require very prompt delivery due to product shelf life.”

In addition to shipping concerns, large volumes of lower-priced products from other supplying countries are eroding U.S. exporters' competitive position. In many cases, diminished purchasing power due to the strength of the U.S. dollar has made the price disadvantage even more severe. Market access barriers also remain a concern in some markets, most importantly China and Russia.

“Closure of the Russian market to European pork continues to impact all major pork suppliers, as the EU has focused very aggressively on alternative markets in Asia,” Seng explains. “In the beef complex, the projected slowdown in Australia's production may still be coming, but certainly did not materialize in the first quarter.

“These are unusual conditions that are made more difficult by the strong U.S. dollar, but now isn't the time to dwell on the stiff headwinds we are facing. We must aggressively defend the customer base the U.S. industry has worked so hard to build over the years by reaffirming the value and quality delivered by U.S. red meat.”

So, there is plenty of uncertainty surrounding the direction of cattle markets these days as prices seek to unwind from the continuous surge higher that was tied to so few cattle—and still is in many ways—but beef demand is helping cushion the transition.

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