CME: Does Cheap Feed Make Cheaper Meat?

US - Even as grain supplies in the US, and globally for that matter, are expected to increase significantly in the next 12 months, the amount of meat protein available to consumers will still be lower than what it was two years ago, write Steve Meyer and Len Steiner.
calendar icon 15 September 2014
clock icon 4 minute read

The latest WASDE report projected corn yields at 171.7 bushels per acre, about a bushel higher than the average of analysts estimates and, if it comes to pass, an all time record yield for corn. At almost 14.4 billion bushels, the US corn harvest of 2014 is now expected to bring some 3.6 BILLION bushels of corn more than two years ago, when corn prices hit a high of $8/bu. The fix for high prices is high prices indeed.

This additional corn supply will be absorbed by in the form of higher feed use (more livestock and poultry fed to heavier weights), it will go into maxing out ethanol production levels and it will also go to export markets. The latter is important as in 2012-13 corn exports fell to just 730 million bushels, compared to 1.750 billion bushels projected for this coming marketing year.

So with all this corn expected to be stockpiled across the Midwest, we should see a big jump in meat production, right? Well, not exactly. We continue to point out that even as over time cheap feed makes cheaper meat, biological and structural constraints dictate short term meat availability. The following charts show the revisions that USDA made to their 2015 production and domestic availability forecasts for the three main species.

While USDA increased their pork production forecast by 134 million pounds and they also revised higher their broiler production forecast by 45 million pounds, reductions in expected beef production more than offset these revisions. USDA lowered its projected beef output for 2015 by 685 million pounds compared to its previous estimate.

USDA also lowered its estimate of beef production for 2014. As a result, USDA now expects 2015 US beef output to be 23.711 billion pounds, 681 billion pounds less than the 2014 forecast and an astounding 2 billion pounds lower than what it was in 2013.

Beef prices are high as buyers of those two billion pounds fight amongst themselves as to who will outbid the other for the available supply. Beef imports in 2015 are expected to be about 450 million pounds larger than what they were two years ago but in order to secure that supply US end users have had to pay up in order to "buy" it away from other world consumers.

Because of the decline in supply, US domestic per capita beef availability/consumption in 2015 is now pegged at 52.1 pounds per person, down a whopping 7.5 per cent from just two years ago. USDA does expect production of pork and poultry to increase in the coming months, with pork production now pegged to be up 2.4 per cent compared to 2014 levels but just 0.5 per cent higher than what it was in 2013 (keep this in mind when considering the expected increase in feed use).

Also, USDA now projects broiler production for 2015 at 39.058 billion pounds, 2.7 per cent higher than the projected output for 2014 and 1.6 billion pounds or 4.3 per cent higher than in 2013. While the increase in broiler production appears significant, one needs to view it in the context of negative or minimal growth in terms of red meat production and an overall inflationary price environment for US meat protein.

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