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US faces steep declines in protein production

Jon Condon, 02/10/2011

US red and white meat production faces a precipitous fall by mid-2012, a finance sector agribusiness report released last week suggests.

Beef and chicken supplies are both expected to tighten as US production increasingly lags behind GDP growth, the report issued by Rabobank’s International Food & Agribusiness Research and Advisory Group says.

US beef production could be running as much as 6pc below comparable 2011 levels by the third quarter of 2012, and there could be a double-digit percentage decline in US beef available for export in the second half of 2012, the report said.

The drastic declines would be felt across the US supply chain, from corn growers to hamburger chains. It would also affect world markets and demand for feed, notably corn, since the US is a large and significant exporter of meat protein. 

The group’s ‘Where’s the Beef?’ report points to drought in the US is a major contributor to the production decline. It found that global meat and poultry production is in the midst of a multi-year process of adjusting to higher and more volatile feed costs.

Barring major economic disruption, the tightening global protein supplies would lead to another year of record prices in most world markets for most proteins, it said.

US beef production in the first quarter of 2012 was predicted to be up 3pc on the same quarter this year, the report said. However it was likely to be down 1pc in the second quarter, down 6pc in the third and down 7pc in the fourth quarter.

The report’s forecasts for pork and chicken production followed a similar pattern: down 2pc and 5pc in the first; flat and down 4pc in the second; down 1pc and 5pc in the third and down 1pc and 6pc in the fourth quarter.

The dramatic decline in US protein production would likely have a significant impact not only on price, but also on availability.

The drastic decline in protein production would be felt in a number of industries, David Nelson, the group’s global strategist, told Cattle Buyers Weekly.

“The decline will create concerns for everyone from foodservice operators to corn producers,” he said.

The report also delves into domestic and global consumption trends. Per capita meat consumption in the US appeared to have peaked. The US poultry industry, in particular, should no longer count on rising domestic demand as a means of growing its way out of over-production situations, it warned.

However, rising GDP in the developing world was contributing to increasing global demand for meat protein. This greater demand was the key driver to rising feed costs, which in turn drive up the cost of raising animal protein, Mr Nelson told CBW.

Beef ‘least able to cope’

Beef was the US protein sector least able to cope with structurally higher and more volatile corn prices, Rabobank’s report said. That’s because of the long cattle-production cycle and relatively high feed conversion ratios in cattle compared with other species.

Extreme drought conditions in America’s South and Southwest (see Beef Central’s story "US beef prices to rise as drought bites") was resulting in significant herd liquidation. As a result, US beef supplies would be plentiful when the cattle currently in feedlots come to market, but the long-term impact would include a dramatic decline in beef production by mid-2012.

US beef production could be running as much as 6pc below comparable 2011 levels by the third quarter of 2012, Mr Nelson said. US per capita consumption would continue in a gradual decline, so the reduction in supplies would be most notable for importers of US beef, the report said.

In competing proteins, the US chicken industry was suffering some of its worst-ever financial losses. Despite cutbacks in production, chicken profits would remain under pressure into early 2012, as bird weights had provided a significant offset, and because of a large increase in breast meat inventory.

Barring further market dislocation, the chicken industry could return to profitability some time next northern hemisphere spring, but only if the more aggressive cutbacks that economists expected actually took place, the report said.

Pork is the bright spot in the US market report. US pork prices next year could end up 10pc higher than even the record levels seen in 2011. The current supply and demand picture for the pork industry was much more stable than for beef or poultry, it suggested.
 

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