November 21, 2005

 

US 2006 meat demand stable but lower prices expected

 

 

Cattle-Fax, a private livestock market advisory firm, foresees stable overall meat demand with a 2- to 4-percent decline in prices across all proteins for 2006, said Mike Miller, director of business development, in a teleconference Friday.

 

Output of all major types of meat is expected to climb in 2006, putting more product on the market and over-running expected gains in exports, Miller said.

 

Market analysts at Cattle-Fax are assuming the Japanese and South Korean beef markets will re-open in the first half of 2006, Miller said. Japan is expected to re-open in the first quarter, and while South Korea also could re-open in the first quarter, he said the second quarter was more likely.

 

However, regaining export volumes to those markets could take the rest of the decade, Miller said. Initially, total beef exports to Japan and South Korea could be around 500 million pounds, compared with about 1.373 billion pounds in 2003.

 

US beef demand was strong again in 2005, Miller said, but the overall size of the US and Canadian herds is expanding rapidly. On Jan 1, 2006, the combined cow herds could be near 1997 levels, meaning producers have erased five to six years of herd liquidation in the last two years.

 

Herd expansion leads to increased beef output in coming years, Miller said. Overall beef production could be up 1.0 billion pounds domestically next year, and growth is expected to continue through the decade, he said.

 

Pork output also is expected to rise in 2006, reversing this year's decline, Miller said.

 

Generally, pork demand next year is expected to be flat, Miller said. However, exports could retain the steep gains they have made over the last two years.

 

So, with increased production, flat exports and demand, pork prices could come under a bit of pressure in 2006, he said. Pork cut out values could drop 2.4 percent over the year, he said.

 

Pork producers are becoming increasingly dependent on exports for a large share of their market, Miller said. There is a risk of losing some of these exports to Japan and South Korea when the markets re-open to beef, but the trade-off is not expected to be a one-for-one deal.

 

Broiler production is expected to climb in 2006, Miller said. Demand for broilers by consumers is expected to remain relatively flat through 2006.

 

Chicken producers increased output by 2-3 percent in 2005, and Miller said his group expected a 3- to 3.5-percent increase in 2006. Turkey production could rise by 1-1.5 percent, he said.

 

Broiler and turkey exports are expected to rise 1-3 percent in 2006, which could help with the overall supply situation, Miller said. However, they are forecasting a softening of 2-3 percent in price across the chicken complex on the increased production and only slight gains in exports.

 

One of the major factors driving forecasts for increased meat production in 2006 is the low cost of grain, Miller said. Grain prices remain "extremely low", and there is no reason to think corn prices will rise much over the next 12 months, he said.