September 30, 2011

Study forecasts fall in US meat production by mid-2012

Researchers at the Rabobank International Food & Agribusiness Research and Advisory (FAR) group are predicting a "precipitous fall" in US meat production by mid-2012, as production falls behind GDP growth.

In a study released on Thursday (Sep 29), Rabobank states that while drought in the US is a major factor in the production decline, global meat production is also going through a multi-year process of adjusting to higher and more volatile feed costs.

"The drastic decline in protein production we anticipate will be felt in a number of industries," said David Nelson, Global Strategist with the Rabobank Food & Agribusiness Research and Advisory team. "We expect the decline will create concerns for everyone from foodservice operators to corn producers."

The study also tracks domestic and global consumption trends, warning that US meat consumption has peaked, while rising GDP in the developing world is contributing to an increased demand for meat protein.

"The greater global demand for meat protein is the key driver to rising feed costs, which in turn drive up the cost of raising animal protein," Nelson said. "Global meat and poultry production continues to significantly lag GDP growth, which is, of course, the key factor behind rising prices."

US beef production may run as much as 7% below levels this year by the third quarter of 2012, according to Nelson. Extreme drought conditions in the South and Southwest and many areas, specifically Texas, are resulting in significant cattle herd liquidation. This would cause a short-term upswing in US beef supplies, but the long-term impact would be a dramatic decline.

The US broiler industry is suffering some of its worst-ever financial losses, according to the report. Industry has expanded breast meat output at a time when demand has been softening due to the weak economy.

However, FAR believes that barring further market dislocation, the industry could return to profitability some time in early 2012, if cutbacks are more aggressive than expected.

US swine may buck the gloom, as hog prices could end up 10% higher on average in 2012 compared to this year, according to the report.

Strong export demand, currently about 25% of output, and solid domestic pricing has allowed producers and packers to cope with rising feed costs. However, the deterioration in US crop conditions, leading to higher corn prices, has dampened the outlook.