Boatloads of meat
James Herring is CEO of Friona Industries, the fourth biggest cattle feeder in the nation with four Texas Panhandle feedlots of 275,000-head capacity combined. He and the rest of the U.S. livestock industry remain corn and soybean farmers’ top customers but not by a lot. Livestock will chew through 5.25 billion bushels of corn this year. Ethanol will ferment 4.7 billion (with 32% fed as distillers’ grains).
Yet Herring doesn’t feel part of a growth industry. Cattle feeding stands between a shrinking cow herd, with the smallest calf crop since 1950 this year, and corn made more expensive by disappointing 2010 yields.
“Higher prices are going to make it more difficult for the livestock producer,” he says. Herring blames ethanol’s need for grain. It makes supplies so tight that a slight change – say China importing just 1% of its corn – sparks frenzy in Chicago. It’s hard on cow-calf ranchers, Herring says. “The volatility gets too big for them and the rewards are too small, and they quit the business.”
So many beef, pork, and poultry producers quit or cut back in the past two years that meat prices have rebounded to chase tighter supplies. Positive feeding margins have returned. Enough so that USDA and analysts had looked for some livestock production to increase slightly in calendar 2011 over 2010, says ag economist Chris Hurt at Purdue. Experts forecast 2% expansion in pork, 3% in broilers, and 1.7% in turkeys. Struggling beef production was expected to drop 2%. Now, Hurt thinks pork will stay flat and poultry will expand more slowly.
Thanks to rising exports and better meat prices, Hurt sees producers surviving high-priced corn.
“Who’s going to really scream ‘ouch’ when corn goes to $4.50? I can’t really find anyone,” he says. “Corn at $5 is not going to force the pork industry into a loss or the poultry industry into a loss.” Dairy farmers, who’ve kept milk production high, may suffer. So will cow-calf producers. “Again, I don’t see $5 corn throwing any of the livestock industry into a panic. What it does say is, ‘Forget that expansion,’” he says.
Exports may be a leading indicator of recovery in U.S. livestock. By August 2010, beef exports jumped 25% over the same months in 2009, hitting a value of $2.19 billion. That’s nearly even with the peak set in 2003, before the discovery of BSE (bovine spongiform encephalopathy) decimated exports to Asia. And pork exports, worth $2.75 billion through July, fell just shy of a record pace set in 2008, when exports used about 20% of U.S. production. In 2010, beef exports will be about 8% of U.S. production, says Rachel Johnson, a USDA-Economic Research Service economist and coordinator of Livestock, Dairy, and Poultry Outlook reports.