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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.
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.
For beef, “we’re forecasting
exports to be down next year. That said, it will still be very strong, given
our production,” Johnson says. USDA expects beef exports to drop 5%, to 2.15
billion pounds. Japan buys beef only from animals under 21 months. China is
still closed to U.S. beef. But much of Asia is buying.
“Beef purchases in Taiwan,
Vietnam, and Hong Kong have just grown exponentially this year,” Johnson says.
Last year, exports to Vietnam grew 22%. The pace there slowed in 2010 but still
grew. In 2011, the Asian market “looks just as strong as this year,” she says.
The U.S. Meat Export Federation also sees Asia as a growth market for both beef
and pork in 2011 and beyond. Even with Japanese restrictions, the U.S. is
regaining beef market share in that country from our competitor, Australia. And
those who track beef exports hint that part of the surge in beef to Vietnam and
Hong Kong is really increased shipments into the rest of China. Other growth
markets are the Philippines, Korea, and Indonesia. Mexico has replaced Japan as
the largest market for U.S. beef, but sales there were hit hard by the
recession. In 2010, the Mexican market for U.S. beef was starting to recover
from a 20% decline in the first half of the year.
Beef is the only major U.S.
livestock industry that’s a net importer. But through July 2010, the 1.3
billion pounds of U.S. beef exports almost caught up with our 1.5 billion
pounds of imports, mainly lean trimmings used for hamburger.
USDA projects export growth
for both pork and poultry in 2011. Pork exports alone were set to grow 7%, to
For the pork export market,
Japan remains the top U.S. customer. Pork volume shipped to Japan in the first
half of 2010 was about the same as in 2009, and its value was up 3%. Mexico is
the second largest export market for U.S. pork. In spite of the recession, its
imports helped boost the value of hams in the U.S. by 68% through August of
this year, USDA says.
Due to a trade dispute over
U.S. restrictions on Mexican trucking into this country, Mexico has slapped a
5% tariff on hams and other pork products, which could slow trade.
Trade barriers are much
bigger for poultry. China and Russia bought 37% of U.S. broiler exports in
July, but both countries have restricted imports. China is getting especially
tough as it fights with the U.S. over restrictions on its tire exports. In
September it imposed tariffs of 50% to 105%. Broiler exports were not doing
well in 2010, with the dollar value down 18% by July, to $283.7 million. Still,
USDA is forecasting a rebound in 2011 on a volume basis. It projects 2011
exports of 6.65 billion pounds compared to 6.47 billion in 2010.
More Meals Out In The U.S.?
Even with impressive export
growth, American consumers are still the livestock industry’s most important
Worries about the jobless
recovery are one reason ranchers aren’t willing to make long-term investments
in rebuilding the beef cow herd. It could be 2013 before we see signs of that
recovery, agree economists Chad Hart and John Lawrence at Iowa State University
and Darrell Mark at the University of Nebraska-Lincoln.
“Long term, I guess I’d say
I’m relatively bullish,” says Mark. “But in the next year or so, I don’t know
that demand is going to be realized, and livestock isn’t going to respond until
there’s some assurance it’s there.”
Americans eat about half of
their meals in restaurants, an industry that wasn’t bullish earlier this year.
“Restaurant operators were more optimistic about future business conditions at
the beginning of this year. But that optimism has dampened as the national
economy hasn’t improved as much as some would have hoped,” says Annika
Stensson, a spokeswoman for the National Restaurant Association in Washington,
D.C. “As far as this year, our 2010 Restaurant Industry Forecast projected
industry sales to be essentially flat this year (-0.1% real sales growth),
which is an improvement over the -2.9% growth in 2009, and -1.2% growth in
2008. So overall, the industry is heading in the right direction. But we’re not
out of the woods yet.”
That doesn’t surprise Brian
Briggeman, an economist at the Omaha branch of the Federal Reserve Bank of
Kansas City. He’s looked at consumer spending on beef, pork, poultry, and milk
in every recession since 1980. “In 1990 and 2001, we had a jobless recovery,”
he says. In those years, consumer spending on protein slowed down from the year
before the recession. But it really dropped in the first year of the recovery
(where economists say we are now). In 1991 it was off almost 3%. In 2002 it
declined nearly 5%.
We may be turning the
“We’ve seen food purchased
away from home starting to rise again,” Briggeman says, citing USDA estimates
of dining out as up about 2% so far in 2010, after a dismal 2009 when it fell
by more than that.
USDA reports other signs of
domestic demand, including a 27% jump in pork loin prices over a year earlier
The other side of the hog is
“We’ve got fabulous demand
for bacon this year,” says University of Missouri economist Ron Plain, a
veteran observer of the hog industry. Pork belly prices hit records, above
$1.50 a pound, more than double the 68¢ of a year before. Plain attributes it
to bacon sales to fast-food chains and the growing popularity of precooked
bacon in grocery stores.
A Risky Path To Greener Pastures
Even with only slight
expansion in hog production, Plain sees pork production staying profitable
through next August. Even though USDA found more 2009 corn stocks this fall,
Plain worries about feed supply and the size of 2011 crops. “There’s just an
awful lot of feed risk for producers,” he says. “If the economy would grow and
shape up, we might continue to see strong [meat] prices, even with higher [hog]
slaughter,” he says.
If the livestock industry
can weather another volatile year and shaky demand, it may reach a field of
economic tall clover – a time when U.S. demand and meat exports are both
Purdue’s Hurt doubts domestic use will ever catch up with per-capita meat consumption of 222 pounds in 2006-2007. It’s currently at 208 pounds. “The world has changed, and that is not going up,” he says. “We’ll probably see that plateau in the 200- to 215-pound range.” And if the 2011 corn crop is short, cattle feeder Herring’s concern about ethanol will spread. “We’re getting very close to bringing back the food-vs.-fuel debate in a big way again,” Hurt says.
With good crops, Iowa State’s Hart sees a chance that feed use one day could recover to the 6 billion bushels it once had. “If we do see the livestock industry rebound and start to build back up again, feed use should pull away from ethanol,” he says. “Feed tends to be the stable source of demand that moves slowly over time. It’s more of a price taker that just rides with the market. It’s the biggest demand we have. It’s pretty important.”