A Few Thoughts by John Nalivka: Awash in commodities – batten down the hatches!
September 15, 2016
Barring unforeseen weather, livestock and poultry disease, or adverse regulatory activity, the United States is the most efficient producer of food of any country in the world. Any challenge to that statement can easily be met with a quick look at grain, livestock, and poultry production today versus 2014 following the 2011 and 2012 droughts coupled with PED in hog herds and avian influenza in the poultry flock.
Per capita supplies of red meat and poultry are quickly racing back to the record set in 2007 (222 pounds per person) after falling to 202 pounds in 2014. I am projecting per capita red meat and poultry supplies at 212 pounds this year as beef production increases 5 percent from a year earlier together with pork production posting another 2 percent increase over last year's record, and poultry production 3 percent than a year ago.
Feeding this expanding livestock and poultry production is a record 2016 corn crop and in fact, record U.S. total feed grain production this year. That is not to mention, U.S. farmers produced the largest wheat crop in 8 years. The average corn yield this year is projected to be just over 174 bushels per acre and compared to 123 bushels per acre produced during the 2012 drought.
With beef herd expansion fully in place and an expected 2 percent increase in the cattle inventory at the beginning of 2017, beef production will increase another 5 percent next year. I expect pork production to gain another 1 – 2 percent, and poultry another 3 percent. These increased meat production will push per capita supplies to about 216 pounds and only 6 pounds short of the record. I have been emphasizing the per capita figure for total meat. It isn't just expanding beef production that is weighing heavily on beef industry prices – it is increasing total meat production and further frustrated by reduced beef exports compared to 2011 – 2014 when the dollar was weak.
Fed cattle prices will end 2016 down 18 percent from the 2015 record. This is based on my assumption that prices have stabilized and will recover modestly during the fourth quarter toward $1.10. However, expanding cattle numbers and expanding total meat supplies will take a toll next year and fed cattle prices will fall another 12 percent from 2016. The weakness that has besieged the feeder and calf market is the story for the next 2 to 3 years with increasing beef production and total meat supplies. On a per head basis, that is about $800 per head for steer calves this year and $700 in 2017 compared to $1,500 in 2015..
Sharply lower production may bring record prices, but inevitably, record prices provide the incentive to increase production followed by lower prices. But, with planning, budgeting, and sound risk management, 2017 doesn't have to be a wreck.