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[Mustang Sally Farm]

Thursday, January 26, 2012

IPE 2012: Future of the US Poultry Industry Explored

ANALYSIS - Delegates at a half-day conference on the future of the poultry industry heard that technology can provide solutions to the the problem of feeding a growing global human population and that the US economy is already on its way to recovery. Senior Editor, Jackie Linden, reports from IPE Week.


 

"Technology is the answer to safe, affordable and abundant food," asserted Jeff Simmons, President of Elanco, at the Executive Conference on the Future of the US poultry industry yesterday, 25 January. The session was held in conjunction with the International Poultry Expo in Atlanta, US.

Faced with the realities of a growing global human population, rising demand for meat and dairy products, environmental limitations, economic constraints and political issues, he said that there is no bigger global issue today than the need to provide safe, abundant and affordable food to the seven billion people on the planet.

"The science must be right but there is a need to address too the economic, environmental, social/moral and consumer 'corners' of the issue," he continued, adding that Elanco has 30 people globally focusing exclusively on consumer issues.

With the Earth's resources finite, 70 per cent of the answer lies in technology to improve efficiency, said Mr Simmons.

Technology enables three 'rights', he said: food, a basic human right; choice, a consumer right and sustainability, which he described as environmentally right.

On the first, hunger is the number 1 health problem in the world – in that 25,000 people die worldwide from starvation every day and even developed countries present cases of ‘hidden hunger’, in which a significant minority of children, particularly, are undernourished.

Citing a recent study of international consumer attitudes in 26 countries between 2001 and 2010, Mr Simmons highlighted that the surveys reveal 99 per cent of consumers make their food purchases based on taste, cost, nutrition and choice. He sees the opportunities for the poultry industry to offer consumers choices in what they buy and eat and criticised some of the extreme fringe groups who represent a small proportion of the population but whose aims are, in effect, to limit consumer choice by imposing their views on the majority.

On the need to improve sustainability, Mr Simmons said: "We must freeze the footprint of animal production in order to feed the human population and maintain the planet."

Also speaking at the event was Jim Paulsen, chief investment strategist at Wells Capital Management, who offered his views on the economic and financial outlook, mostly for the US market.

He presented evidence to support his view that the recovery in the US has already started, including a rise in the numbers employed and the first signs of a return of consumer confidence – two factors that are closely linked, he said.

Highlighting the similar patterns between the present situation and the recessions of 1991 and 2001, he expects the recovery to be slow, rather than dramatic. This contrasts with the recovery following earlier recessions, which were sudden and dramatic and were followed by equally sudden recovery. He explained that the earlier recoveries were boosted by significant increases in the labour market but, since the 1980s, the US population has been rising more slowly as the result of a falling birthrate and limits on immigration, two factors that put a brake on growth.

In Mr Paulsen's view, 2012 is a ‘gear year’: two to three years after a recession, unemployment begins to fall and consumer confidence returns, increasing spending and thus leading to economic growth. He asserted that the downturn is caused less by the rise in unemployment and more by the reluctance of the employed population to spend money as they prefer to ‘play it safe’ and save during these periods.

Mr Paulsen has calculated that the current rate of GDP growth in the US is, in fact, the fourth best in the last 50 years, and he forecasts it will be between 3.0 and 3.5 per cent this year.

Turning his attention to Europe, Mr Paulsen described the current situation in the Euro–zone as a chronic problem rather than an imminent calamity, now that the problem is now being treated as an economic issue, rather than a political one. Whilst economic growth in the region will be slow, at best, he is not predicting financial contagion. He asserted that the solution to the EU problem lies in stimulating growth rather than imposing austerity.

For the emerging economies, Mr Paulsen expects a return to growth in 2012 after they were held back last year to prevent ‘overheating’.

 Jackie Linden, Senior Editor

[Mustang Sally Farm]

Friday, January 27, 2012
CME: Margins Fall for Beef Packers/ Tighten for Pork
US - A hot point of discussion the past few weeks has been the status of packer margins in both the pork and beef sectors, write Steve Meyer and Len Steiner.


As you can see in the diagrams below, while margins have certainly tightened for pork packers, they have fallen off a cliff for beef packers.

As always, readers should note that the margins depicted here are GROSS margins. They do not estimate packers’ profits. They estimate the amount of money packers have to pay for plant, equipment, labor, transportation, energy and any other costs. Whatever is left over is net profit. We do not try to estimate packer costs because we have very little data and, based on our knowledge, those costs differ considerably from company to company and plant to plant.

What is surprising in that margins could get this bad this quickly after packers in both species have managed margins so well over the past few years. There have, of course, been many ups and downs — even more than these charts show since we use 4-week moving averages to smooth the data a bit. The raw weekly data is VERY noisy. Why the big declines?

The situation for pork packers is perplexing indeed, primarily due to its timing. Pork margins frequently get tight in the summer (as they did last year) when hog supplies decline. Packers need to maintain throughput to support labor forces, minimize unit costs of plant, equipment, etc., maintain customer relationships, etc. They chase the limited supplies hard, bidding up prices and damaging margins in the short run in order to manage their long-run business.

Hogs, though, have hardly in short supply this past fall. Pork packers, as a group, ran near capacity for much of the fall and meat margins (the difference between the cutout value and the cost of the animal) were above $10/head in late November. See the margin component chart on page 2. Meat margins began declining in December and were negative for the weeks of January 7 and 14, the last two weeks for which data are available.

Why have packers continued large slaughter runs (+4% and +2.5% from 2010 levels the past two weeks) at negative meat margins? Is there something coming on the demand side that will reward them for maintaining volume? Are they fighting to maintain market share in spite of short-term losses? All of those would explain this behavior. We think negative meat margins will be reconciled sooner rather than later, though, so expect some pressure on cash hogs unless stronger cutout values appear quickly.

The beef side is, in our opinion, much more of a capacitydriven situation. The beef packing sector has been over-sized relative to cattle numbers for some time. Some reconciliation has occurred over the past few years (Tyson’s closure of its Emporia, KS plant being the most notable) but there is still more capacity than can be profitably supported and that situation is going to get MUCH worse over the next 18-24 months. Just how much worse will be answered to some degree by this afternoon’s Cattle report.

This margin situation has been brewing for some time as well. The margin component chart on page 2 shows that meat margins for beef packers have been negative for the vast majority of weeks since mid-2010. The situation has become critical since October 1 when the beef margin hit -$105.89. The low, so far, was Christmas week at -$123.59. But there are more cattle in feedlots now than last year, you might say. Yes, but that doesn’t mean there are more market-ready cattle in yards.

Early placements of light-weight cattle began last winter when wheat pastures were short. They continued in a big way last summer when grass pastures failed. The flow of these light-placed cattle to market has been very difficult to predict and we would argue that packers’ behavior, slaughter levels late in 2011 (even considering the two snowstorms in the southern plains) and prices are evidence that market-ready supplies are tight. And they will get even tighter. One bright point for both species — and the saving grace for total packer margins — is the value of by-products. Exports of pork variety meats and a rebound in cattle hide values had by-products at record levels this fall and they should remain high in 2012.

[Mustang Sally Farm]

Cattle Outlook: Retail Beef Prices Set Record

US - Retail beef prices set a new record in December for the fourth month in a row. The average grocery store price for choice beef was $5.016 per pound, up 1.5 cents from November and 57.8 cents higher than in December 2010. Retail beef prices have been above year-ago for 22 consecutive months.

 
Ron Plain
 
The 5-area average price for slaughter steers was $121/cwt in December, down $2.50 from November, but up $17.70 from a year earlier.

Based on preliminary data, beef demand was up 4% in December and up 1% for all of 2011. Beef demand was down in 2008, 2009 and 2010.

Cow slaughter in 2011 totaled 6.712 million head, the most since 1996. Beef cow slaughter was up 4.6% from 2010 and dairy cow slaughter was up 3.8%. High cow slaughter with feeder cattle prices are at record levels is an odd combination. In this case, the extreme drought in the southern plains overrode the economic incentive to expand the cow herd.

Beef cutout value was higher this week. On Friday morning, the choice boxed beef carcass cutout value was $184.17/cwt, up $2.73 from last week. The select carcass cutout was up $3.90 from the previous Friday to $179.21 per hundred pounds of carcass weight. The choice-select spread, $4.96, was down $1.18 from a week earlier to the lowest level since August 22.

Fed cattle prices were higher this week but on extremely light volume, only 550 head. Through Thursday, the 5-area average price for slaughter steers sold on a live weight basis was $123.00/cwt, down $2.67 from last week, but $18.69/cwt above the same week last year, and the highest of record. There was no price quote for steers sold on a dressed weight basis this week.

This week's cattle slaughter totaled 608,000 head, down 3.2% from the week before and down 7.0% compared to a year ago. The average steer dressed weight for the week ending January 14 was 854 pounds, up 3 pounds from the week before and up 5 pounds from a year ago.

Feeder cattle prices across the country this week were unevenly steady compared to last week. The Oklahoma City auction prices were $4 lower to $4 higher with the ranges for medium and large frame #1 steers: 400-450# $185.50-$197.50, 450-500# $184.50-$191.50, 500-550# $168.50-$180.50, 550-600# $162-$173.50, 600-650# $156.50-$172, 650-700# $154.50-$158.75, 700-750# $150.75-$158.25, 750-800# $147-$154.50, 800-900# $141.25-$150.25, and 900-1000# $133.50-$144.50/cwt.

The February live cattle futures contract settled at $124.70/cwt today, up 15 cents compared to last Friday. The April contract closed at $128.45/cwt, up 73 cents for the week. June settled at $127.17 and August closed at $128.95.

USDA's semi-annual cattle inventory report was bullish on cattle prices in the coming year. More next week.

[Mustang Sally Farm]

GLOBAL POULTRY TRENDS - Slow Growth Forecast for Turkey Meat

Since 2000, there have been years when global turkey production has expanded and others in which it has contracted, hence over the period to the estimates for 2012, the industry has recorded only slow growth averaging well below one per cent per year, according to industry watcher, Terry Evans, in his latest update on the prospects for the global turkey industry.

 




According to FAOSTAT, data turkey meat production between 2000 and 2009 (table 1) expanded by some 0.4 per cent from a little under 5.1 million tonnes to almost 5.3 million tonnes. However, when making these calculations, FAOSTAT has assumed that annual production in Poland has been between 50,00 and 60,000 tonnes, despite data on Poland's turkey meat exports amounting to 80,000 tonnes in 2008 and 73,000 tonnes in 2009! Another statistical source has indicated that turkey production in Poland is in the region of 280,000 tonnes which, if correct, would mean that the FAOSTAT total for Europe and the world is understated by at least 200,000 tonnes.
 
So, the actual global total for 2009 could be about 5.5 million tonnes while the forecasts for 2011 and 2012 would rise to around 5.7 million tonnes. This again underlines the point that on many occasions, a series of data should not be taken too literally; the trend being much more important.
 


Based on FAOSTAT figures, the number of turkeys slaughtered worldwide in 2009 was a little more than 656 million, which represented a reduction of some 34 million (five per cent) on the 2008 record of almost 691 million. Of the 2009 total, 380.6 million (58 per cent) were killed in the Americas and 212 million (32 per cent) in Europe.

An interesting feature of the development of the turkey industry has been how the average eviscerated of birds has increased. Back in 2000, the average carcass weight globally was around 7.6kg. However, this disguises big differences between regions and, more importantly, countries. Thus, at that time, the average eviscerated weight of turkeys in Italy was 9.7kg, which contrasted with just over 9kg in the USA and 6.4kg in France. By 2009, the global average had risen to almost 8.1kg. While the average in Italy had increased by 0.7kg to 10.4kg, the gain in the USA was even more rapid as the average went up by 1.5kg to 10.5kg. In contrast, the increase in France was just 0.5kg to reach 6.8kg while in Germany, the weight gain was marginal, the average rising from 8.6kg to 8.7kg.
 
The higher slaughter weights reflect changes in the market place, with consumers not only buying whole birds for special holiday occasions, while consuming turkey portions and prepared product at other times of the year. For example, in the US back in the 1970s, at least half the turkeys produced were eaten over the festive holidays, while today this proportion has contracted to around 30 per cent.

Although the number of turkeys slaughtered worldwide actually declined from 667 million in 2000 to 656 million in 2009, because of the rise in slaughter weights, the actual yield of turkey meat went up from just under 5.1 million tonnes to 5.3 million tonnes.

On a regional basis, while the Americas and Europe combined accounted for 94 per cent of global production in 2000 and 2009, this figure conceals the fact that during this period, the Americas increased its market share from 56 per cent to 63 per cent, while Europe lost ground its share falling from 39 per cent to less than 32 per cent.

The changes in the top 10 turkey-producing countries over the period are shown in table 2.
 


Broadly speaking, table 2 shows that the 10 biggest turkey meat producers accounted for 90 per cent of global production in 2000 and also in 2009. However, there have been some dramatic changes in the ranking of those countries, which underline the point that Europe's share of the total has declined over the review period. Thus, in 2000, four European countries occupied the second to fifth places in the league table but by 2009, France, Italy and the UK had slipped down to the fourth, fifth and seventh positions, respectively. On the other hand, the expansion that has occurred in Germany had pushed this country into the number two position although forecasts for 2011 and 2012 indicate that, in these years, Brazil (which was eighth in 2000) with a forecast production of some 500,000 tonnes a year, will have knocked Germany off the number two spot.

Outside of the Americas and Europe, the only country producing significant quantities of turkey meat is Israel although even here, output has contracted to less than 100,000 tonnes a year.
 



Figure 1. Turkey meat production in selected countries ('000 tonnes)
 
Figure 1 shows how Brazil and Germany are the only countries among the major producers to exhibit consistent growth throughout the period 2000 to 2009 but the forecasts for 2011 and 2012 (which are included in the graph) reveal that, while continued growth is anticipated in Brazil, output in Germany likely to level out and possibly decline slightly. The chart also presents what one statistical reporting authority considers is happening in Poland with production rising from around 260,000 tonnes to 285,000 tonnes between 2005 and 2008 and having since contracted a little to around 280,000 tonnes.

The 38 per cent expansion that occurred in Africa between 2000 and 2009 was mainly the result of significant increases in Morocco, Tunisia and Algeria. However, the regional total still represents no more than 2.5 per cent of the global figure.

Clearly, the Americas is the main producing region with the United States easily the number one producer, accounting for almost 2.6 million tonnes a year or some three-quarters of the regional total. Back in 2000, this country's share was considerably higher at 85 per cent, however.

In 2011, it is estimated that 244 million turkeys will be killed in the US although in 2000, the number was higher at 271 million which, in turn, was well below the 1996 record of more than 300 million. In 2009/10 half of the birds were grown in just four states – Minnesota, North Carolina, Arkansas and Missouri. Also, more than a half were processed by just three companies – Butterball LLC, Jennie-O Turkey Store, Inc and Cargill Value Added Meats.

The expansion in Brazil has been nothing short of dramatic, output having increased four-fold between 2000 and the forecast for 2012. Much of the increase has been built on an expanding export trade. However, there are now signs that exports have suffered a set-back, which is likely to apply a brake on the rate of production growth even though domestic consumption continues to go up.

Production in Europe is entirely related to developments in the European Union and, as has been noted earlier, the current and short-term prospects for which are for a level of growth well below what has been achieved during the first half of the past decade. Among the major producers only Germany has expanded output as production in France, Italy and the UK has markedly declined.

The doubling of output in Oceania is a direct reflection of the gains made by Australia's turkey industry, where annual output currently stands around 53,000 tonnes.
 
Turkey Trade Flat
 
International trade in turkey meat can be described as 'flat' as global exports have hovered between 830,000 tonnes and 950,000 tonnes throughout the past decade with no definite trend emerging.

Exports of turkey meat, like its production, are primarily restricted to two regions – Europe and the Americas, and a handful of countries (table 3). The Americas' role in this trade has increased at the expense of Europe. In 2009, the Americas accounted for some 41 per cent of the global total and Europe 57 per cent, which compares with 29 per cent and 68 per cent, respectively, back in 2000.
 




The Americas has the world's biggest exporter, the US, whose volumes of fresh/frozen product traded have fluctuated from year to year between 180,000 and 280,000 tonnes between 2000 and 2009. In 2010, US turkey meat exports amounted to 265,000 tonnes, of which 146,000 tonnes went to Mexico, while a further 63,000 tonnes were shipped to China, Hong Kong, Canada and the Dominican Republic, these five markets accounting for 80 per cent of the total. During that year, exports represented around 10.5 per cent of US domestic production. More than 90 per cent of shipments are turkey parts and dark meat products. USDA forecasts for 2011 anticipate an increase in US exports to 295,000 tonnes, though for 2012, a cut-back to 281,000 tonnes is foreseen.

Having expanded throughout the period 2000 to 2008, exports from Brazil have since declined, primarily as a result of reduced purchases by its largest market, the European Union. However, Brazilian traders are currently optimistic about sales to the EU and are also seeking out new markets in Asia, particularly Malaysia and Indonesia.

Canada exports around 25,000 tonnes a year though the figure has not changed greatly over the past decade, its two biggest customers being the US and South Africa.

The other country in this region shipping significant amounts is Chile, the total having risen from around 5,500 tonnes in 2000 to nearly 18,000 tonnes in 2009.

Europe's exports are almost all accounted for by shipments from EU member countries but the annual total has declined from more than 600,000 tonnes to 470,000 tonnes in 2009. If sales to fellow EU countries are discounted, annual exports are less than 150,000 tonnes. A major factor contributing to the decline has been the reduction in purchases by Russia from more than 100,000 tonnes back in 2000 to just 40,000 tonnes in 2009, while the forecasts for 2011 and 2012 point to this figure falling further to around 30,000 tonnes.
 



Figure 2. Leading turkey meat exporting countries ('000 tonnes)
 
Outside Europe, turkey meat imports are almost negligible with the exceptions of Mexico and China. Purchases by Mexico escalated to around 200,000 tonnes in 2008 but then fell back to 143,000 tonnes, as the quantity bought from the US slumped from 154,000 tonnes to 111,000 tonnes. However, since then, Mexico's total imports have climbed back to the 160,000-tonne level with the forecast for 2012 at 164,000 tonnes.

Recent years have witnessed an increase in purchases by China where virtually all the turkey meat consumed is imported and the total is forecast to reach almost 50,000 tonnes by 2012 with some 90 per cent being bought from the US.

Europe imported 450,000 tonnes of turkey meat in 2009 (table 4) with EU member states taking 380,000 tonnes. If intra-EU trade is excluded then annual receipts amounted to around 100,000 tonnes and this figure is expected to contract to some 90,000 tonnes in the next couple of years.
 



Figure 3. Leading turkey meat importing countries ('000 tonnes)
 
Little Increase in Turkey Consumption
 
Although there are few measurements of turkey meat consumption, while the total quantity consumed globally has increased, the rate of growth has not matched that of the human population. As a result, the uptake per person has not gone up and worldwide, it looks to average around 0.8kg per person per year.

Detailed figures are only available for a few countries (table 5) and readers should note that the uptakes for 2010 and 2011 have been presented to the nearest whole number, as it can be argued that the errors involved in calculating the available supplies of turkey meat, as well as human population numbers, make assessing consumption levels more precisely debatable. By far the world's biggest eaters of turkey meat are the Israelis whose average annual consumption is around 10kg.
 


Consumer appreciation of turkey's good taste and nutritional value gave consumption in the US a massive boost in the 1980s when average uptake reached 7.7kg per person, which was more than double the levels recorded in the 1970s. However, since 1990, the quantity eaten has broadly settled at this level and is calculated to have averaged 7.5kg in 2010, though it is forecast to slip to 7.4kg in 2011 an 2012.

Per-capita consumption in Canada is around 5kg a year, while the average for the EU is assessed at around 4kg.

Consumption in Mexico and Brazil appears to range between 1.0 and 2.0kg while, for all the other countries where this assessment is made, the average is 1kg or less.

It is difficult to see per-capita turkey meat consumption increasing much in developed countries although significant gains may occur in some of those with expanding economies, such as Russia and China and where currently the level of uptake is low.

January 2012

[Mustang Sally Farm]

Wednesday, February 01, 2012
Cherkizovo Pork, Poultry Sales Volume Up in 2011
RUSSIA - Sales volumes in Cherkizovo's pork division in 2011 increased by four per cent to approximately 91,400 tonnes of live weight, compared to 87,650 tonnes in 2010

RUSSIA - Sales volumes in Cherkizovo's pork division in 2011 increased by four per cent to approximately 91,400 tonnes of live weight, compared to 87,650 tonnes in 2010

Prices in rouble terms increased by 11 per cent from 71.95 roubles per kg in 2010 to 80.04 roubles per kg in 2011 (excluding VAT).

Compared to the price in the third quarter of 2011 the price in the fourth quarter increased by 2 per cent to 82.97 roubles per kg.

In dollar terms, prices for pork sales increased by 15 per cent from $2.37 per kg of live weight in 2010 to $2.72 per kg of live weight in 2011 (excluding VAT).

Compared to the third quarter of 2011, the price in the fourth quarter decreased five per cent to $2.66 per kg.

Poultry Division
Sales volumes in the Poultry division in 2011 increased by 34 per cent to approximately 260,200 tonnes of slaughter weight compared to 194,100 tonnes in 2010, reflecting organic volumes added in the Bryansk and Penza clusters and the inclusion of sales by Mosselprom, acquired in May 2011.

Prices in rouble terms increased by one per cent from 71.89 roubles per kg in 2010 to 72.79 roubles per kg in 2011 (excluding VAT) .

Compared to the third quarter of 2011, the price in the fourth quarter stayed almost flat at 73.74 roubles per kg.

Prices for poultry sales in dollar terms increased by 5 per cent from $2.37 per kg in 2010 to $2.48 per kg in 2011 (excluding VAT).

Compared to the third quarter of 2011, the price in the fourth quarter decreased 7 per cent to $2.36 per kg.

Meat Processing Division
In 2011, consumption recovered to pre-crisis levels, and sales volumes in the Meat Processing segment increased by 3 per cent to approximately 145,270 tonnes compared to 141,550 tonnes in 2010. Prices in rouble terms increased by 13 per cent from 118.21 roubles in 2010 to 133.65 roubles per kg in 2011 (excluding VAT).

Compared to the price in the third quarter, the price in the fourth quarter of 2011 increased by 6 per cent to 142.74 roubles per kg. Prices in dollar terms increased by 17 per cent from $3.89 per kg in 2010 to $4.55 per kg in 2011 (excluding VAT). Compared to the third quarter of 2011, the price in the fourth quarter decreased 2 per cent to $4.57 per kg.

Commenting on the performance, Sergey Mikhailov, CEO of Cherkizovo Group said: "We delivered a 34 per cent increase in sales volumes within our Poultry division in 2011 through a combination of organic growth, the contribution from Mosselprom, and the launch of additional facilities at our Bryansk and Penza clusters.

The Pork division delivered growth in line with management's expectations as the segment recovered from the effects of the extreme weather conditions in 2010. In the course of the year we launched breeding facilities at our pork farms in Tambov, Voronezh and Lipetsk.

In the Meat Processing division we saw a steady increase in demand as consumption recovered in 2011. We are focused on improving the product mix in this segment.

Pricing in the poultry division in 2011 has been relatively flat, while in the pork division pricing has increased as a result of demand rising more than expected due to its substitution from beef, where prices have been on a steep uptrend in 2011.

Overall, management is optimistic that the Group will produce a strong financial performance for the full year in line with our expectations and will further continue to deliver against its strategy."

[Mustang Sally Farm]

Thursday, February 02, 2012

Drop in Pork Exports - Growth for Beef and Lamb

GLOBAL - While beef and lamb slaughterings declined across the EU, a growth in pig slaughterings was noted in 2011.
 

Downward Trend in Pig Slaughterings Forecast for 2012
 
Pig slaughterings in the European Union grew two per cent year-on-year during the first three quarters of 2011.

The UK and Poland had the strongest growth rates of nearly seven per cent, while production in Denmark rose by five per cent, according to a report prepared by QMS's Iain Macdonald and Stuart Ashworth. Expansion also took place in Spain and Germany where slaughterings increased by three and two per cent respectively. However, a downward trend is forecast to continue into 2012 as sow herds have contracted in a number of Member States.

Most French pig producers failed to make a profit in 2011. Losses were made as increased feed costs pushed production costs above €1.50/kg. Brazil too witnessed a decline in pork exports. In December three Brazilian processors were permitted to resume exporting pigmeat to Russia. Hence there is industry optimism that further access may be granted as 2012 progresses.

After the US recognised the Brazilian province of Saint Caterina as the only FMD-free state, it gave the latter's pig sector a boost. The FMD-free status was recognised 14 months ago, but due to worries, this was delayed.

According to USDA census, the US pig herd grew by two per cent in December 2011. However, the breeding herd expanded at a more modest pace, indicating a mere four per cent growth. On the one hand this indicates a substantial improvement in productivity, but on the other hand it suggests that producers are exhibiting caution. Abattoir throughputs rose two per cent during 2011 and a similar expansion is forecast for 2012.

Several Factors Affect Aussie Beef Imports
 
In 2011, Brazil witnessed a 14 per cent decline in beef exports, although it was the third largest exporter behind Australia and the USA.

The decline was a result of Brazil's focus on the Middle East, with one-third of the total being delivered to Iran, Egypt, Saudi Arabia and Israel. Total exports were limited mainly by the combination of reduced domestic production and increased domestic demand. The USDA’s forecast of two per cent recovery in Brazilian production volumes in 2012 is likely to be consumed by the Brazilian population.

Australian beef exporters managed to overcome a number of external shocks during 2011. Among these external factors were the natural disasters in Queensland (floods) and abroad in Japan (earthquake and tsunami), its largest market. Exports were also hampered by the strong Australian Dollar, which reduced competitiveness against US beef in key Asian markets. During 2011, 54 per cent of total volumes went to the US and Japan compared with 81 per cent in 2004.

Looking forward to 2012, Meat & Livestock Australia (MLA) is forecasting a further gain in exports of 3 per cent. The main assumptions behind this growth are a recovery in demand from the US as its production volumes fall back and beef prices subsequently rise, plus further diversification into the growing markets of the Middle East and South Asia. Production volumes are forecast to be boosted by greater carcase weights; a further consequence of wet weather during 2011 which led to improved grazing conditions.

JBS's decision to close one of its Argentinian plants was made due to a number of linked factors, beginning with the falling cattle population in Argentina which has left the firm operating with spare capacity whilst having to pay more to source stock. As a result, profitability has suffered and processors have found it difficult to access permits for the lucrative export trade. The resulting uncertainty has led JBS to downsize.

South American trade partners have suspended beef imports from the FMS-affected region in northern Paraguay. With severe questions being asked of the nation’s animal health standards, beef producers in Brazil, Argentina and Uruguay may benefit from a rebalancing of export demand. However, tight supplies in these countries will restrict their ability to fill the gap left in global trade.

Korea is set to re-open its market to Canadian beef from animals under the age of 30 months after its parliament passed new import health requirements. Eventually the market is forecast to be worth around £20m per annum to the Canadian industry.

Australian Lamb Exports Grew in 2011
 
Although New Zealand's total lamb shipments decreased in 2011, deliveries to China increased by 40 per cent to and it overtook the Middle East to become New Zealand’s second largest market after the EU. With such growth coming in a year characterised by tight supplies and rising prices it marks a re-balancing of NZ exports towards the fast growing Asian marketplace.

By contrast, Australia achieved lamb export growth of 3 per cent in 2011.Shipments reached 160,000t for the year; the third largest annual total on record. Growth came in spite of reduced domestic production as tight supplies on the global marketplace generated demand. The largest market for Australian lamb was again the Middle East, although volumes declined 5 per cent. China also again proved to be a growth market for Australian lamb with deliveries climbing to 29,600t, an increase of 15 per cent on 2010.

Similarly, Ireland grew its sheepmeat exports ahead of production. Exports of 29,200t in the nine months to September were up 16 per cent on the same period of 2010 against output up just one per cent. Again this is a case of a tightening of supplies at a global level pushing up overseas demand for Irish product.

[Mustang Sally Farm]

Friday, February 03, 2012
CME: What Can the Prices of Beef & Pork Cuts Tell Us
US - What can the prices of individual beef and pork cuts tell us about a) consumer preferences and b) the types of animals we should be raising? write Steve Meyer and Len Steiner.


We think that is a very interesting question that does not get asked often enough. And thus, it doesn’t get answered often enough either! Our analysis today is strictly graphical and anecdotal. Someone with more time (and talent, probably) available could do a much more sophisticated analysis of these data but we think the trends are quite suggestive of factors that are impacting cattle and hog markets.

First, let’s consider beef cuts. The top chart at right shows monthly average prices for a variety of Choice wholesale beef cuts as well as fresh 90CL (90% chemical lean) and 50CL trimmings. The muscle cuts represent commonly traded value-added wholesale cuts from each of the major beef primals.

We think it is striking that the prices of the two highestquality cuts in this grouping, bonless ribeyes and boneless strip loins, have fallen on a pretty consistent basis since 2005 and 2004, respectively. While we understand that lower disposable incomes, worries about the future, soft business for high-end restaurants, etc. have been at play since 2008, the downtrends for these cuts begin well before the onset of the Great Recession. In addition, the uptrends in the prices of lower-quality cuts such as rounds and chuck clods appear to have begun before the recession as well. They did indeed increase in pace since 2008 but, again, the recent upturn was just an extension of something that apparently started well before the credit and banking problems that brought about the economy’s downturn.

An alternative explanation could be consumers’ being more concerned about fat content as loins and ribeyes generally have more intramuscular fat (marbling) and marbling plays a much larger role in their desirability. Rounds and chucks, on the other hand, are generally leaner. But the fly in that ointment is briskets which usually contain far more fat than the “end-meat” cuts from the round and chuck. The same could be said for trimmings — which are not high on the list of low-fat items.

And then there is the surge in ribeye price this past fall. Is this a behavioral anomaly? An export driven spike? Or a change in the trend? Anyone who would like to believe the latter has to reconcile the spike in ribeys with the continued downtrend in strip loins, however.

We think the most serious question posed by these beef cut relationships is whether we are properly designing the animals from which the cuts come. If consumers are discounting “high value” cuts and paying relatively more for generally leaner, lower-priced cuts, do we actually need this many Choice grade cattle? Maybe the better solution is a super-efficient steer that will stay leaner. A point to ponder, we believe. The trends in pork cuts are more subtle. The “high-lean” cut in the pork complex is the loin. It is basically one big, lean muscle which is usually closely trimmed. It should be the darling of pork cuts for the modern diet. And loins have held their own among the prices of the various pieces of the pork carcass with no major downtrends and an uptrend in 2010-2011 that generally matches other cuts.

But like the beef complex, there are some very odd signals of consumer preferences in these prices. Study the lines representing bellies, butts and picnics. All three have gained over time on loins with belly prices almost always exceeding loin prices since 2009. All three of these cuts contain FAR more fat the does the loin. So, while we hear that people want lean, they are apparently bidding for cuts that do not fit that profile.

The truth is that fat, to a great extent, means flavor in meat of all varieties and consumers are apparently favoring flavor. They will tell us lean is important because that is what they are supposed to say — but they are paying for flavor! While producers need to raise lean hogs because they are far more efficient, they must constantly pay attention to muscle quality.

[Mustang Sally Farm]

Monday, February 06, 2012
Pressure on Brazilian Beef Exports

GLOBAL - After several years of intense cow culling, the Brazilian beef industry is still facing lower availability of cattle for slaughter, according to the AHDB European Market Survey.
 

The Brazilian Institute of Geography and Statistics (IBGE) show cattle slaughterings in the year to September were almost three per cent down on 2010 at 21.5 million head. Production fell by five per cent year on year to five million tonnes indicating a marked fall in carcase weights.
 
Increased domestic demand and hence firm beef prices, plus a strong real, put pressure on export levels in 2011. Exports of fresh and frozen beef declined 14 per cent year on year.
 
In Europe, following the end of the dioxin crisis in Germany at the end of January 2011, the EU cull sow market gradually recovered and prices increased steadily through most of the year.

Prices were in general slightly higher than year earlier levels, particularly in Germany, Denmark and the Netherlands.
 
After reaching a peak in early December, prices have started to fall back.

[Mustang Sally Farm]

Wednesday, February 08, 2012
Aussie Beef Exports to Japan Underpinned by Brisket

AUSTRALIA and JAPAN - Australian beef exports to Japan during January totalled 16,799 tonnes swt, only 57 tonnes swt higher than the flood affected 2011 volumes, with the volume sustained by strong demand for briskets, reports Meat and Livestock Australia (MLA).

The surge in brisket exports, up 48 per cent year-on-year to 4,047 tonnes swt, was helped by firm demand from the Japanese fast food sector, limited US stocks (due to the import suspension imposed on a major US plant), and softer buying from Korea.

Otherwise demand from Japan during January lacked spark, following substantial volumes shipped in December 2011.

The high A$ and firm cattle prices made negotiations difficult for both Australian and Japanese traders. Major declines for the month were seen in fullset (down 56 per cent to 578 tonnes swt), manufacturing beef (down 11 per cent to 4,635 tonnes swt), and other/hamburger patty categories, according to data released by Department of Agriculture, Fisheries and Forestry.

[Mustang Sally Farm]

Friday, February 10, 2012
CME: Changes for Beef, Pork & Poultry Supplies
US - USDA updated yesterday its forecasts for grain and meat supplies 2012. As we noted in our 2/8 report, much of the focus in the grain front remains on the progress of S. American crops and USDA confirmed notable reductions in Argentine corn production and Brazilian soybean output, write Steve Meyer and Len Steiner.


Still, grain futures were lower following bearish surprises in the wheat complex. At this time grain market participants are focusing on upcoming USDA early estimates of the 2012/13 US crop. These are not official estimates but are presented each year in the USDA annual outlook meeting. The expectation is for big increases in US corn acres and a notable improvement in US corn ending stocks. However, in the short term, the corn market remains concerned about the extent of current crop supplies and the possibility of another surprise when the March corn stocks data is released.

On the protein front, USDA made some adjustments to its estimates for beef, pork and poultry supplies. Beef production was increased by 150 million pounds but still it is expected to be about 1.1 billion pounds (-4,1%) smaller than the previous year. A somewhat slow start for exports in January likely caused USDA analysts to pull back the export outlook by about 10 million pounds. It is a relatively minor adjustment and one that may be reversed in the next update. The latest weekly export data showed robust exports to a number of markets and the expectation is that US beef exports should continued to benefit from limited supplies in world beef markets as well as from a lower valued dollar now that risk taking appears to be returning.

Imports were left unchanged at 2.090 billion pounds, about 1.9% higher than the previous year. While we agree that imports will be relatively low compared to the levels in 2008-08 (see chart), it is likely that US beef imports in 2012 may post a larger increase than USDA currently estimates. Strong prices for US lean cow meat and the expectation that prices could further escalate in the spring and summer will likely make the US market more competitive and bring more product into the US. Do not expect a big turnaround in imports, however, as key supplying countries (Australia, Canada, New Zealand) appear to be in herd rebuilding mode and so far appear to have plenty of grass and little incentive to sell.

US pork production in 2012 is currently forecast at 23.254 billion pounds, about 475 million pounds or 2.1% higher than a year ago. The forecast for higher pork supplies rests on expectations for modest increases in the pig crop and higher hog carcass weights. Pork exports remain a point of debate in the trade and USDA currently expects them to hold about steady with 2011 at 5.11 billion pounds.

[Mustang Sally Farm]

Monday, February 13, 2012
US Red Meat Exports Top $11.5 Billion in 2011
US - According to year-end statistics released by USDA and compiled by the US Meat Export Federation (USMEF), exports of US pork, beef and lamb set new records across the board in 2011, reaching all-time highs in both volume and value and exceeding $11.5 billion in total value.
 

Pork exports totaled 2.255 million metric tons valued at $6.11 billion, breaking the previous volume record of 2.052 million metric tons and shattering the value record of $4.88 billion, which were both established in 2008. Year-over-year, pork exports were up 18 per cent in volume and 28 per cent in value.

"It is extremely gratifying to see all red meat exports reaching new heights, even with the various trade obstacles we still face across the world," said USMEF President and CEO Philip Seng. "US producers have provided superior products to market and made solid investments in the international markets - not only from pork, beef and lamb checkoff programs, but also from the corn and soybean checkoffs. Along with the experienced staff we have in place in the foreign markets, our trade officials who continue to work for greater market access and the exporters and traders who work every day to grow the presence of US meat worldwide, they are to be commended for their foresight and commitment to global marketing."

While the record-breaking performance of 2011 is impressive, Mr Seng feels strongly that USMEF and its industry partners have laid the groundwork for even greater success in the future.

"Demand for US red meat has never been stronger, and we are well-positioned to build on this success," he said. "We have the marketing tools in place to showcase the quality and consistency of US products, which our industry is able to deliver at a very competitive price and end users are able to utilize in extremely creative and innovative ways. Real opportunities exist for further growth, and USMEF fully intends to capitalize on this strong momentum."

Pork export ratio, per-head value, very strong in 2011
For the year, pork exports equated to 27.5 per cent of total production when including both muscle cuts and variety meat. In terms of muscle cuts only, exports totaled 23 per cent of total production. This was up substantially from 23.7 per cent and 19 per cent, respectively, in 2010. Export value per head slaughtered was $55.55, an increase of 27 per cent (nearly $12) from a year ago.

In December, pork exports were down slightly from November's record performance but remained well above the previous year's pace. Exports increased 16 per cent in volume (215,870 metric tons) and 32 per cent in value ($582.6 million) from December 2010.

"Among the factors driving the success of US pork exports are the chilled programs and value-added programs that USMEF has implemented in several key markets, especially in north Asia," Mr Seng said. "Producers, processors and exporters have really worked together in recent years to provide a wider range of high-quality products that we can use to expand these markets. As a result of this collaboration, premiums delivered by the international markets continue to have a very positive impact on the US pork industry's growth and profitability."

In addition to setting a global value record, Mr Seng noted that the US industry achieved new heights in its top two markets, Japan and Mexico.

"Coming off a record year in Japan, we grew export value by another 20 per cent and nearly eclipsed the $2 billion mark," he said. "That's a testament to the effective marketing strategies deployed in what is easily the world's most competitive pork market, as we have found new ways to further penetrate the restaurant and retail sectors and capitalize on rapidly growing sectors such as convenience stores. In Mexico, our outreach to national and regional supermarket chains has been highly successful, along with the strong relationships we have established in the processing sector."

Pork exports to Japan set new records for both volume (493,313 metric tons) and value ($1.96 billion), respective increases of 13 per cent and 19 per cent over 2010. While slightly lower in volume (537,535 metric tons) than last year, Mexico became the first market other than Japan to import more than $1 billion in US pork in a single year. Exports to Mexico jumped 6 per cent in value over 2010, reaching $1.04 billion.

Other pork export highlights included several new records, with a very strong year in the Hong Kong/China region pushing exports up 64 per cent in volume to 483,323 metric tons and nearly doubling in value to $910 million (and surpassed 2008 records). Exports to South Korea more than doubled in volume to 188,307 metric tons and increased 162 per cent in value to $497 million. Exports to Australia grew 23 per cent in volume (64,350 metric tons) and 38 per cent in value ($204.6 million) - breaking the $200 million mark just seven years after the first exports of US pork to this market. Central and South America saw increases of 21 per cent in volume (72,023 metric tons) and 32 per cent in value ($186.6 million), as existing free trade agreements with Honduras and Chile boosted 2011 exports and newly ratified trade agreements with Panama and Colombia offer excellent opportunities for further growth in 2012.

[Mustang Sally Farm]

Tuesday, February 14, 2012
China Pork Imports Rise; Irish Beef Production Drops
GLOBAL - Over the past twenty years, Chinese pig production has increased at an average rate of 2.1 per cent annually. Meanwhile, in Ireland, in 2011 cattle slaughterings were four per cent lower year on year at almost 1.65 million head.


During the second half of 2011, finished pig prices in Europe stayed at a high level. Pig meat production in 2011 was about 2 per cent higher compared to 2010, although supplies became tighter towards the end of the year. According to AHDB's European Market Survey, amongst major producing Member States, only Spain experienced declining prices during the autumn. Since Christmas, prices across Europe have fallen sharply.

According to Australia's MLA (Meat and Livestock Australia), 2012 is expected to represent a record year for beef exports. The growth in exports will be a result of improved Australian production combined with lower supplies from other major global producers.

Compared to November 2010, total German cattle numbers during November 2011 dropped one per cent at 12.5 million head. The most significant reduction was in male cattle aged above two years which were down 14 per cent. There was also a four per cent fall in numbers of males aged between one and two years old.

Over the last two decades, the Chinese economy has seen a growth of about 8 per cent. Increasing incomes have led to a changing food consumption pattern. So also, pig production in the country has increased at an average rate of 2.1 per cent per year over the past twenty years. Production costs have also risen simultaneously.

According to the Irish Central Statistics Office, cattle slaughterings in 2011 were four per cent lower year on year at almost 1.65 million head. On the other hand, cull cow throughputs were slightly ahead of year earlier levels at 337,000 head, with production from these animals up two per cent to 107,000 tonnes.

[Mustang Sally Farm]

Sunday, February 12, 2012
Allendale: US Meat Supply vs Global Demand
ANALYSIS - From an overall meat demand perspective, the world market is a major driver and a key reason why the US has been trading at extended price levels the past few years, writes Sarah Mikesell, senior editor.

In 2011, the IMF lowered the GDP numbers a little bit, but the US is expected to see average growth - in the 1 to 2 per cent range for 2012, said Rich Nelson, Allendale director of research, in late January at the Allendale Ag Leaders Outlook Conference.

"The US is not going to be a big driver for growth, in terms of meat demand in the world right now. It is, of course, everybody else," he said. "The world as a whole is about 2.5 per cent on the low end up to 4 per cent in generated investments for GDP growth. This is overall growth in terms of the economy, not population. So population plus higher income is a very, very big driver."





Rich Nelson, Allendale director of research, speaks to over 200 farmers in Illinois in late January at the Allendale Ag Leaders Outlook Conference.Where is the growth coming from? Nelson said there are some new buyers, which have shown up in the past five years affecting meat demand. African and Arab nations are seeing dramatic growth right now, and that is expected to continue.

Japan is a traditional buyer and used to be the main customer for both US beef and pork. South Korea has shown strong growth, but most important to the US is China.

"No matter who you talk to regarding China, the issue is massive growth," Nelson said. "Yes they may be dropping from 8.9 per cent growth - to maybe 8.1 per cent, but we really don't care. They have tremendous growth in income and population."

As incomes climb higher, people change their diet from base breads to meats. Which begs the question, "What type of meat-based growth are we going to see now?" Nelson says the best growth over the next few years will be seen in poultry.

Per person consumption of poultry is roughly 25 pounds per year (carcass basis). Poultry consumption growth is likely to be 6 to 7 per cent over the next four years in China, South Korea and developing countries.

Higher per person consumption
The world has more people, with more income and they're eating more per person. Nelson said this is important for growth in the meat segment in general.

"More mouths will be eating more food is great for poultry. There are no problems with religious restrictions and poultry is grown in every area of the world," he said.

The second meat growth area is pork. Traditional customers like Japan and South Korea will grow, but China could be a developing customer. China normally supplies most of their own pork, but their 5 per cent growth expected over the next four years could require more pork than they can produce.

The next question is "Who's going to supply it - is it going to be the US, Brazil or the EU?"

Five years ago, 65 per cent of US exports went to three countries - Japan, Mexico and Canada. And today, 58 per cent of US exports go to China, Japan and South Korea.

Profits = Pork Industry Expansion
Expansion is the key issue for pork. Compared to prices from 2011, costs on a per head basis are dropping, providing a good opportunity for strong prices and strong profits.

"In 2010, we got $13.00/head profits. And in 2011, there were $6.00/head profits, which was not a whole lot," he said. "As of January 11, 2012, on a conservative basis, profits are at $11.00/head. So we've had three years of profits."

In the hog industry, traditionally after two years of profits, producers start to expand. So the only question right now is, "When will expansion start?"



"Expansion is the driver to watch. So, we're watching the breeding herd," Nelson said. "If you look at the past few years, we've had a problem - a dramatic liquidation in the industry due to high grain costs. The December Hogs and Pigs Report showed that we're running about 0.4 per cent over last year, which is not a big expansion for the hog industry."

Nelson noted that while US producers were sending lots of sows to slaughter, they were replaced with very productive gilts. Therefore, productivity is now running 1.5 to 2 per cent over 2011. Growth is coming from the breeding herd itself in terms of productivity.

"This tells us clearly for 2012 that we'll have more pork produced," Nelson said. "Here's what's interesting - as far as planned farrowings, the number has been down for the last few years, but September-November saw a slight increase. What really puzzled me was March - May expectations, which are actually running lower than last year. I don't think it's going to happen - it's certainly not what the profits imply."

Hog Expansion - How much and where?
Assuming the USDA survey was correct, expectations call for a moderate increase the first half of the year, and the second half of the year shows almost the same type of numbers, with a 1.3 per cent increase by the fourth quarter.

"A 1.5 per cent increase in production is outlined for 2012," he said. "Considering demand and the sharp drop in competing meats for this year, it's not a bad number. In fact, the amount of pork that's going to hit the US consumer is not going to be 1.5 per cent. It's going to be lower than that."

As for exports, expect a slight demand pull. China is the leader for production and their production dwarfs everybody else. In fact, it dwarfs the next three top people in line - EU-27, US and Brazil - combined.

"What's amazing is, even though they're converting to corporate-style hog production, China is still incredibly inefficient as an industry. Over half the hogs are what we call 'backyard pigs'," he said. "But China does have a 3.6 per cent increase expected for 2012 production."

Nelson believes the US will continue to have the same level of exports to China as in 2011 because of the dramatic growth still happening in China.

"They also have a corn crop, which they need the hogs for. So they have big demand for both corn and hogs," he said. "But more important for the US is that China's consumption is going to increase next year to 3.6 per cent - that's a massive jump, as far as the meat world goes."

The next large pork producer is the EU, and we are all aware of the serious financial problems they've experienced of late.

"As a whole, the EU is in a recession right now, and their producers are cutting back to match it," Nelson said. "As a result, our number two pork producer in the world is actually seeing lower production."

The US is expected to have a moderate 1.5 per cent increase.

Brazil, a serious pork producer and a serious competitor to the US, is expected to see a 2.1 per cent increase in production.

Overall, China's consumption is expected to match their increase. The EU will be down, leaving the US and Brazil to divide available export growth. From a US perspective, Nelson said this almost cancels out completely the pork expansion currently underway.

"Once the US has higher exports and starts selling to new customers, they will keep buying from us," he said. "We're not going to lose our old or new customers. In fact, our numbers - which are extremely conservative - are saying the US will have a moderate 2 to 4 per cent increase for pork exports."

How much meat for the US consumer?

Once you take exports out of the supply situation, how much meat will there be for the US consumer? That's really the key driver for the 2012 US meat picture.

"We have to admit to some problems for red meats. The US consumer has been shifting their buying to white meats - to chicken and turkey," Nelson said. "That's a problem, and we all must admit it. As for beef consumption, the US has been asking for a little less beef each year. What's more interesting is we're going to actually produce much less meat this year than consumers are asking for. So they may be asking for a little bit less, but we're going to drop much more."

Expectations for meat indicate pork will see a 1.5 per cent increase. Based on USDA expectations, beef will drop by 6 per cent. Again noting USDA numbers, chicken, pork's main competitor, will be down 4 per cent this year.

"The chicken industry has done a poor job of planning expansion and contraction the past four years. Right now, their shareholders are incredibly angry," Nelson said. "They started expanding right in the face of the 2011 grain price rally; they didn't have their grain hedged. They also expanded in front of the 2008 grain price rally. This recent mistake has kind of crippled the chicken industry for 2012."

Total meat consumption will be down 3 per cent. While it may not sound like a lot, it is.

"Keep in mind, even a 1 per cent drop is a big deal to the US consumer and the whole meat industry," he said. "As a result, even though we're in expansion right now for the pork industry, we're going to have a little extra price support. So expect a little artificially higher price for pork."

As a result of these drops in production, in 2012 the US will offer the US consumer the lowest amount of meat since 1984. Nelson says this will create a US meat deficit.

Of note, a key driver for the US market is the US consumer, who has a lot of debt. Unemployment is still fairly high, but Nelson believes the US is in recovery right now.

"We are starting to see slight drops in unemployment, and if you look at consumer spending, it shows that the people who do have jobs are actually back to spending again," he said. "Even though the US consumer is crippled, they're already of a mindset for economic expansion. We're going to offer people much less meat than they want. And they're willing to pay a lot more for it."


Sarah Mikesell, Senior Editor

[Mustang Sally Farm]

Wednesday, February 15, 2012

Good Prices Continue for NZ Beef

NEW ZEALAND - Expectations are for a small lift in export volumes and continued good prices relative to recent years. This will be moderated by the strength of the New Zealand dollar, particularly against the Euro and British pound.


B+LNZ Economic Service Director Rob Davison says the Mid-Season Update contains few surprises.
 
"Statistics New Zealand's provisional livestock result, released in December, showed sheep numbers were down 4.3 per cent – a stronger decrease than the 2.1 per cent previously estimated. We have revised the export lamb slaughter on this basis. With fewer ewes, it's down 4.1 per cent from earlier estimates, to 19.7 million. The global lamb supply continues to remain tight overall."
 
This summer has been excellent for pasture growth around most of the country, reflected in high seasonal weights for lamb and beef, says Mr Davison. "Rarely do we see such good pastoral conditions and international prices at the same time."
 
Lamb prices for the season are expected to average $115 per head, slightly down (-2.2%) on 2010-11's record high. Last year saw prices climb as the season progressed. This season, expectations are for offshore prices to remain at good levels, though the estimated stronger New Zealand dollar against the Euro (+7.1%e) and British pound (+3.2%e) softens the price outlook at home. The recent strengthening of the NZ dollar against the US dollar is also a concern.
 
Mr Davison says global mutton supplies remain tight. Australia is expected to ship 4 per cent more than last year (+3,300 tonnes) while New Zealand supplies are estimated to fall 30 per cent (-31,800 tonnes). This decrease follows last year's exceptionally high mutton off-take, which was underwritten by record prices. A similar off-take this year would cut sheep numbers and is not expected.
 
The outlook for beef production is a lift in exports of 4.5 per cent, with the cattle slaughter up 1.7 per cent and heavier weights (+2.8%). The heavier weights reflect the excellent pastoral conditions so far, expected to continue into the autumn.
 
North American price prospects are underwritten by the US cattle herd falling 2 per cent to 90.8 million, its lowest level since 1952. With slow economic growth, the US hamburger boom continues. This is positive for the 50 per cent of New Zealand beef exported to North America.
 
Overall, the outlook is for farm gate export beef prices to remain similar to last year. However, there is concern about the current strengthening trend of the Kiwi against the Greenback, which lowers the New Zealand price.
 
Shorn wool production falls in line with decreased sheep numbers but this is offset by good pastoral conditions. An expected increased clip per head will leave wool production down 2.1 per cent on last year. Average wool auction prices for the season are expected to be similar to last year.
 
Mr Davison says the country's "average" sheep and beef farm profit before tax reflects the positive price outlook for meat and wool relative to recent years.
 
"Profit for 2011-12 is estimated at $133,800 per farm, up 17 per cent on last year. In inflation-adjusted terms this will be the highest profit since 2001-02, which in today's money terms was higher, at $156,200 per farm.
 
Back in 2001-02 the high farm profit was underwritten by a low US exchange rate – 43 cents to the NZ dollar. This year's farm profit reflects strong international prices that have so far outpaced the strong exchange rate relative to 12 years ago (80-plus cents to the NZ dollar).
 
Mr Davison says the current La Nina summer is expected to deliver wetter conditions to eastern Northland, coastal Bay of Plenty and Gisborne, while it could become drier in the south and southwest of the South Island.

[Mustang Sally Farm]

Thursday, February 16, 2012
CME: Pork & Beef Demand up, Chicken Down in 2011
US - The release on Monday of USDA's estimates of carcass/ ready-to-cook weight data for December exports provided the last piece of information needed to compute demand indexes for December and all of 2011, write Steve Meyer and Len Steiner.


The top chart shows the indexes since 1970 for the three largest animal protein species. Pork and beef demand were up slightly (0.9% and 1%, respectively) in 2011 from their levels of 2010. Chicken demand ended the year down 0.7%, the fifth time in the past six years that the chicken demand index has declined since peaking at 146.2 in 2005. Remember that demand is not merely consumption.

These indexes use per capita domestic consumption and average real retail prices to compute an index relative to the base period, 1985, that represents the position of a downward sloping demand curve in the traditional Q-P space of a supply-demand diagram. A positive index change means the demand curve has moved up and to the right in that space. A negative change is just the opposite. The index value for a given year represents the position of the demand curve during that year relative to its position in 1985, the base year.

Indexes for all three species ended 2010 on a roll as the economy recovered and spending at both grocery stores and restaurants rebounded from the depressed levels of 2008 and 2009. That momentum continued into 2011 for both chicken and pork but slowed some in the first half of the year for beef. An improving economy in late 2011 appears to have positively impacted beef demand with the last five months (and seven of the last nine months) seeing year-onyear increases in the monthly indexes. Pork demand, though, struggled from August through November with monthly index figures as much as 5% below those of 2010. That all ended in December when the year-on-year comparison flipped to a positive 5%.

As can be seen above, chicken demand is still struggling mightily with all year-on-year comparisons since September 5% or more below the 2010 level. Reductions in per capita product offerings have been accompanied by LOWER, not higher, retail prices. Some of this may be due to the prevalence of long-term pricing agreements in the broiler sector and the time lags they cause for price responses. But it would be good to see some response - soon - to lower supplies.

Following up on our discussion of sow gestation stalls in yesterday's DLR there is one other system that is gaining in popularity in the U.S. 'Free-access' systems are a hybrid of stalled housing and group housing that give sows a choice of staying in a stall or moving around a group area. The stalls are equipped with gates that close behind sows when they enter and open whenever they want to leave. The closed gate protects the sow in the stall from being bothered by other sows. All feeding occurs in the stalls. Water is available in the stalls as well, allowing them to be locked shut to allow managers to observe sows, treat sick or injured sows, remove individuals who may need attention or even confine individual animals for short periods of time. The stalls themselves are roughly the same size, 2 feet by 7 feet, as fixed stalls but they do require more space since there is usually an 8-10 foot alley behind two rows of stalls. Assuming an 8-foot alley, this system would require 2 feet by 11 feet per sow or over 50% more floor space. Interestingly, sows spend most of their time in the stalls since they are protected there and can lay without being bothered. Virtually all sows do leave the stalls from time to time.

This system, like the others, has trade-offs. Gaining the mobility of group housing and the benefits of that mobility (muscle tone, joint flexibility, presumably less foot lesions, 'happy' sows, etc.) requires more floor space and equipment with a good number of moving parts. Mixing moving parts and 400-600 pounds sows is almost always a maintenance nightmare unless the equipment is very well built. This system would have the potential, like strictly group-housed systems, of more fighting and consequent injuries but providing the safety of a stall would mitigate the number and severity of those injuries. Producers who we know to have installed these systems are generally very satisfied with them even though they are more costly.