Beef Prices to Rise as Production Slows

WASHINGTON — Beef production will probably begin to decline during the second half of 2011, and smaller calf crops this year and next year will be leading to tighter supplies, the U.S. Department of Agriculture's Economic Research Service division (ERS) predicted last week in its “Livestock, Dairy and Poultry Outlook” report.

The report notes that beef cow inventories have been on the decline since 1995. And, while the agency says that it is difficult to predict what direction prices will take during the next few months, “retail beef prices are likely to increase over the next several years as beef cow inventories are rebuilt … how high retail prices go will depend on the economic recovery, retail prices of pork and poultry, how rapidly exports increase, and how rapidly beef cow inventories are replenished.”

Rising animal feed costs have been part of the problem. Cattle are typically raised on forage and then fattened with corn on feedlots for a couple of months to improve marbling and raise their slaughter weight. This process becomes significantly more expensive when corn prices are high. This year, to make the situation worse, droughts have motivated cattlemen to auction off more feeder cattle. And, they're not rebuilding their herds.

“Cattle prices at all levels reached record highs during the first half of 2011. Despite these record prices and their expected high levels through 2012, drought impacts, high feed and energy prices, macroeconomic uncertainty and increased equity requirements for cattle loans have dampened enthusiasm for cow herd expansion,” the report notes.

PORK ALSO UP

And, beef may not be the only category in the meat case facing continuing price increases. Second-half hog and pork prices are expected to remain at record highs, driven by accelerating exports and declining domestic supplies, the ERS notes in the report. Foreign buyers are snatching up U.S. meats as the continued low exchange rate of the U.S. dollar makes American pork a relative bargain compared with pork produced by international competitors.

As a result, third-quarter exports are expected to be 26% higher than the same period in 2010, while fourth-quarter exports are expected to rise 13%. In total, more than 22% of U.S. pork will likely be exported this year, compared with 6.8% in 2000.

Consumers are already feeling the impact at the register, as shrinking domestic supplies boost wholesale and retail prices. In June, pork prices reached a national average all-time record-high retail price of $3.84 per pound, almost 10% higher than the retail price in June 2010, according to the ERS. The agency expects retail pork prices to hover in the mid-$3.40s for the remainder of this year and next.

Fortunately for consumers, chicken production has been rising and prices have been stable compared with pork and beef. Despite high feed costs, the number of broilers slaughtered during the first half of 2011 was up 2% from the same period in 2010, reaching 4.3 billion. Slaughter weights were also up 2.4% during that span.

The ERS is expecting producers to cut back significantly during the second half. Already, the number of chicks placed weekly for growout declined 4% during the 5-week period from July 9 to August 6, compared with the same period last year.

However, rising production in the first half led to a strong increase in broiler meat stocks, which will probably offset these production declines. Cold storage holdings totaled 710 million pounds, up 12% compared with the same period last year, according to the report.

As a result, “wholesale prices for broiler products have generally declined compared with a year earlier,” the report reads. “Even with falling production in the second half of 2011, whole bird prices are not expected to strengthen much … In 2012 as lower production begins to impact stock levels, broiler prices are expected to experience some upward price pressures. However, any upward pressure is expected to also depend on a gradual strengthening of economic conditions.”

Turkey production is also expected to decline slightly in the second half of 2011, and prices are expected to strengthen during the fourth quarter. Egg prices are also up compared with last year, with national prices for table eggs averaging $1.07 per dozen during the second quarter of 2011, up 24 cents compared with the same period a year earlier. The ERS expects production to remain level for the remainder of the year, with prices rising to the range of $1.12 to $1.18 by the end of the year.