April 15, 2009

 

 Economists: Livestock and poultry producers cutting flock, herd sizes - April 15, 2009

 

Shortage of food supply veterinarians expected to continue despite cutbacks

 posted April 1, 2009
 

 

 

 

Meat, poultry, and dairy producers have overall been cutting back the sizes of herds and flocks.

But there will be "huge demand" for food supply veterinarians for a long time, said David M. Andrus, PhD, who headed a research team for the May 2006 Food Supply Veterinary Medicine Coalition Report and is a professor at Kansas State University's College of Business Administration.

"There was such a huge shortage that even a fall in production of animals won't overcome the need for more food supply veterinarians," Dr. Andrus said.

That is not to say the production cutbacks won't affect veterinarians through reduced spending and delayed payments by clients.

Use of corn for ethanol, drought, increased oil prices, price drops for some animal byproducts and high-end meat cuts, and declines in export demand have all contributed to the recent financial woes experienced by animal agriculture producers, according to several agricultural economists.

James Robb, director of the Livestock Marketing Information Center, said that in 2008, U.S. cattle feeders, for example, lost more money on average for each animal sold than any other time in history, and through January 2009 they had 20 consecutive months of negative returns on cattle sold. The number of cattle available for slaughter may not increase until 2013, he said.

"Beef cow numbers will decline for at least two more years, so that means less work to deal with beef cows," Robb said. "Dairy cow numbers, because of low milk prices, were declining precipitously."

Reports from the Department of Agriculture state the following:

  • For 2008, the number of cattle and calves in the U.S. dropped about 2 percent, from 96 million head to 94.5 million. The year's calf crop was also down 2 percent.
  • During the fourth quarter of 2008, about 198 million chicken eggs were set in incubators weekly, down 7.3 percent from the previous year. The number of chicks placed for growth averaged 161 million weekly, or 6.8 percent lower.
  • There were 66.7 million head of hogs in the U.S. Dec. 1, down about 2 percent from a year earlier. The breeding inventory, at 6.08 million head, was also down about 2 percent from a year earlier, and the market hog inventory of 60.6 million head was down 2 percent.
  • By Jan. 1, 2009, the breeding sheep inventory decreased 4 percent from a year earlier, from 4.43 million head to 4.25 million. The total inventory of sheep and goats declined about 2.8 percent, or about 251,000 head, in the same period.
  • Turkey meat production for 2009 has been predicted to total 6 billion pounds, about 3.6 percent less than in 2008.

Despite predicting continued declines, Robb also said, "We still don't have enough large animal vets."

Dr. Andrus said he does not think temporary fluctuations in production based on economic conditions will have an impact on long-term demand.

"As the world population grows also, there'll be greater demand for animal protein, which the U.S. supplies quite a bit of with beef, swine, and poultry," Dr. Andrus said.

Dr. Michael J. Gilsdorf, executive vice president of the National Association of Federal Veterinarians, said he thinks the cutbacks by producers are part of a cyclical rise and fall related to supply and demand, and he does not expect a substantial impact on members of his association. He said changes in production are not severe, and the shortage of food supply and food safety veterinarians remains.

While some slaughter plants may close, Dr. Gilsdorf said those changes have more to do with management than widespread changes in production. He said those operations will be picked up by other plants. 

Feed's cost in creating food

High prices for feed, particularly corn, are part of the reason food animal industries are not growing, Robb said. Corn cost less than $2 per bushel in 2005, $3.40 in 2007, and $8 at its peak in 2008, according to the USDA.
 

Robb attributed the record-high corn prices set in mid-2008 to use of the grain in producing ethanol. Kenneth Mathews, PhD, an agricultural economist with the USDA Economic Research Service, said export demand for corn also rose, contributing to the jump in prices.

Information from the USDA also states the yearly average soybean price was $6.43 per bushel in 2006, $10.10 in 2007, and $9.25 in 2008.

Robb said cattle herds are also declining in Argentina, Australia, Brazil, Canada, Europe, Mexico, and Uruguay. And he said grain prices and economic conditions "really have the worldwide livestock numbers on the defensive at a minimum and probably declining more than many people realize."  

Cutbacks

Shayle Shagam, livestock analyst with the World Agricultural Outlook Board for the USDA, said the past two years of contraction of the cattle herd was at least partly related to drought and poor forage conditions for supporting herds as well as the high grain prices. Producers of hogs, cattle, and chickens have, on average, been experiencing poor or negative returns.
 

Mathews also said high feed and energy costs probably set cutbacks in motion, and several years of drought were a contributing factor.

Ronald L. Plain, PhD, professor of agricultural economics at the University of Missouri, said weak sales of steaks and spareribs may impact veterinarians' pay, despite strong sales of less-expensive cuts.

"The net result is lower livestock prices and more red ink for producers, and I suspect that means less money available to pay their veterinarians," Dr. Plain said.

By February, hide and offal prices had declined about one-third from a year earlier, Robb said. Byproduct sales are heavily tied to leather sales.

Strong demand for dairy exports pushed producers to continue expanding their operations in 2008, despite high feed costs, said David Anderson, PhD, a livestock economist with Texas AgriLife Extension Service. That came to an end when milk prices collapsed in early fall 2008, and the USDA forecasts that global recession, increased production abroad, and a strong dollar will hinder exports in 2009.

"We're going to see a lot of dairies go out of business in 2009 because of extremely low milk prices," Dr. Anderson said. "Not only do we have some customers going out of business, but we're going to have everybody else looking very carefully at where they have to spend money."

A Jan. 22 USDA-ERS report, "Livestock, Dairy, and Poultry Outlook," states that the U.S. all milk price is forecast to average between $11.80 and $12.60 per hundredweight in 2009, down from $18.34 in 2008. That price is a weighted average of what processors pay for grades A and B milk.

Dr. Mathews said cattle producers are decreasing calf crops, and he expects sequentially smaller calf crops in the next few years.

Gretta Irwin, executive director of the Iowa Turkey Federation, said producers in her state initially cut back because of high grain prices, and the businesses have seen a decline in demand from chains of sandwich shops and restaurants. Energy costs have added to the difficulties.

Chicken production dropped about 7 percent in five weeks, leading to a 30 percent price increase in the five-week period ending Jan. 31, Robb said.

"The chicken industry has been so unprofitable for so long they have dramatically cut production levels," Robb said.

The decline in the number of chicks being raised for slaughter is expected to lead to a decline in broiler meat production through the first three quarters of 2009, the livestock report states.

John Lawrence, PhD, extension livestock economist at Iowa State University, said hog producers began reducing the size of their sow herd in June 2008. However, some pork producers are expecting they will weather the storm better than foreign competitors, who are also dealing with a global recession and high feed and transportation costs.

Financial stress tends to accelerate consolidation among pork producers, Dr. Lawrence said.

The USDA reported pig crops were down about 1.6 percent in the second half of 2008 when compared with the same time frame in the previous year. Farrowing is expected to decrease about 2.4 percent in the first half of 2009 when compared with the first half of 2008.  

Paying for veterinary services 

Dr. Plain said 2009 is forecast to be the first year since 1973 with declines in beef, pork, chicken, and turkey production.

"For a number of veterinarians, it means they're going to deal with some producers who are probably going to be slow in paying, and they'll run up some accounts receivable until times get a little bit better," Dr. Plain said.

Dr. Lawrence also said producers' tendency to look for immediate savings could present challenges for veterinarians.

"They treat veterinary medicine and preventative medicine as an expense rather than an investment, and they try to cut back on that," Dr. Lawrence said. He later said, "Longer term, we've often seen that that's not a wise decision because they're running a risk that their herds may be susceptible to disease if there's a flare-up at some later point."

Dr. Lawrence said veterinarians may need to impress on producers that they provide a return-on-investment for producers by increasing revenue, decreasing costs, or just reducing risk exposure.

Robb said producers' actions will also impact the general public.

"When the world starts to climb out of this economic situation that we're in, we're looking at tight supplies and, at some point, increasing demand for these protein items," Robb said. "To economists, that means that prices will be higher, and probably substantially higher."