Improvement expected, but high costs and weak demand remain
Posted April 1, 2010
Hog producers are not expected to lose nearly as much money in 2010 as they lost in 2009, Ronald L. Plain, PhD, said.
The professor of agricultural economics and extension economist at the University of Missouri said those producers could even generate profits.
"The bottom line of it: 2009 was a very difficult year for hog producers," Dr. Plain said. "They lost lots of money and they downsized the industry, so we started 2010 with fewer hogs and poorer hog producers than the year before.
"Fortunately, things are looking better for 2010."
Dr. Plain also expects improvements for cattle producers, but he thinks they are more likely than hog producers to continue cutting herd sizes. He also expects that lower livestock numbers will translate into less demand for veterinarians' services.
"And the financial condition of livestock owners is not as good as it was a year ago, so they might expect livestock producers are a little more reluctant to call on them," Dr. Plain said, adding that producers may take more time in paying their veterinarians.
Economic recession, increasing unemployment, feed and fuel costs that were short of record peaks but historically high, decreased demand for high-end meat cuts, drought, and declines in total export demand hurt meat and poultry producers in 2009. Animal owners in meat and dairy industries increased culling in response to those economic difficulties.
2010 is expected to bring some improvements. The Department of Agriculture is predicting that U.S. livestock owners will produce slightly less beef, pork, and turkey meat in 2010, but that decrease is expected to be partly offset by increased broiler meat production. While broiler meat production was down about 3.8 percent from 2008 to 2009, the USDA's Economic Research Service estimates production will likely grow through 2010.
Milk production is expected to decline slightly with the contraction of herds, despite increased yields, USDA information states. Domestic and export demands for dairy are expected to increase.
Erica Rosa, agricultural economist for the Denver-based Livestock Marketing Information Center, discussed her organization's analysis of cattle, hog, sheep, and poultry populations.
"We're going to see continued fairly large declines in cattle and hog numbers," Rosa said. "Broiler numbers are expected to show a modest increase, but the total red meat and poultry supplies available here in the U.S. are going to continue to decline."
Rosa said broiler populations declined from 2008 to 2009, but the poultry industry has adjusted to rising feed and transportation costs and export issues.
Information from the USDA National Agriculture Statistics Service states that the U.S. had about 93.7 million head of cattle on Jan. 1, down from about 94.5 million at the start of 2009 and 96 million at the start of 2008. Pork producers had about 65.8 million hogs in December 2009, down from about 67.1 million in late 2008 and 68.2 million in late 2007.
Despite those cutbacks, the USDA statistics also indicate the cattle inventory was down only 1.4 percent overall from five years earlier, while the hog inventory rose about 8 percent in the same period.
Rosa said economic conditions are expected to improve in the U.S. and globally in 2010, and profitability is expected to improve for beef, pork, and poultry operations this year.
Kenneth H. Mathews, PhD, an agricultural economist with the USDA-ERS, said current decreased cow inventories have set the stage for declines in beef production for the next few years. The nation has the fewest cows since 1951—as well as the fewest cattle since 1959—and producers are not maintaining enough replacement heifers to stop the decline.
Rosa said U.S. cattle producers are still dealing with the high national unemployment and cautionary consumer spending that hurt beef prices in 2009, while pork and poultry markets fared well in the first two months of 2010. The center is estimating people will consume about 208 pounds of red meat and poultry per person in 2010, down about 2.5 pounds annually from 2009 and the lowest amount since 1993.
"On the beef side—if our forecasts are realized—it would be below 60 pounds per person," Rosa said, noting that amount would be the lowest annual consumption since 1958.
Beef prices have also been hurt as consumers have opted for cheaper cuts at home and for trips to less expensive restaurants, which tend to serve cheaper cuts, Rosa said.
Dr. Mathews said fuel prices were, by early March, creeping upward and would likely have some impact on producers, but he expected less impact than when prices spiked in summer 2008. Feed prices—which also peaked in mid-2008—have remained historically high but were not expected to rise in 2010 to the burdensome levels seen in the near past.
Although corn and soybean prices have dropped since the spike, Rosa said those markets remain volatile.
Dr. Mathews said cattle and hog feeders have opportunities to increase profits in 2010.
"At least the potential is there for some positive margins, which cattle feeders haven't seen in a long time," Dr. Mathews said.
Following a few months of increased sow slaughter, pork producers were decreasing the number of sows sent to slaughter by early March, likely indicating pork production will increase, Dr. Mathews said. International demand is likely supporting broiler sales, he said.
"We like to think that consumer demand will improve as we come out of the economic recession," Dr. Mathews said. "There are some early signs that the restaurant industries are starting to pick up a little bit, and that's really where the high-end meat cuts go, particularly beef."
But Dr. Plain said that reducing the number of livestock will likely lead to increased meat prices, which would allow producers to pay their historically high feed prices as well as other bills. Exports will help support prices, he said, noting that the USDA is forecasting increased beef and pork exports this year.
Asked about the U.S. per capita consumption of red meat and poultry, Dr. Plain said that consumption has to decline as producers decrease the populations of cattle, pigs, and chickens and increase exports at the same time as the nation's population grows. He hopes U.S. consumers will bid more for meat and bring prices up to the point where livestock producers stop cutting herd and flock sizes.
But "stingy" behavior during the current economic recession is helping to hold down meat prices, effectively keeping livestock prices low and increasing debt for producers, Dr. Plain said.
While Dr. Plain indicated that debt and the reduced animal populations could hurt livestock veterinarians, Dr. Mathews expects that, given reports of a shortage of large animal veterinarians, demand for veterinary services will remain stable or increase. He thinks this is especially true if any federal regulations or laws change to require increased veterinarian supervision of or involvement in antimicrobial use in animals.
Rosa also said that, despite the cutbacks in herd sizes, the nation is still experiencing a shortage of large animal veterinarians. Like Dr. Mathews, she does not expect decreased demand for food animal veterinarians, particularly as more veterinarians retire or leave practice.
"Despite the decline, I don't see that the need for qualified veterinarians is going to go away anytime soon," Rosa said.