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CME: USDA's Forecast for 2011 Meat Supplies

17 December 2010

US - Secretary of Agriculture Tom Vilsack said on Monday that USDA will conduct an “exhaustive” cost benefit analysis of the livestock marketing and contracting rule proposed by the Grain Inspection, Packers and Stockyards Administration back in June, according to Steve Meyer and Len Steiner.

That comment was made to a meeting/conference call with meat and poultry sector participants to discuss next steps in finalizing that rule. The comment period on the rule closed on 22 November but the entire process has been intertwined with the series of USDA/Department of Justice (DOJ) Competition Workshops. The first two of those were held in March (seed, livestock) and May (poultry) and discussion at those workshops was actually cited in the preamble to the proposed rule. The last three workshops were held in June (dairy), August (cattle, sheep, hogs) and last week (marketing margins). Comments on the rule at the August and December workshops were to be made part of the official record on the rule —even though last week’s workshop was past the date of comment closure. This process has not be clean by any stretch of the imagination.

The secretary indicated that the economic evaluation would be done within the structure of the Office of Management and Budget and that USDA chief economist Joe Glauber would be involved in the process. In addition, USDA has posted all “unique” comments on the regulations.gov website. We take “unique” to mean comments that were not form letters or postcards. We found 66,034 comments when we searched for GIPSA at the regulations.gov website. There may be a few of those on some other subject but the vast, vast majority would deal with this rule.

The Secretary did not provide any timeline regarding the department’s next steps, including a projected date for a final rule. He did indicate that USDA considered the proposed rule a “starting point” and that the dialogue between stakeholders and USDA has been valuable. Whether that means the final rule may look much different from the proposed rule remains to be seen.

As a follow-up to yesterday’s October export data, we thought it would be good to look at USDA’s forecasts for meat supplies and exports as published in last week’s World Agricultural Supply and Demand Estimates (WASDE). USDA raised its 2011 production estimates for all three major species. All three of the increases were less than 1 per cent of the November forecast levels. US beef production for 2011 is now forecast to be 25.637 billion pounds carcass weight, 2.5 per cent lower than 2010. 2011 pork output is pegged at 22.591 billion pounds carcass weight, 1.1 per cent higher than 2010. Chicken production is expected to be 36.802 billion pounds ready-to-cook weight, 4 per cent larger than in 2010.

USDA increased its estimate of US beef exports for 2011 in the December report, raising them to 2.3 billion pounds. That level is 1.3 per cent higher than was forecast in November but would leave beef exports virtually unchanged from 2010. Estimates for 2011 pork and chicken exports were not changed in the December report. USDA expects the US pork sector to export 4.675 billion pounds of pork in 2011, 9.9 per cent higher than this year and high enough to eclipse the previous annual record of 4.651 billion pounds set in 2008. Chicken exports are expected to grow by 3.6 per cent in 2011 to 6.65 billion pounds, ready-to-cook weight.

Sow slaughter has increased sharply since September, raising questions about the direction of the US sow herd this fall as feed prices have risen. The chart below shows US slaughter of US sows — ie. it excludes sows imported from Canada for slaughter. Weekly slaughter totals have been the highest of the year since 9 October and were actually larger than last year in each of the last 5 weeks. Those levels of sow slaughter are even larger when one considers that the 1 September 2010 breeding herd was 1.8 per cent smaller than one year earlier. And, while profit prospects for 2011 have certainly been hurt by higher feed costs, current future prices still indicate that the average producer can turn a profit next year — and the pork industry usually only responds to LOSSES. So what is going on?

We think that the key issue here is the distribution of costs across operations. While the average producer may be slightly profitable in 2011, the high-cost producer will not be. Further, that producer likely lost more money in the late 2007- early 2010 feed cost debacle and recovered less since profits returned in February. The run-up in feed costs this fall has now put them back in the red, causing some serious reflection and, perhaps, even more serious discussions with lenders. Meanwhile, low-cost producers are re-filling empty sow spaces quick enough to perhaps leave the sow herd steady on 1 December.



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