“Although grain prices are higher than a year ago, a return to normal weather may insure adequate forage supplies for the reduced livestock and poultry inventory,” Shagham said at the annual Agricultural Outlook Forum in Arlington.
The tighter inventories “should help support livestock and poultry prices during the year, setting the stage for an expansion in 2004.”
Trade prospects are also improving. Although several countries have put up barriers that may limit growth in their imports, “it is hoped they will achieve a degree of normalcy in trade patterns.”
The somewhat brighter outlook for the sector comes with “a number of uncertainties,” Shagham says.
“The economy remains sluggish and any economic disruption could limit the demand for meat. Disease and food safety concerns are also increasing and could derail any expansion if foreign or domestic consumers shy away from meats.”
The cattle sector, entering its eighth year of liquidation, had 1 percent fewer cattle and calves on farms Jan. 1. Tighter feeder calf supplies are conducive to producers beginning to retain heifers for addition to the breeding herd.
“If producers follow through with their plans, heifer calves from this year’s calf crop would be retained, bred in 2004, and calve in 2005,” Shagham says. “Thus, it’s unlikely that beef production will rise before 2006.”
However, drought continues to overhang many producers, particularly in the west and extending east through the central Corn Belt. Much of this new drought area saw an increase in cow numbers as cattle were moved to areas where forage was available. Stocks of hay on farms was reported 6 percent lower Dec. 1, 2002, “which implies that some producers may find it difficult to support their cow herds until forage conditions improve.”
If producers are able to carry through with their expansion plans, placements on feedlots are expected to drop sharply in 2003. The 2002 calf crop was the smallest since 1951, so the available pool for slaughter will be lower than last year. Feedlot numbers are expected to average 7 percent to 9 percent below a year earlier and will tighten further as supplies of calves drop and producers retain heifers to add to the breeding herd.
But, Shagham notes, if forage supplies remain tight into summer or beyond, feedlot placements may be higher than expected.
Beef production is expected to decline about 4 percent overall in 2003, as slaughter drops and recent gains in weight moderate. The largest beef production declines are expected in the second half of the year, about 8 percent.
“As production declines, fed cattle prices are forecast to rise from an average $67.04 per hundredweight last year to an average mid-$70s through much of this year. Despite higher retail prices in 2002, beef demand remained relatively strong. Retail prices this year could exceed the records of 2001 as supplies tighten late this year, spurring feedlots to bid up the price of feeder calves – which are forecast to rise from the mid-$80s in the first half to the low $90 range by the fourth quarter.”
Beef exports hit a record 2.48 billion pounds last year, with strongest markets in Mexico and Korea, and are forecast to grow to 2.57 billion pounds this year, although higher prices and continued currency weaknesses in major importing countries may slow the growth. U.S. beef imports are expected to increase 3 percent as supplies of processing grade beef decline.
Broiler production in the first two quarters of 2003 is expected to decline – the first two-quarter decline in federally inspected broiler production since 1975.
But, Shagham says, prices are forecast to begin recovering as stocks are reduced and fresh supplies tighten. “With a return to steady export movement, producers may see incentives to expand production, starting in the latter part of the second quarter. For the year, production likely will increase less than 1 percent, the slowest rate of growth since the early 1970s.”
Prices in the first half are likely to rise by 7 percent, averaging 58 cents to 62 cents per pound, remaining close to that level for the rest of the year.
Disruptions in trade were a major factor in the buildup of domestic supplies last year; trade issues with Russia caused the biggest drop in exports, although sales to most major markets fell as disease outbreaks led to bans on trade in broilers from several states. Several issues “continue to cloud the outlook” for exports going into 2003, and Russia has indicated it will place a quota on poultry imports starting about May 1 and will require U.S. plants from which it purchases to be inspected and certified. Efforts continue to resolve labeling issues with China.
Despite the problems, it’s expected “there will be some opportunities for growth in broiler exports this year,” Shagham says, and shipments are forecast to increase to 5.25 billion pounds, 8 percent above 2002, but still below 2001’s record 5.56 billion pounds.
Egg production this year is forecast as “about unchanged,” as returns remain weak. Table egg production is forecast at 6.16 billion dozen and hatching egg production at 1.07 billion dozen. Prices are expected to average 70 cents to 75 cents per dozen for the year.