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Better Days Ahead for Weary, Resilient Livestock Industry

August 24, 2013
By: Ed Clark, Top Producer Business and Issues Editor
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Multiple factors work in unison to turn the tide on a weary but resilient livestock industry

After four and even five years in the red, livestock producers crave even a hint of greener pastures. Mention the possibility of an entire decade on the other side of the break-even fence, and there’s nothing that will hold back the stampede of relief. That’s exactly what a recent report from the Food and Agri­cultural Policy Research Institute (FAPRI) predicts, based on export enthu­siasm, lower feed costs, a population surge and, in many states, rebounding drought conditions.

Later this year and next year, profits are expected to return to all livestock sectors, if they haven’t already—with the lone exception being feedlot cattle, a segment still in transition. FAPRI predicts the upside trend to continue through 2022, with corn prices staying below $5 per bushel.

"Overall, this has been the worst situation ever for livestock profitability," says Scott Brown, ag economist at the University of Missouri. "Livestock producers got hit with the double whammy of high feed costs and the worst economic downturn in decades that curtailed meat demand."

Dairy was hit with record losses, and the hog sector experienced the worst damage since the 1990s. The cattle industry was forced to the lowest inventory in more than 60 years. Poultry wasn’t exempt, either, suffering from $7 corn and a halt in growth and demand. Through it all, livestock producers used their ingenuity to survive such challenging times.

After an extended period of tough losses, livestock producers are rightly skeptical about a rosy forecast. More than any other factor, perhaps, the bullish outlook hinges on one word: weather. Feed prices, so critical to a livestock producer’s bottom line, are directly linked to crop production. These bullish forecasts do not include a repeat of the 2012 drought, which was a 50-year event.

Beyond the feed factor, the key to livestock profitability and growth is exports. "Per capita consumption for livestock products is likely to be stable in the U.S.," says Derrell Peel, ag economist at Oklahoma State University. "We’re a mature market."

After tumbling during the recession, he does see the possibility for some uptick in beef demand, if the economy picks up and if the industry can provide a more consistent product. The latter will require more beef segment coordination, he says.

Brown adds that per capita meat consumption declined by a whopping 20 lb. from 2007 to 2013, to 200 lb. With a stronger economy, he sees the possibility of gaining back 10 lb.

Long term, Brown agrees that consumption growth will equal population growth. Prior to 2009, the U.S. population was growing by 1.1%, but since then, only by 0.7%, explains Michael Swanson, ag economist and vice president with Wells Fargo. It’s an open question on whether it grows at 1.1% again. This has enormous conse­quences for the U.S. livestock industry’s future and how rapidly it can grow.

Peel is far more bullish when it comes to exports. "Clearly, exports represent the greatest opportunity." Pork and poultry, he notes, have shown steady export growth in recent years,

The newest kid on the export block is dairy, which exported just 3% of production a decade ago, but it now exports 15%. FAPRI forecasts that dairy will export 20% to 25% of its production by 2022. Key to dairy export growth has been the elimination of export subsidies by the European Union, which allowed world skim milk powder prices to increase to the point that the U.S. was cost competitive, says Mark Stephenson, ag economist at the University of Wisconsin.

A weak U.S. dollar and rapid growth and demand in the Asia/Pacific region have also boosted livestock product exports. The market for dairy products has been particularly strong in China in recent years. That has directly and indirectly helped the U.S., Stephenson says. Since New Zealand, the No. 1 dairy exporter, has taken the lion’s share of China’s business, that has

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FEATURED IN: Farm Journal - September 2013
RELATED TOPICS: Beef, Poultry, Marketing, Livestock, Pork, Economy

 
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