Livestock Consumption and Production to Tumble in 2012

November 2, 2011

By: Ed Clark, Top Producer Business and Issues Editor

Meat demand in the U.S. is presently outstripping supplies, but long-term there are some ominous signs. Per capita U.S. meat consumption appears to have peaked, according to a new report by Rabobank International. This is due to a combination of factors that likely include an aging population; a rising preference for ethnic cuisines, for which meat is not a center-of-the-plate item; and an increased interest in vegetarian diets among younger consumers.

It also includes some impact from a recessionary economy, especially for food away from home.

Head Count. Like consumption, livestock numbers are headed for a big downturn in the U.S. next year, which means less demand for feed, especially corn. U.S. meat and poultry production could decline by nearly 5% year-on-year by mid-2012, states the report.

While not the key reason, the decline in feed demand could help bring corn prices down to the
$5 per bushel range and soybean prices to $12.

"I see a growing potential for $5 corn in the next crop year," says David Holloway, vice president of Rabobank’s Food and Agribusiness Research and Advisory group.

With ethanol accounting for 40% of the 2011 corn crop, the impact of the reduction in meat production will be lower than in the past. Rabobank estimates that corn used for feed will decline by an incremental 50 million bushels in the third quarter and by 100 million bushels in the fourth quarter of 2012 compared with 2011.

While it might not sound like a lot, the 150 million bushels is a significant amount in the context
of USDA’s current estimate of corn ending stocks for the 2011/12 crop year of only 672 million bushels.

Behind the decline in feed demand is the long-term downtrend in the U.S. cattle herd that is being exacerbated by extreme drought in the South and the Southwest and probably the worst-ever downturn in profitability in the poultry industry. Profitability in the pork industry has so far been holding steady as rising hog prices have substantially offset a dramatic increase in feed costs.

There are early signs of increased sow slaughter, which will turn the tables.