Changes in Protein and Dairy Production

Published on: 09:56AM Jan 09, 2009
The chart of the week is feed cost ratios for various agriculture producer sectors. A feed cost ratio is an estimate of producer profitability. As the chart states, a low ratio suggests poor producer profitability and a strong ratio suggests good producer profitability. The chart indicates that chicken, turkey and milk producer margins all suffered some in 2008. If pork and cattle were added to the chart they would depict low ratios as well. This is all mostly due to the rise in feed costs that started in the summer of 2006 although the recession induced demand concerns are also now a contributor. In short, it was a challenging year for protein producers which has caused many to liquidate some of their herds/flocks in an effort to slow any economic losses, tighten overall supplies and pressure animal/bird prices to normal profitable levels. Consequently, chicken production in 2009 is forecasted to decline compared to the prior year which would be the first such occurrence since 1975. Beef and pork output are projected to fall this year as well marking the first decline in all of the big 3 (chicken, beef and pork) in at least the last 36 years. And with milk futures currently considerably below farmer breakeven levels it’s possible that milk output could wane this year as well. Typically all of the above factors would be very bullish for the appropriate markets.
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