Everything’s in position to give U.S. pork, poultry, and dairy producers “considerable improvement in markets in 2010,” says livestock economist John Anderson, “but it’s all going to depend on the economy and how quickly consumers get back to some normalcy in their spending.
“The economic recovery is pretty tenuous,” he said at the Mississippi Farm Bureau Federation Winter Commodity Conference. “We’re still at a tipping point, I think, and while the odds of a double-dip recession are fairly low at this point, the possibility is still there.”
States all over the country are having trouble with their budgets,” says Anderson, who’s with the American Farm Bureau Federation in Washington, D.C. “Many of them have been filling a lot of holes in their budgets with federal stimulus money. What are they going to do when that money stops coming? We see real potential for this kind of crisis in 2010, which could throw us into a double-dip recession.”
Also, he says, “We’re still in a world where input price volatility is a problem for producers. Feed, fuel, and fertilizer prices have moderated, but there is potential for a lot of volatility there, and it’s a risk factor we need to keep an eye on. The energy market is notoriously volatile, and it can have a significant impact on prices for related inputs.”
The major U.S. livestock industries have seen an extensive contraction over the last two years,” Anderson notes, and “we’re now at a pretty small production historically, particularly if you look at it on a per capita basis, which is what matters from a consumer standpoint.”
Unlike beef, the hog market ended 2009 “pretty strong,” he says. “We didn’t see prices get to the point that hog producers were making any money, but things were much improved over where they were in late summer.
“Typically, the worst hog market of the year is in the fourth quarter, because that’s when we usually have the largest production.
Improving prices in the fourth quarter in the face of the biggest production of the year was a good indication that demand was pretty strong — a rather encouraging sign in terms of meat demand in general.”
In 2009, there was a big increase in production from the middle of the year to about mid-fourth quarter, Anderson says. “That is fairly typical, but somewhat unusual was a fairly substantial improvement in prices at the same time.”
Some breeding herd liquidation took place in 2009, he notes, “and while it probably wasn’t as aggressive as the market had hoped for, it should be enough to help keep 2010 supplies in check.
“USDA’s Hogs on Feed Report in December showed a 3.5 percent reduction in breeding herd numbers. A lot of market-watchers had been hoping for something on the order of a 5 percent reduction, which would have set the stage for a lot of market optimism going into 2010.
“The 3.5 percent reduction is probably still going to pull production down some in the first quarter, creating a generally favorable supply situation. USDA numbers are calling for lower pork production in every quarter of 2010 compared to 2009.”
Anderson says he is “a little concerned that at mid-January demand sort of hit a wall. So, while we’ve seen some price improvement in hogs, to get above break-even we’ve got to see demand come in and really stay there as part of a sustained economic recovery. Then, things could look pretty good.”
The situation in the poultry sector has been “pretty much the same as for beef and hogs,” Anderson says. “We’ve seen production cutbacks that should set the stage for some support to the market; 2009 saw the first year-over-year decline in poultry production since the early 1970s, which is remarkable.
“As economist Steve Meyer has observed many times, ‘Nothing is certain in life except death, taxes, and a 5 percent annual increase in poultry production.’ And that was the situation we were in: the industry was constantly growing and demand was constantly growing.”
The 2009 decline indicates the strong impact on the meat industry in this recession, Anderson says.
“We did see some signs of improving demand at the end of 2009, which is cause for cautious optimism.”
Uncertainty lurks, however. “Russia is a big, black cloud hanging over the poultry industry right now. The Russians have said, again, that they’re not going to take our poultry because they don’t like that we use chlorine washes in our processing plants. They’re also giving us some headaches on the pork side over antibiotic use.
“This could be a serious problem for the poultry market, and the whole meat sector. In 2005-2008, over a third of our total broiler exports went to Russia and China, with Russia by far the largest buyer.”
In 2002, Anderson notes, Russia stopped taking U.S. poultry in a dispute over steel tariffs, and “we ended up having to get rid of a lot of lower value products in the U.S. market that ordinarily would’ve gone to Russia.
“That was very tough for the poultry market, and it spilled over to affect other meats, with a big impact on the markets.
“As this plays out, if we get to the point where our poultry companies are having to dump onto the domestic market products they normally would export, it’s really going to keep pressure on prices and undercut the demand strength we need to see recovery in these markets.
“All our hopes hinge on demand. We don’t have a burdensome supply situation in any of these markets, but we’ve got to see consumer demand ratchet up in order to get a rally in these markets.”
The situation with Russia, Anderson says, “is a big concern that hangs not just over our poultry, but all of our livestock markets as we go forward into 2010. How serious an issue will this become? We don’t know, but if it isn’t resolved fairly quickly, we’ve already seen in 2002 what it can do to our markets.”