Meat supply's 'precipitous' drop spurs record price

U.S. meat and poultry production may drop as much as 5 percent next year, sending beef and pork prices to a record amid climbing feed costs and shrinking herds, according to Rabobank International.

Producers are curbing output as tighter feed supplies boost costs, which will lead to a “precipitous fall” in available meat in 2012, David Nelson, a global strategist at Rabobank, said in a report. The drop is compounded by a drought that is forcing ranchers in the Southwest to cull herds and by surging demand for U.S. beef in developing countries, he said.

“There's going to be less supply, so we're going to have higher prices,” Nelson said in a telephone interview from Chicago yesterday. “It's quite a shift.”

By late 2012, U.S. beef production may be running at rate of 7 percent below comparable levels this year, Nelson said. The spot-market price for fed steers sold to slaughterhouses may average a record $1.16 a pound in 2012, up from a projected $1.13 a pound this year, Nelson said in the report. Beef prices also will climb to an all-time high, he said.

U.S. per-capita consumption of beef will continue to drop, so the tightening supply of the meat may impact foreign buyers the most, Nelson said. The “relatively cheap dollar” is boosting demand for U.S. meat, Nelson said. The dollar is down 1.2 percent this year against a basket of six major currencies.

U.S. beef shipments climbed 27 percent in the seven months through July 31, government data show. Exports in the fourth quarter of next year will probably be down 10 percent or more from the same period this year, because the beef “just won't be available” to ship, he said.

‘Modest declines'

Pork output may have “modest declines” in 2012, sending prices to a record, as producers slaughter more sows rather than keep them for breeding because of rising feed costs, Nelson said in the report. The price of corn, the main ingredient in livestock feed, is up 26 percent in the past year and U.S. yields may drop to a six-year low, the government has forecast.

Spot-market hog prices next year may average 10 percent higher than the record levels this year, Nelson said in the report, calling the outlook for hog and pork prices “robust” amid strong overseas demand for the meat.

The broiler industry in the U.S. is “suffering some of its worst losses in history,” amid weak demand and an increase in breast-meat inventory, Nelson said. Profits may return in the spring if there are “aggressive” production cuts, he said. Those expected declines in output will worsen the U.S. protein shortfall, according to Nelson.

Foodservice operators and retailers will need to secure meat supplies earlier than normal next year, Nelson said.

“If they want to maintain and manage menu prices, they should be thinking about locking in supplies as early as possible,” he said.