In March’s monthly “World Agricultural Supply and Demand Estimates,” or WASDE, report the Agriculture Department increased its estimate for 2013 broiler production from 37.3 billion pounds to 37.93 billion pounds, now 2.4 percent above 2012 levels. Moderating feed costs have improved profit margins. Most producers have added to, or at least maintained, their breeder flocks and are well-positioned to expand if they can do so profitably. Year-to-date through March 8, chicken slaughter had risen 1.2 percent; bird weights were up 2 percent; eggs set increased 1.6 percent; and chicken output climbed an impressive 4.6 percent higher than a year ago.
Boneless, skinless breast prices are rising seasonally. Strong retail promotions should keep prices in the $1.40-per-pound range, but they probably will not go higher than $1.50 per pound through spring. Whole wings — USDA weighted average — at $1.74 in early March are 40 cents per pound below February’s Super Bowl market peak. With a little luck, wings will continue to drop to seasonal summer lows.
How low? It depends on how aggressive McDonald’s gets with its wing rollout, currently limited to the Atlanta and Chicago markets. If McDonald’s starts gearing up for next football season, all bets are off. The USDA is forecasting 2013 broiler prices at $95 per hundredweight, 9.7 percent above 2012 levels.
Beef — February’s USDA cattle report showed feedlot inventories at 11.07 million head, down 6.2 percent from a year ago. Separately, in its annual livestock forecast the USDA said beef output will decline 3 percent this year. The USDA said a small calf crop will lead to tighter cattle supplies for 2014, and it is unlikely that calf supplies could support an increase in beef output before 2016. In February’s “Livestock, Dairy, and Poultry Outlook,” the USDA gave a bearish outlook for near-term beef prices, citing flagging retail demand in the face of high prices and a weak economy. But longer-term fundamentals remain bullish for beef prices. Producers eventually will begin retaining heifers for breeding, sending fewer to slaughter and tightening beef supplies. This trend is expected to accelerate over the next few years.
Note: The March 1 automatic government budget cuts threaten 8,400 U.S. meat inspectors. The Obama administration is rumored to be considering “rolling furloughs,” staggering layoffs in a way that would periodically limit production rather than completely stop it. Since all meat must be USDA inspected, our entire protein supply chain is threatened, to some degree, by the automatic budget cuts.
Coffee — According to the International Coffee Organization, total production for crop-year 2012-2013 will be up 7.3 percent from a year earlier. For arabicas in 2013-2014, there are a few counteracting factors. Brazil will have a record-large “off-year” crop, somewhere between 50 and 55 million bags. However, outbreaks of leaf rust have now been reported from every major coffee producer in Central America and Mexico, with losses likely in the 1-million-bag area for 2012-2013 and 3-million-bag range for 2013-2014. However, 2012-2013 global coffee supplies — arabica and robusta — should exceed demand by roughly 5 million bags. Coffee futures prices have averaged $1.46 per pound year-to-date in 2013, which compares to $2.14 in 2012 and $2.52 in 2011.
Dairy — Domestic milk output is exceeding expectations. Aggressive culling — due to sky-high prices for lean beef trimmings — and replacement with younger, more productive cows, has led to a very efficient dairy herd. While January milk output was just 0.5 percent above a year ago, larger increases are expected for spring. January cheese production was up 2.4 percent from a year ago, and butter was up 2.6 percent. Block-cheese prices have dropped from $1.76 to $1.60 per pound so far this year. Only butter has increased due to a seasonal uptick in demand from retailers and commercial bakeries ahead of the Easter and Passover holidays. But even butter is up only a dime over the past month, to $1.63 per pound.
What could change things? One word: Oceania. Drought has hit New Zealand and Australian dairy production pretty hard, and international prices are rising. Also, high feed input costs and lower milk prices will inhibit U.S. dairy expansion for most of 2013, so the longer-term outlook is bullish due to tightening U.S. supplies and booming international demand. The USDA has block cheese pegged at $1.74 for the year, up 1.9 percent from 2012. Butter is projected at $1.59, one-half a percentage point below 2012 levels.
Grain, pork and vegetable oil
Grain — In March’s WASDE report, the USDA increased 2012-2013 corn-feed usage by 100 million bushels because of higher anticipated poultry output, but that was offset by a decrease in expected exports, leaving 2012-2013 ending stocks unchanged at 632 million bushels. The USDA dropped its 2012-2013 corn price forecast by 20 cents to $7.10 per bushel. The futures market reacted bullishly, jumping from $7.08 pre-report to $7.34 post-report. But a little rain possibly could go a long way this year. The USDA forecast that a sharp recovery in yields will produce a record-large 2013-2014 corn crop with an average price of just $4.80 per bushel. Late spring and summer weather certainly will make or break this year’s corn crop.
Drought still threatens winter wheat, which may break dormancy this spring in an immediate soil-moisture deficit. But a series of winter storms swept through the Plains States in March, improving soil moisture and dropping wheat prices. Wheat futures, which hit a high for the year of $7.91 per bushel in January, dropped to below $7 in early March. World wheat production is expected to increase in 2013-2014, threatening the U.S. export market share and weakening prices.
Pork — Hog and pork prices and demand softened in March. Domestic demand remains constrained, and exports are shaky with the loss of business from two of our largest former customers. Russia is closed to U.S. pork, and China has drastically slowed imports, requiring a third party to ensure that pork imports are free of the feed additive ractopamine.
Loss of ham exports to Russia has contributed to a cold-storage buildup, while Chinese purchases formerly accounted for 30 percent of U.S. pork variety meat at very profitable prices. Those losses have negatively affected hog values and cut into producer and packer profitability. Feb. 1 cold storage was at 605.3 million pounds, 3.4 percent higher than a year ago and 8.2 percent higher than the five-year average. Hog futures have plummeted from $88.33 per hundredweight on Feb. 5 to lows of $79.25 in early March.
Vegetable oil — Soy oil futures have again weakened to near 50 cents per pound. Malaysian palm-oil supplies are plentiful, prices have declined, and exports are likely to improve this spring. And new-crop South American supplies will be bearish for prices in March. However, Oil World again cut its forecast for the Argentine soybeans due to “critically dry” weather.
Soybean oil usage for biodiesel in the fourth quarter of 2012 was about half the year-ago levels, but usage is expected to pick up now that the $1-per-gallon tax credit has been restored. Barring a major U.S. drought this summer, we are likely to see a challenge to price lows. Soy-oil supplies, which have been running above 3 billion pounds, could be halved by late in the year, making the longer-term outlook bullish.
John T. Barone is president of Market Vision Inc. in Fairfield, N.J., and can be reached for comment at [email protected].
