by Barb Baylor Anderson, Progressive Farmer Contributing Editor
EDWARDSVILLE, Ill. (DTN) — America’s livestock producers are poised to share bragging rights with a certain fast-food giant on the number of satisfied customers. Despite industry consolidation, environmental and regulatory pressures, and now record-high feed costs, market watchers predict continued growth in global protein demand could bode well for the future of the country’s beef, pork and poultry producers.
“Protein demand in developing countries has grown quickly as consumers eat more and diversify diets,” says Ron Trostle, USDA Economic Research Service (ERS) economist. “Demand will likely continue to expand rapidly since incomes in these countries are far from where food demand becomes saturated. They already account for more than 80{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3} of global population and will experience large population gains, increased urbanization and middle-class expansion.”
Erin Daley Borror, economist with the U.S. Meat Export Federation, says China is expected to lead the charge in growth in meat consumption with gains likely from the Middle East, Mexico and Russia. China’s cumulative pork, poultry and beef consumption is estimated at 72.5 million metric tons (mmt) and is expected to exceed 89 mmt by 2020, thanks to a growing middle class.
China’s share of U.S. pork exports has increased from 3{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3} in the early 2000s to 9{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3} in 2007. In the first four months of this year, China had already accounted for 11{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3} of U.S. pork and pork-variety meat exports.
Despite ongoing challenges, the nation’s livestock industry has seen healthy growth. U.S. beef and pork production increased from 10.5 mmt and 7.3 mmt, respectively, in 1991 to 12.05 mmt and 10.19 mmt in 2010. At the same time, U.S. beef exports have grown from 539,000 metric tons in 1991 to 1.04 mmt in 2010. Pork exports have jumped from 128,000 metric tons in 1991 to 1.9 mmt in 2010.
“Even under current market conditions, the U.S. is a cost-competitive, highly efficient red meat producer,” Borror says. “Increasing regulations and rising input costs could be a concern, and higher meat prices could effectively slow consumption growth globally. But international customers are outbidding U.S. consumers for U.S. beef and pork. Export demand has helped the U.S. red meat industry pass on higher feed costs. That trend is expected to continue.”
EXPENSIVE FEED
High feed costs represent the most immediate challenge to livestock and poultry producers. Steve Meyer, president of Paragon Economics, contends the higher costs and accompanying volatility are due primarily to federal ethanol policy.
“Corn production is at record levels. Ethanol use has increased at a faster pace than corn output, now accounting for more than one-third of the U.S. crop,” he says. As a result, the livestock and poultry feed sector has gotten squeezed. For 2011-12, feed/residual demand is forecast by USDA at 5 billion bushels and ethanol demand for corn at 5.05 billion bushels. This is the first time corn use for ethanol has been higher than corn use for feed.
Meyer believes pork producers are at the “edge of the cliff” with the corn crop and will have to adjust to higher cost levels and carcass break-evens greater than $80 per cwt.
“U.S. livestock and poultry sectors will have a tough time delivering to the world if the total supply of high-energy feed ingredients (such as corn) is shrinking,” he says. “It may be possible to improve feed efficiencies enough to do that, but it will be a slow, difficult process that will almost certainly result in much higher food costs.”
Recent weather woes aren’t helping. The feeding segment is the hardest hit segment for U.S. beef production, especially in the Southwest, where drought has forced cow herd liquidation. Feeder cattle replacement costs have climbed 50{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3}.
Feed represents more than half the costs for cow-calf producers. Dan Shike, University of Illinois ruminant nutritionist points out, “Efficient producers can manage feed costs and remain profitable. If you can get creative and feed things like soybean stubble or cornstalk bales, and use fall/winter grazing, you can see satisfactory savings.”
COMPETITION FOR ACRES
High corn prices, however, could entice some cattlemen to plow up hay and pasture ground, taking away easy feeding options.
“We are not producing more land, and we can lose acres to corn,” Shike admits. “But the issue is regional and not one to be too overly concerned about at this time.”
ERS data show shifts in land use are much more frequent between idled cropland and cropland used for crops than between idled cropland and cropland used for pasture. That’s because idled cropland is generally more suited for returning to crop production than pasture.
In the latest USDA Major Land Uses Study, which pre-dates the recent price run, cropland area from 1997 to 2002 declined almost 14 million acres. That included a 6-million-acre drop in cropland pasture. Changes were more than offset by an increase in grassland pasture and range, and special-use areas. Lands exiting cropland showed 43{e7e4ba4d9a3c939171d79cae1e3a0df1d41e5a91c3c4158fbb92284b490bc9d3} going to pasture.
OPTIMISTIC INDUSTRY
Skyrocketing land values, however, may crimp some land-use opportunities. Meyer points out high-priced land and high-capital requirements may also limit the ability of producers to diversify into pork production.
Still, he predicts the U.S. will continue to be a pre-eminent pork supplier, given production efficiencies, the best processing plants and a feed cost advantage. Meyer adds the U.S. can grow pork productivity to meet demand without increasing the nation’s sow herd.
Bill Donald is equally optimistic about U.S. beef production. The National Cattlemen’s Beef Association president welcomed two sons back to his operation to expand cow-calf production.
“We are feeling the pinch of higher input costs, but selling feeder cattle at record-high prices has kept margins in the black,” says the Montana producer.
“The U.S. has the smallest cow herd since the 1950s. We see signals to rebuild, so we are doing that while profit potential is good.”
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