LIVESTOCK SITUATION & OUTLOOK

U.S. Meat Production Continues To Slowly Increase

(January 24, 2001) U.S. red meat and poultry production continues to slowly increase, posting nearly a 1-percent gain in 2000. In 2001, the gain in meat production is expected to be even lower as beef production declines 4 to 5 percent reflecting several years of cattle herd reduction and near record heifer slaughter in 2000. These are the smallest annual meat production increases since the mid-1980's. In 2000, prices were higher with the exception of broilers, which posted a small decline. In 2001, cattle prices are expected to continue rising, broiler prices are likely to remain about steady, while hog and turkey prices decline. Continuing record large meat production, lackluster growth in exports, and a slowing domestic economy may pressure prices. Feed prices are expected to post a small gain in 2001, further squeezing producers' returns.

Red meat and poultry exports rose 6 percent in 2000, the highest rate of growth since 1997, led by a double-digit increase in broiler exports. However, in 2001 broiler exports are expected to rise less than 1 percent over last year. As a result, meat exports are expected to rise less than 0.5 percent, which would be the lowest since the decline in 1985. Pork exports are expected to rebound with a 3-percent increase after remaining about steady in 2000. Meat exports are facing increased competition in the slower growing world meat markets. Red meat imports in 1999 and 2000 rose about 10 percent each year boosted by 17 and 18-percent increases in pork imports. In 2001, both pork and beef imports are expected to slow dramatically.

Large stocks of corn and soybeans are expected to keep feed prices relatively low this year barring any major weather problems in the 2001-growing season. U.S. ending stocks of corn in 2000/01 are expected to rise about 5 percent over 1999/00. The farm price of corn in 2000/01 is expected to average $1.65 to $2.05 per bushel, compared with $1.82 in 1999/00.

Record and near-record soybean crops over the past 4 years are boosting expected 2000/01 ending soybean stocks up about 10 percent over 1999/00. U.S. soybean meal prices are expected to average $170 to $195 per ton in 2000/01, compared with $168 in 1999/00.

Hog Producers' Returns Improved

In 2000, hog prices averaged in the mid $40' s per cwt, compared with the mid $30' s in 1998 and 1999. The higher hog prices along with relatively low feed prices drastically improved producers' returns. Returns in early 2000 were above breakeven for the first time since late 1997. Responding to the improved returns, in the fourth quarter, producers reversed the decline in the number of sows farrowing that had persisted for 7 quarters. The number of sows farrowing during September-November rose 1 percent, and producers in December indicated intentions to increase the number of sows farrowing by 2 percent during December-May. The higher farrowing intentions signal increased pork production in 2001 and lower hog prices will likely lead to a moderation in producers' returns. However, due to expected continuing low feed prices, returns should continue to be above breakeven for most of this year.

Producers Increase Inventory

The December Hogs and Pigs report confirmed the forecast of increased pork production in 2001. Producers increased their herds 1 percent over a year earlier as expected given the improved producers' returns in 2000. Actual farrowings during September-November 2000 were up 1 percent over a year earlier and were about the same as September intentions. However, due to the continuing rise in pigs per litter, the pig crop was up 2 percent.

Farrowing intentions in December-February are up 4 percent from actual farrowings a year earlier and slightly higher than reported in September. March-May farrowing intentions are up 1 percent from actual farrowings a year earlier. The March-May increase in farrowing intentions was lower than expected by many analysts given the that producers indicated in September intentions to expand production.

The cautious increase could be attributed to concerns about a possible squeeze on slaughter capacity in late 2001 when most the March-May pig crop comes to slaughter and may reflect that the capacity of existing farrowing facilities has been reached. Due to environmental regulations and the need to raise large amounts of capital for the larger farrowing facilities today, the lead-time to build new facilities has been lengthened compared with several years ago.

With the larger pig crops, pork production in 2001 will likely rise about 2 percent over 2000. Hog prices are expected to weaken and average in the low $40' s per cwt, compared with nearly $45 in 2000. Given the expected continuing low feed prices, producers' returns should support a year-over-year increase in the number of sows farrowing this year. This suggests a further rise in pork production in 2002.

Pork Production To Increase

Based on the market hog inventory, pig crops, and farrowing intentions reported in December, commercial pork production in 2001 is forecast at 19.25 billion pounds, up 2 percent from 2000. If the 2001 production is realized, it would be just 28 million pounds short of the record set in 1999. However, commercial hog slaughter may be down 2-3 percent from 1999 as heavier slaughter weights support production. The June-August pig crop implies a first-quarter slaughter of about 24.7 million head; assuming slaughter is about 96 percent of the pig crop (5-year average). Given the heavy dressed weights in January and the upward trend in weights, the average dressed weight is expected to rise about 2 pounds. As a result, pork production in the first quarter will likely be down less than 1 percent from a year ago.

Most of the September-November pig crop will be slaughtered in second-quarter 2001. Dressed weights are expected to decline from the first quarter but still be about a pound above a year ago. The larger pig crop and dressed weights are expected to boost pork production in the second quarter about 2 percent above a year ago.

With pigs per litter expected to be up slightly, the December-February pig crop, which will be mostly slaughtered in the third quarter, is expected to be up 4-5 percent. Using a slaughter rate of 98 percent (the 5-year average), the implied third-quarter slaughter is 25.1 million head. The average dressed weight for the quarter jumped 4 pounds in 2000 and is expected to climb another pound this year. Third-quarter pork production is expected to total about 4.825 billion pounds, up 5 percent from last year.

The December farrowing intentions for March-May imply a pig crop of about 26 million head. If these intentions are realized, fourth-quarter slaughter would also total 26 million head, as the percentage of the pig crop slaughtered is expected to be about the same as last year. In the liquidation years of 1998 and 1999, the percentage of the pig crop slaughtered was 102 percent.

Hog Prices To Decline

Although hog prices dropped to the high $30' s per cwt in early 2001, prices in the first quarter are expected to average about the same as a year earlier. Per capita pork and competing meat consumption are showing little year-over-year change, and the economy, although slowing, remains relatively robust. In the second quarter, the per capita consumption shows little change, but the slowing economy and sharply higher energy costs this heating season may temper the good demand experienced last year. In addition, the outlook is for increased year-over-year pork supplies beginning in the second quarter. As a result, prices are expected to average in the mid $40' s per cwt in the second and third quarters. In 2000, hog prices averaged $50 in the second quarter and $46 in the third quarter.

Although beef production is expected to be down sharply in fourth-quarter 2001, seasonal influences, along with rising pork and poultry production, are expected to pressure hog prices into the mid 30' s per cwt. In addition, weekly federally inspected slaughter is expected to exceed 2 million head per week except for holiday weeks. When slaughter rates exceed 2 million head per week for an extended period, slaughter capacity is strained and hog prices are bid down.

Retail Pork Prices To Remain Unchanged

Retail pork prices (as measured by the Bureau of Labor Statistics price index) are expected to average about the same in 2001 as in 2000. In 2000, prices rose a sharp 7 percent. Although the farm value is expected to decline, the farm-to-retail spread is expected to widen. In 2000, the farm-to-retail spread narrowed 2 cents per pound after 2 years of stable spreads.

Cattle On Feed Inventories Remain Record Large

Cattle on feed in the 7-monthly reporting states with over 1,000 head of capacity on January 1, 2001 were up 3 percent from a year earlier. Placements rose 2 percent as winter weather forced even more cattle off over-wintering grazing programs. Feedlot inventories continue to be supported by large numbers of heifers on feed. Heifers on feed on January 1 were up 4 percent from the large year-earlier numbers, and up 15 percent from 1999. The impact of these large placements can be better assessed after the annual cattle inventory figures are released on January 26. As long as heifer retention and herd expansion are delayed, beef production will remain relatively large.

Although beef production was up 1.5 percent in 2000, prices for Choice beef at retail were a record $3.06 a pound. Retail beef prices rose 6.5 percent over the 1999 average and 4.6 percent over the previous record of $2.93 a pound set in 1993. Severe winter weather in 1992/93 was very much a factor in the 1993 record price. In contrast, Choice retail beef prices have ranged from $3.10 to $3.13 a pound since June. Winter extremes in the Great Plains since December have slowed weight gains and helped smooth out the impact of large cattle on feed inventories.

The new cattle inventory figures will provide a better view of expected inventory and beef production changes over the next couple of years. Heifer slaughter has been unprecedented for the past 5 years. Continued large heifer slaughter and large heifer-on-feed inventories strongly suggest that expansion will be delayed until females are retained from this year' s calf crop in second-half 2001, with beef production declining through 2003.

January 24, 2001

Economic Research Service

USDA, Washington, D.C.

202-219-0515

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