High feed costs and excess supply will force a reduction in chicken production, according to Deutsche Bank analyst Christina McGlone. Chicken producers on average will remain profitable through early December, when high corn costs will begin to be felt. “Chicken production cuts, first in the form of weight reductions, will have to happen,” McGlone wrote in a report to clients.
As higher feed costs squeeze profits, a pullback in weights will be felt in the first quarter of 2011, McGlone predicts. “The bottom third to half of the industry will likely lose money beginning in December.
Higher feed costs also will stall beef cattle herd expansion according to Purdue University Extension Economist Chris Hurt. “The cattle industry is ready to set records for high prices this year and next as higher feed costs stall herd expansion.”
Hurt says the most recent surge in feed prices will likely keep producers from expanding until feed prices moderate, which won’t be until the 2011 U.S. crops are assured, 10 months from now. That means cow numbers will not likely expand until 2012 and beef supplies won’t start to grow until 2014.
The beef and pork markets look fairly tight into 2011, but the supply pipeline in chicken will also weigh on the pork market, whose profitability “will get worse before it gets better,” McGlone said.
Meanwhile, USDA predicts an 18 percent increase in beef exports and five percent decrease in imports this year. Hurt says that will result in a 500-million-pound decrease in beef available in the United States compared to last year, which will push finished cattle prices up by $2 to $3 per hundredweight.
Smaller supplies of competitive meats will also support beef prices. Hurt predicts the average Nebraska finished steer price for 2010 will reach a new record of $94.80. He also predicts that record will be broken next year with Nebraska finished steers averaging in the low $100’s. Beef prices so far this year have averaged $4.37 per pound.