Higher Meat Prices Certain Through 2014

Steak lovers and hamburger fans will have to pay more for those beefy meals in 2013, as there is a projected 5% reduction in the number of cows likely headed to market this year.

This will be the second largest annual decrease in 35 years, according to Derrell Peel, beef marketing specialist at the University of Oklahoma. The 2013 decrease is expected to be followed by a 4.5% or more reduction in 2014. These two years would represent the largest percentage decrease since the late 1970s, he said.

Beef imports are expected to increase and beef exports will decrease which should allow U.S. beef consumption to drop about 3.5% this year. This comes on the heels of a 3.8% drop in domestic consumption in 2011, according to U.S. Department of Agriculture estimates.

By 2014 industry experts say beef consumption will drop another 5% because of less beef available and much higher retail prices.

Steve Kay, publisher of Cattle Buyers Weekly, says there is a growing protein hole created by less beef available for consumption. He said consumers will eat something else, likely chicken and pork for the next few years because those meats will be more readily available.

Extreme drought in concert with record corn and other feed costs throughout much of 2012 will continue to put upward pressure on live cattle and beef prices for retailers and consumers.

The pressure for higher boxed beef prices will increase significantly with an expected 4.5% decrease in beef production in the first quarter of 2013, according to Peel. He said “Choice” boxed beef should move above $200 per hundredweight in the next few weeks.

Beyond that, it will be a question of how much and how fast retailers can pass along the higher wholesale prices to consumers, Peel added.

Christopher Hurt, professor of agricultural economics at Purdue University, says the entire meat protein sector will continue to push higher wholesale and retail prices for the next two years or more.

He said poultry prices are already moving higher and wholesale pork prices should rise by early summer. The pork supply is well established through the spring and as supply shrinks, prices will rise quickly.

For hogs, it takes one year from the time the outlook turns favorable until producers can begin to increase the pork supply, so that means the earliest wholesale prices might generally come down is the fall of 2014.

The turnaround time is much longer in beef. Calves born in spring will come to market late in 2013 and early 2014, so this means beef prices will be going up in 2014 and 2015.

“It will be a long time before we will see cheaper wholesale beef. If a heifer is retained late in 2013 (when profit prospects may return) then gestation is 9 months and grow out is 1½ years. That means it will be 2016 before there is any chance of increasing U.S. beef supply,” Hunt said.

PROCESSOR IMPACT
Chicken and turkey have the opportunity to attempt to “secure” more consumers as they can increase poultry supplies much more quickly than pork and beef.

That is exactly what chicken processors like Tyson Foods and its competitors are hoping. Though chicken processing margins are tight – pennies per pound in the best of times – companies have been able pass along higher wholesale prices and recorded strong profits through most of 2012.

In the past week wholesale broiler prices averaged 98 cents per pound, up 10% from the same month in 2012. At $1.64 per pound, boneless, skinless breast meat prices have risen more than 11% from a year ago and leg quarters have maintained a steady price of 54 cents per share in the same timeframe, according to Georgia Dock prices.

Tyson Foods CEO Donnie Smith said the company will remain disciplined with production as corn prices are near $7 corn and $14 soybeans. Smith said the company will err on the side of caution and buy the necessary parts in the wholesale market to fill any short orders as needed.

Through November 2012, the USDA reported frozen chicken supplies were up 4% from a year ago. Meanwhile frozen beef supplies were down 1% and pork stocks rose 13% from the year-ago period.

Peel said beef and pork processors would feel their margins squeezed tighter as the year progresses and livestock slaughter slows.

Tyson Foods Chief Operating Officer Jim Lochner said in November, “In fiscal 2013 we expect industry hog supplies to be flat and expect pork exports to remain similar to 2012 numbers.” He predicted an overall “strong operating margin” in Tyson’s pork segment.

Lochner said Tyson had raised beef prices 14.4% in the recent quarter, when compared to the prior year. He said the beef industry faces some near-term challenges, but he is confident Tyson would manage through 2013 with adequate cattle supplies near all of its slaughter facilities.

Tyson Foods will report its fiscal first quarter earnings for 2013 on Feb.1 ahead of the market opening,

Tyson shares closed Monday (Jan. 7) at $20.22, down 12 cents per share. During the past 52 weeks the share price has ranged from a low $14.07 to a high $20.50.