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US Poultry Outlook Report - November 2006

by 5m Editor
20 November 2006, at 12:00am

By U.S.D.A., Economic Research Service - This article is an extract from the November 2006: Livestock, Dairy and Poultry Outlook Report, highlighting Global Poultry Industry data.

USDA Economic Research Service

Feed Grain/Forage Conditions

November 1 U.S. corn production for 2006 was forecast at 10.7 billion bushels, down 160 million bushels from last month. Consequently, the 2006/07 marketing year average farm price of corn was raised 40 cents on both ends of the range to $2.80 to $3.20 per bushel. The red-meat/poultry sector will have to adjust to new, higher corn prices.

Poultry

Broiler production in fourth-quarter 2006 is forecast at 8.9 billion pounds, about the same as in the previous year. With higher production of beef and pork and no major increase in broiler exports, broiler prices are expected to be pressured in fourth-quarter 2006.

The production estimate for 2007 was lowered by 250 million pounds due to a combination of low broiler prices and expected higher feed costs. Turkey production was higher in the third quarter, but stocks declined. These factors combined to push wholesale whole-bird prices higher, with prices for whole hens in the Eastern market reaching 95.8 cents per pound in October, up 16 percent from the previous year.

Poultry Trade

U.S. shipments of broiler and turkey products in September were down from September 2005. Broiler exports totaled 360 million pounds, a decline of 5 percent, while turkey exports of 49 million pounds, were down 6 percent from a year ago.

Corn Production Estimate Lowered

November 1 U.S. corn production for 2006 was forecast at 10.7 billion bushels, down 160 million bushels from last month. The national average yield was lowered 2.3 bushels per acre this month largely reflecting declines in Illinois, Indiana, Iowa, and Nebraska. Feed and residual use was lowered 50 million bushels reflecting sharply higher cash prices and the reduced crop. Exports also were lowered 50 million bushels as higher prices are expected to slow the pace of sales and shipments later in the year as supplies tighten. Ending stocks are projected to be down 60 million bushels to 935 million, less than half the ending stock levels of the past two years.

The 2006/07 marketing year average farm price of corn was raised 40 cents on both ends of the range to $2.80 to $3.20 per bushel. Despite the strength of current cash prices, farm prices are expected to lag current cash levels as a result of farmers’ forward-pricing their corn during this past spring and summer at lower than current prices. Grain sorghum production was also lowered and the average price raised 60 cents a bushel to $2.80 to $3.20 a bushel.

Soybean production is forecast at a record 3.2 billion bushels, up 15 million bushels from last month. Soybean meal prices are projected at $165 to $190 per short ton, up from $147.50 to $177.50 last month.

Feeding Costs/Uncertainty Rise

Grain harvest typically marks the seasonal price low. However, this year, despite the third largest crop on record, corn prices have been rising counter-seasonally. Corn prices in Central Illinois averaged $2.07 a bushel in August, but have risen continuously to $2.82 in October. A new variable has been added to feed grain supply/demand analysis—ethanol. Strong growth in the ethanol industry is expected to continue to pull in larger quantities of corn as additional plants and plant expansion come on line. Corn use in fuel ethanol is projected at 2,150 billion bushels, up from 1,603 billion last year and 1,323 billion in 2004/05.

Production and price aberrations were historically short-term phenomen due to production shortfalls. Typically feeder cattle sell at a premium to fed cattle due to lower priced cost of gain, but when feed costs, including forages, rise and/or grazing conditions are poor, stocker/feeder cattle prices are pressured downward. In the spring of 1996 fed cattle prices averaged $60.66 per cwt, while yearling feeder cattle averaged $56.87 per cwt, 600-650 weight feeders averaged $58.81 per cwt, and 500-550 weight stocker/feeder cattle averaged $59.86 per cwt. At present, October stocker/feeder cattle were still selling at a strong premium to fed cattle.

However, with poor forage conditions this fall and sharply rising corn prices, largely due to expanding ethanol grain demand, feeder cattle are going to be under increasing pressure, at least until spring and a new grazing season begins. Fortunately for stocker/feeder cattle producers, distillers’ grain, a byproduct from ethanol production, can be incorporated into cattle rations at much lower prices than the prevailing cash corn price.

Wet distillers’ grains are priced very favorably and can comprise 20 to 40 percent of fed cattle rations. Higher levels can perhaps be utilized as feeding regimes are altered to this rapidly expanding feed source. Unfortunately for the pork and poultry sectors, with present feeding technology, distillers’ grains are limited to about 10 percent or less of the feeding rations.

Broiler Production Forecast Higher in Fourth Quarter

Federally inspected broiler meat production in fourth-quarter 2006 is forecast at 8.9 billion pounds, almost identical to a year ago. In the fourth quarter, a reduction in the number of birds slaughtered is expected to be offset by higher average weights. U.S. broiler production in the third-quarter 2006 was 8.88 billion pounds, down 0.7 percent from a year earlier. The quarterly decline in broiler meat production was the first since first-quarter 2003. The lower meat production was chiefly the result of a smaller number of birds slaughtered (down 1.9 percent). This decline in birds slaughtered was partially offset by an increase in average weights.

The current low wholesale prices for most broiler products, combined with the expectations of higher feed prices, is expected to have a depressing effect on broiler meat production in 2007. The forecast for 2007 was reduced by 250 million pounds to 5.33 billion, an increase of only 1.3 percent from 2006.

The weekly broiler hatchery report showed that over the last 5 weeks (Oct. 7 through Nov. 4), the number of broiler chicks placed for grow-out averaged 0.6 percent lower than in the same period in 2005. The data for eggs placed in incubators over the last 3 weeks points toward chick placements in the coming weeks continuing to be below those of last year.

Third-Quarter Broiler Ending Stocks Lower

Falling prices for most broiler products have not been caused by larger supplies of cold storage stocks. Lower broiler production in the third quarter pushed down ending broiler stocks to 713 million pounds, down 5.4 percent from the same period in 2005 and down almost 8 percent from the end of third-quarter 2004. A reduction in the stocks of broiler parts makes up most of the decline in cold storage holdings. Parts stocks were down 4.8 percent from the same period in 2005. Cold storage holdings varied widely, depending on the specific part. At the end of September, stocks of leg quarters were down 18 percent and leg stocks were 16 percent lower, while holdings of thigh meat were up 65 percent from the previous year.

At the end of third-quarter 2006, cold storage holdings of whole broilers, which are only a small percentage of overall broiler stocks, were 16.7 million pounds, down 24 percent from the previous year. This sharp decrease in cold storage holdings of whole broilers is one explanation of why whole bird prices have not declined as heavily over the last 2 months.

Even with a decline in broiler production in the third quarter of 2006 and lower ending stocks, prices for most poultry products have fallen in September and October. Northeast boneless/skinless breast meat prices were $1.03 per pound in October, down 13 percent from a year earlier. Since August, prices for breast meat products have declined by about 30 cents per pound. Prices for most other broiler products have also declined. Prices for leg quarters and thighs in the Northeast market were $0.29 and $0.36 per pound in October, down 36 and 43 percent, respectively, from a year earlier. With production expected to be basically unchanged in fourth-quarter 2006 compared with the previous year, prices for broiler products are expected to remain depressed through the end of the year.

Turkey Production Rises

U.S. turkey production in third-quarter 2006 was 1.42 billion pounds, up 3.2 percent from a year earlier. The increase in production was the result of a higher number of birds being slaughtered (up 1.9 percent) and an increase in average weight to 27.8 pounds. Federally inspected turkey production in the fourth quarter of 2006 is forecast at 1.46 billion pounds, slightly higher than during the same period in 2005. Turkey production is expected to increase slightly in 2007 in response to the higher prices seen throughout 2006, early 2007.

Even with higher third-quarter production and only a slight gain in exports, ending stocks for the third quarter were down from last year. Cold storage holdings of whole turkeys at the end of September were estimated at 233 million pounds, down 12 percent from the same period last year. Cold storage holdings of turkey parts were also down. Stocks of turkey parts at the end of September were estimated at 230 million pounds, up 8 percent from a year earlier. Total third-quarter ending stocks for turkey were 463 million pounds, a decrease of 3 percent from a year earlier.

Over the first three quarters of 2006, turkey meat production has totaled 4.2 billion pounds. This is approximately what turkey production was during the first three quarters of 2003. At this point it seems that market demand has finally caught up to the current production level. The restrained domestic production has led to falling stock levels, which have helped to push whole turkey prices higher, especially over the last 2 months. The price for whole hens in the Eastern region was 95.8 cents per pound in October, up 16 percent (a bit over 13 cents per pound) from a year earlier. Prices for whole birds and turkey parts are expected to remain strong through the Thanksgiving period and then decline seasonally, but remain above year-earlier levels. With higher production expected to be somewhat offset by higher exports, turkey prices are expected to remain strong through the first half of 2007.

Broiler Exports Decline in September

Broiler exports for the last month in the third-quarter totaled 360 million pounds, down 5 percent from a year ago. While the decline in shipments year-over-year was relatively small, the change in shipments from August to September was large, considering that last year there were trade disruptions along the U.S. Gulf Coasts, which was the reason for low broiler shipments in September 2005.

One of the factors partially responsible for the reduction in U.S. broiler shipments was increasing leg-quarter prices. Prices in the Northeast rose from under 30 cents in early June to peak at nearly 40 cents in late August. Price-sensitive countries like Cuba, the Baltic countries, and other importers of U.S. broilers reduced their broiler demands considerably during September. In addition to the price impacts, exports to Russia were likely limited by large purchases made earlier in the year.

Turkey Exports Fall in September

Turkey exports totaled 49 million pounds in September 2006, down 6 percent from a year ago. The chief reason for the decline in turkey shipments was due to an increase in turkey prices. Whole turkey prices rose by 4 cents after experiencing one of the largest monthly export shipments (in August 2006 totaling 55 million pounds) recorded in the past decade. In spite of the fall in turkey shipments for September, third-quarter turkey exports totaled 152 million.

Further Information

For more information view the full Livestock, Dairy and Poultry Outlook - November 2006 (pdf)

November 2006