The decline in meat protein supplies (see chart) is due to smaller beef and broiler production. Pork production is expected to increase for the second consecutive year but the pace of the increase has so far been relatively modest.

Total beef production for 2012 is now forecast at 25.075 billion pounds, slightly higher than the forecast put forward in December but still some 1.22 billion pounds or 4.6 per cent lower than in 2011. If this forecast for beef production materializes, it would represent the smaller output number since 2005.

Grain prices have pulled back recently but this will do little to increase beef production this year. Indeed, it may have the effect of shortening supplies even more as lower grain prices make it more profitable to hold back heifers and expand. As producers bring fewer heifers to market, the supply of feeder cattle available to feedlots will decline, reducing total beef production. USDA will publish its results of the January cattle inventory survey on January 27 and our expectation is that beef cows held back for replacement will still be lower than in 2011 as producers in key areas struggled with drought conditions. An improvement in weather conditions (still a big question mark), lower grain prices and record out front cattle futures should encourage beef cow retention in 2012.

Pork supplies are expected to advance higher in 2012 but despite record high prices last summer, producers remain cautious. Total pork production for 2012 is now forecast at 23.209 billion pounds, 431 million pounds or 1.9 per cent higher than a year ago. This forecast is modestly higher than what was presented in December but, in our view, the key for the pork market in 2012 remain exports. Of the +23 billion pounds that are expected to come to market in 2012, about 5.1 billion pounds or 22 per cent are expected to go to exports. Only 5 years ago, pork exports accounted for 14 per cent of total production.

In 2011, pork exports were largely driven by strong demand in Asian markets. In some cases (S. Korea), the pickup in demand was accelerated by short term factors, such as the outbreak of FMD. Tight supplies and higher pork prices in China caused that market to catapult to second place, after Japan, in the second half of the year. Will China remain in this second place spot for 2012? It is hard to say. China has the largest sow herd in the world and a large share of production comes from backyard operations. Should feed prices pull back, Chinese producers have shown they can quickly ramp up production. On the other hand, rapid modernization and the resulting growth in demand coupled with population shifts to urban areas could sustain future growth. Needless to say, this is the big wild card for US pork supplies and prices in 2012.

Broiler supplies for 2012 (ready-to-cook production) are forecast at 36.109 billion pounds, 735 million pounds or 2 per cent lower than a year ago. Corn prices may have pulled back from the record levels last summer but they remain in the $5.5 - $6.0 range, well above historical levels. At this point the expectation is for lower production in Q1 and Q2 and then flat to slightly higher production in Q4. Broiler exports are forecast to rise by less than 1 per cent but still remain at all time record highs