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Wednesday, July 24, 2013

Pork trending up, beef trending down on their corn market impact


The dynamics in livestock production are becoming better defined, or at least not as cloudy as in the past two years with drought impacting both the feed and forage sectors of the US.  That is important to the Cornbelt because the livestock producer will be the key to any recovery possible from the demand destruction caused by the 2012 drought.  As mentioned July 9, livestock production has more potential to increase its consumption of corn compared to exports or ethanol, and livestock producers may be the best friend of the corn grower.  The latest USDA analysis of livestock production seems to shed some light on the progress of that dynamic.

When corn exports have dropped 60% in a half dozen years and other nations are happy to cover that shortfall and the motoring public has reached the 10% blend wall for ethanol in motor fuel, those consumers of corn may see little growth.  But domestic livestock production may be a light at the end of the tunnel.  Although the light is flickering, it may show how fast livestock production can be relied upon to consume corn.  USDA’s recently released Livestock Outlook indicates that cattle production has reached a defining point and pork production has made some positive strides.



The drought continues in the Southwest US and cow slaughter remains high, which does not signal any increase in production at this point. Both beef and dairy cows exceeded their year over year slaughter rate and feed cattle sales volumes were higher.  However, USDA livestock economist Kenneth Matthews says June brought a 15% drop in sales volume, which he said indicated an inventory change that may foreshadow future declines in cow inventories, feeder cattle supplies, and ultimately beef production.  Matthews said despite expensive feed, there has been an increase in heavy weight cattle being placed in feed lots.  They will be there for a shorter period of time and ready for early marketing. 


The implied inventory change mentioned by Matthews would be a significant indicator that the US cattle production trend would continue to decline.  While the current cycle has been declining for some time, the impact of the drought has been a serious negative dynamic that may have killed any expectations for an uptrend in the cycle.  The lack of forage and the high price of grain came at inopportune times for the cattle industry and for the corn grower.



Within the pork industry the latest data indicated no major change in the number of breeding stock, but surveys of producers indicated reduced plans for farrowing, which would be a surprise idling of a capital asset.  But for whatever reason that some sows were rested, those that were working were working hard.  The intention to farrow fewer hogs was countered with the highest litter rate ever achieved at 10.31 pigs per litter.  That was up from 10.1 pigs per litter in the prior Hogs and Pigs report.  USDA’s Matthews did not indicate it was an anomaly, not to be seen again, but instead reported that, “Higher spring litter rates are likely largely attributable to much-improved genetics and to better sow barn management. The fact that the breeding herd was not being pushed to maximize production—as suggested by the lower farrowing-to-breeding herd ratio—may also have contributed to the record-high litter rate.”


If that is the case, the industry may continue to achieve higher litter rates with less exertion.  And higher litter rates mean more corn demand from the neighboring pork farm.



The latest data on livestock production indicates a continuation of the declining beef herd in the US, with more cows being slaughtered, along with a declining inventory of calves being sent to feedlots.  The pork producer, which had planned to reduce production, ended up with a significant jump in litter rates, attributed to solid reasons that would likely support that trend.

Posted by Stu Ellis on 07/24 at 10:59 PM | Permalink

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