In his opening remarks kicking off USDA’s 99th Agriculture Outlook Forum this past February, Seth Meyer, Ph.D., USDA Chief Economist struck a note of optimism. “We enter 2023 with a sense of optimism but amid continued uncertainty,” he said. Dr. Meyer, who will be a key speaker at the upcoming Ag Outlook Forum hosted by the Agricultural Business Council of Kansas City and Agri-Pulse Communications, September 25, 2023, cited several positive economic signals. The farm sector of the U.S. economy as a whole, he noted, was in “good financial health with a strong cash position and solid balance sheet.” Challenges, of course, would still present themselves. Drought, high input costs, HPAI cases, war in Ukraine and such are always lurking. “But U.S. agriculture is resilient and innovative,” he said, “and these challenges only highlight the need for continued productivity growth to maintain the abundant and affordable food supply we so easily take for granted.” Rabobank’s current “North American Agricultural Review,” published in June 2023, underscored Dr. Meyer’s earlier positive expectations.
Dennis McLaughlin, McLaughlin Writers LLC – Sources: USDA 99th Agricultural Outlook Forum, February 23-24, 2023; Rabobank Research, North American Agriculture Review, June 2023.

U.S. Agriculture’s Meat Midterm Report Card

Rabobank’s recent release of its annual North American Agribusiness Review 2023 shows the U.S. meat producers are having a pretty good year. Its economic fundamentals are positive, and its performance so far this year warrants honor roll status. However, there are some dark clouds gathering – but not the kind that might bring rain. Rabo expects the Federal Reserve to tighten monetary supply to slow the economy and reduce inflation. That could make it difficult for the Fed to stick a soft landing. “So we think a mild recession is likely to start in the second half of the year,” says Rabo. The Fed will have to keep rates high until inflation is under control which, the report notes, is not likely to occur before 2024.

Beef

Retail beef and cattle prices climbed to new heights as supplies tightened and demand remained strong. USDA all-fresh beef retail price in May was $7.50 a pound, a new annual high and the third-highest price on record. If there is a negative in this scenario, it’s that consumers have seen rising prices in the grocery store and at restaurants because supply is tight and demand has been robust.

Wholesale beef and cattle prices also climbed sharply. USDA’s daily composite boxed beef cutout topped out at $330/cwt, the highest pricing since pandemic-influenced increases in 2020 and 2021. Fed cattle prices reached upwards of $190/cwt on a U.S. average basis.

Easing drought conditions in many cattle producing states over the last several months have been a blessing. Pasture conditions have improved 12% since the start of the grazing season, according to USDA reports. “Heifer retention should be a viable option for cow-calf producers this fall,” says Rabobank, adding that May and June beef cow slaughter implies an average culling rate near 11.7%, which is close to 2021 levels.” Even with lower U.S. production and demand —both down 5% through April—the report said wholesale beef demand remains the second largest of the last 30 years.

But consumers have begun to balk at higher beef prices. In early July, Kansas State University’s Meat Demand Monitor, said American consumers have lowered their willingness to pay more for ribeye steaks, ground beef, pork chops and bacon in June compared to May. However, even with somewhat lower U.S. production and demand, wholesale beef demand has been at its highest in the last 30 years.

Pork

Lower weekly hog slaughter and lighter weights reduced production this spring, helping to stabilize prices. While producers continue to struggle during what is traditionally a season of stronger margins, a rebound in prices and a gradual decline in feed costs have improved the near-term outlook. “While current sow slaughter remains low,” says Rabobank, “we expect contraction in the sow herd to begin in the second half of this year.” Based on its current data, Rabobank expects at least a 7% decline in the U.S. sow herd over the next 12 to 18 months will be needed to restore herd profitability.

Prices remain weak as the grilling season is underway. The pork cutout is 20% below last year’s. “A lack of market promotion in the retail marketplace,” Rabobank explains, and high pork prices slowed consumption this spring.” Still, pork remains a good value for retailers, and with the implementation of California’s Proposition 12 pushed back until 2024, Rabobank forecasts vigorous sales this summer.

Dairy

U.S. milk production so far this year has outpaced last year’s, but gains are narrowing as 2023 progresses. “Importantly,” Rabobank points out, “milk output remains lower versus two years ago, with 2023’s gains unable to overcome declines recorded during the first half of 2022.” Herd growth was larger than expected in the first quarter of this year, expanding by 50,000 cows. In April that trend lost steam declining by 16,000 head. Rabobank expects further contraction in the near term as margins pressure farmers to cull unprofitable cows. Rabobank pegs milk production in 2023 to be 0.7% higher than 2022.

As for cheese production, volume was up 1% in this year’s first quarter over last year. “There was plenty of milk and processing capacity available for cheddar vats,” said the report’s authors, “pushing monthly output over 5.8%.” Butter has been a big performer with production increasing 7.6% this spring.

Poultry

Chicken prices are down sharply from last year’s record levels. Boneless breast meat prices continue to trail the record prices of a year ago, down 61% year-over-year. Breast prices are also 18% behind the five year average, as increased supply continues to overwhelm retail and foodservice markets. Dark meat prices are also lower, with thigh prices down 28% YOY. Consumers are beginning to trade to less expensive retail alternatives, which is helping stabilize wholesale prices. “Tighter second half 2023 supplies of beef and a gradual decline in chicken production should help stabilize chicken prices by late summer,” says Rabobank.

At 17.6 billion pounds through early June and 1.5% ahead of YOY levels, ready-to-cook (RTC) chicken production continues to run ahead of expectations. The growth reflects both an increase in slaughter volumes (+1.2% YOY) and a more modest increase in average weights. “We still expect some moderation in slaughter volumes in 2H 2023 based on the decline in the supply flock in recent months and ongoing productivity challenges, which limit further increases.” Rabobank currently forecasts a 1.8% YOY increase in RTC production in 2023, with planned reductions expected to boost average chicken prices.

Crops

In its recent report, The Mighty U.S. Crop Markets Through 2030, Rabobank said domestic use of corn, wheat and soybeans will rise this year but exports will slump. That trend could persist for several years. “In 2023-24, corn will continue to be king when it comes to area planted,” Rabo researchers said, adding “though we expect soybeans to steal the throne in the coming years to meet future soybean oil demand for renewable diesel.” A main factor likely to structurally change the soy sector going forward from 2024 is new U.S. soybean crushing capacity to meet soybean oil demand for renewable diesel.”

Soybean crush capacity has been expanding since 2021, Food Business News reported, but most of the expansion will take place from 2023 through 2027 with the addition of 620 million bus by the 2026-27 crop year. “That would be nearly a 30% increase from the USDA’s forecast soybean crush of 2,220,000 bushels in 2022-23,” wrote Sosland’s Ron Sterk.

“The US share of global export markets will likely decrease due to growing domestic demand, especially for soybeans,” RaboResearch said. Stocks for all three commodities were forecast to “marginally recover” from current low levels but remain low compared to historical levels.

“While domestic demand has been solid, export markets have been more challenging for U.S. crops,” RaboResearch said. “This is the result of ever-increasing crops in South America, large Russian wheat production and high US prices compared to export competitors. We expect global market uncertainty to be a constant against relatively stable and potentially increasing domestic demand.”

Further updates will be presented at the Ag Outlook Forum 2023 hosted by the Agricultural Business Council of Kansas City and Agri-Pulse Communications, September 25, 2023. More information and registration available at www.agoutlookforum.com.