Lower numbers of broiler chicks placed for growout combined with expected reduced average live weights for market-ready broilers will result in “relatively sharp year-over-year declines” in broiler production during the first three quarters of this year, according to the “Livestock, Dairy, and Poultry Outlook” report this week from USDA’s Economic Research Service (ERS).  By the fourth quarter of 2012, however, broiler production should rebound.

The outlook for lighter broiler weights this year was apparently prompted by the situation in the fourth quarter last year.  That is, the average liveweight per bird at slaughter in fourth-quarter 2011 was 5.83 pounds, down 0.7 percent from the quarter a year earlier.  The fourth quarter in 2011 was the only quarter in 2011 where the average weight was less than the previous year.

On the demand side, ERS said that the market is expected to be influenced by any improvement in the domestic economy, including better unemployment rates.  But, at the same time, any expansion of broiler production will continue to be influenced by the outlook for feed costs.  Declining cold storage broiler stocks has been reflected in increases in wholesale broiler prices, ERS analysts said.

In January 2012, prices for boneless-skinless breast meat in the Northeast market averaged $1.30 per pound, up 16 percent from the previous year and 4 cents per pound higher than the previous month. During 2011, prices for boneless-skinless breast meat had been lower than the previous year in 10 of the 12 months. Leg quarter prices in the Northeast market were also higher, averaging 53 cents per pound in January 2012 compared with only 35 cents per pound the previous year. Leg quarter prices were higher than the previous year for all but one month in 2011, partly as a result of a strong export market.

Broiler meat exports in 2012 are forecast to be slightly higher than the large shipments in 2011, ERS predicted. If exports remain strong, there will be upward pressure on leg quarter prices, considering lower beginning stocks and expected production declines. Overall prices for broiler meat products are expected to continue to gradually move higher in 2012 because of the influence of high prices for competing meats and lower levels of broiler production, ERS reported.

ERS said “mixed signals cloud” the beef outlook.  Increased replacement-heifer inventories may not be sufficient for cow herd expansion in the face of the large numbers of cows being slaughtered.  Also, La Niña weather patterns remain in place and could adversely affect any expansion plans. Continued negative profit margins for cattle feeders and meat packers, along with consumer resistance to higher retail prices, would also put an upper boundary on expansionary enthusiasm. Positive factors are record feeder cattle prices, growth in natural and organic beef sales, and increasing beef exports, ERS said.

If La Niña continues to exert weather patterns similar to those that have existed so far into 2012, placements of feeder cattle in feedlots could continue to be motivated by lack of forage outside feedlots. Further, given the short supplies of feeder cattle outside feedlots, feedlot owners are likely to continue to encourage placements of any cattle in order to lower their costs.  These feeders are also motivated to place relatively high proportions of lighter and younger feeder cattle in anticipation of positive profit margins in future months.

Looking at the consumer beef market, ERS explained that retail beef prices are at record levels.  Prices, however, are not sufficient to provide the long-term margins and profits the wholesale and cattle feeding sectors must have in order to sustain an expansion. There are signs that consumers are beginning to resist the escalating retail prices. It is not clear how much higher beef retail prices can go with pork and poultry so much less expensive. Both cattle feeders and packers have absorbed negative margins for most of 2011 and thus far into 2012.

In a related beef market matter, ERS said that small custom-slaughter facilities appear to be struggling to keep up with more local cattle slaughter and processing of “natural” beef and organic beef.  At least some, if not most, of this beef is sold at farmers’ markets–a rapidly growing segment of the beef industry. Despite the economic challenges consumers have faced during the past couple of years, this growth has continued, ERS said.

The retail share of natural and organic all-fresh-beef sales has increased from 1.1 percent in 2003 to 4.2 percent in the first quarter of 2011, according to ERS.  Part of the increase in the share of retail sales is due to price increases over the same period, ERS explained.  However, ERS data indicate that the 31-percent increase in all fresh retail prices for the same period, from $3.31 per pound for all of 2003 to $4.35 for first-quarter 2011, accounts for only a small portion of the nearly fourfold increase in growth of retail sales of natural and organic beef.