Prices for whole broilers and parts at the wholesale level generally increased during January-March 2012 compared with year earlier, but prices for boneless/skinless breast meat improved the least, according to the Livestock, Dairy, and Poultry Outlook report issued this week by USDA’s Economic Research Service (ERS).  In first-quarter 2012, the 12-city wholesale price for whole broilers averaged 87.2 cents per pound, up 12 percent from the previous year. Although higher than the previous year, prices for whole birds have declined seasonally in the last two weeks, ERS noted. Wholesale prices in the Northeast region in March 2012 were higher for all broiler product categories compared with the previous year. Prices for leg quarters averaged $0.53 per pound in March, 26 percent higher. The price for boneless/skinless breast was $1.33 per pound, up 1 percent, and the price for boneless/skinless thighs, also $1.33 per pound, was up 15 percent over March 2011. However, the largest change was for wing prices. Wing prices rose to $1.83 per pound in January 2012, but instead of following their usual steep seasonal decline, they had declined only 2 cents per pound by March. At $1.81 per pound, the March 2012 wing prices were 118 percent higher than the previous year.

Prices for broiler products are expected to remain steady or to strengthen somewhat over the next several months. Three factors are expected to influence the price situation, ERS explained. First, companies continue to have lower chick placements for growout. Second, prices for beef and pork are expected to remain strong. And third, U.S. economic conditions appear to be gradually improving.

USDA’s weekly estimates of broiler eggs in incubators and chick placements continue to point toward lower broiler meat production.  Over the last five weeks (March 10 to April 7), the number of eggs placed in incubators averaged 198 million, 5 percent lower than during the same period the previous year. During the same five-week period, the number of chicks placed for growout averaged 4 percent lower than in the previous year.

Looking at the beef situation, ERS reported that Southern and Southwestern cattlemen are restocking with stockers rather than cows.  With this action, cattlemen are effectively delaying the rebuilding of national cow inventories compared with the timing originally anticipated. The heavy rate of cow slaughter observed during the first quarter of 2012 will also affect the calf crop in 2012, likely to be down slightly as a result, and could also adversely affect the January 1, 2013, total cow inventory, which—combined with the relatively low increase in heifers expected to calve in 2012—could also be down slightly from the already low inventories. Further, a smaller calf crop in 2012 would likely result in fewer feeder cattle available for placement on feed in 2013 and potentially lower beef production in 2013 and early 2014. This situation will be exacerbated to the extent that producers keep heifers from the 2012 calf crop for herd replacements or herd rebuilding, ERS added.

ERS commented on the current negative consumer responses to lean finely-textured beef (LFTB).  According to industry and analysts’ estimates, LFTB contributed 3 to 6 percent of total lean beef supplies.  Users of LFTB will likely need to find alternative lean beef sources or other substitutes to replace it in final products.  Increased slaughter of cows, a primary source of lean beef, could cause a delay in rebuilding the cattle herd and, thus, any increase in beef supplies could be longer than the two to three year time horizon, now expected.

ERS noted that current retail prices for beef and beef products have met with consumer resistance. While high in relative terms, retail prices are not providing margins down the chain that support the cattle feeding and packer sectors. With packers caught in an intense squeeze between the cost of fed cattle and wholesale cutout values, either cutout values will have to increase—pressuring retailer margins or resulting in higher retail beef prices, and counter to recent price movements—or fed cattle prices will have to remain relatively weak compared with the past quarter. Lower fed cattle prices will continue to squeeze cattle feeders’ profit margins, ERS explained.

With respect to the pork outlook, USDA is now forecasting a 2.1 percent increase in commercial pork production for the second half of 2012. Part of the  change in analysts’ outlook for expected production is based on their on assumptions of the higher second-half dressed weights as forecast lower feed costs will likely result in heavier average carcass weights. Total commercial pork production for 2012 is expected to be 23.3 billion pounds, an increase of 2.2 percent above 2011.  For 2012, hog prices are expected to average $62-$65 per hundredweight, 3.3 percent below 2011.