The impact of the U.S. drought on exports of corn and soybeans has been widely discussed, but less attention has been given to exports of red meat, poultry and dairy products. USDA projects livestock, poultry and dairy exports at $29.6 billion for fiscal year 2012, only exceeded by coarse grains and feeds at $34.6 billion and higher than horticultural products at $28.5 billion and oilseeds and products at $26.4 billion. Exports are an integral part of the markets for U.S. red meat, poultry and dairy products and will continue to be despite the drought.
According to USDA data, young chicken meat is the U.S. export volume leader among meats for calendar year 2012 with 3.2 million metric tons (MMT), 19.0 percent of the U.S. young chicken meat supply. Pork is the number two meat at 2.4 MMT, 21.9 percent of total pork supply, followed by beef at 1.1 MMT, 8.6 percent of total beef supply. Turkey meat exports are estimated at 0.3 MMT, 12.1 percent of total turkey meat supply. Milk product exports on a skim-solids basis are estimated to be 15.2 MMT, 15.4 percent of the milk supply.
Corn and soybean meal are at the heart U.S. feed supplies. According to USDA estimates, in 2011 feed accounted for 61 percent of the operating costs for raising hogs. Cattle are on grass for 8-18 months before they move to feedlots for a corn-based diet. Not counting the cost of the cattle, the recent cost of corn and DDGS accounted for about 70 percent of the costs of feeding cattle. Dairy cows utilize roughage in addition to corn and soybean meal and roughage has also increased in price. In 2011, USDA estimated feed was 80 percent of the variable costs of milk.
The August USDA World Agricultural Supply Demand Estimates (WASDE) made clear the tight supply of feed will not change quickly. The average farm price of corn for the marketing year ending on August 31 was estimated at $6.25 per bushel and the projected farm price for the new year is $7.50-8.90 per bushel. For soybean meal, the 2011/12 average price was $390 per ton and is projected at $460-490 per ton for 2012/13. Short crops are known to have ‘long price tails’ meaning price go very high early in the season and decline slowly after demand has adjusted to meet supply. Carryover supplies in August 2013 will be minimal and markets will be on edge until supplies are assured in the fall of 2013.
USDA projects young chicken meat exports down about 2 percent in calendar year 2013 compared to 2012 as total U.S. supply declines by a similar amount. Pork exports are expected to be down less than 1 percent, while total supply shrinks 3 percent. Beef exports are projected for 2013 to be down almost 4 percent while total supplies will be up slightly. Turkey meat exports are projected to be down 5 percent, while total supplies will be down 2 percent. Milk product exports on a skim-solids basis will be down 3 percent and total supplies down 1 percent.
The August WASDE report showed feed and residual use for the 2012/13 corn marketing year beginning September 1 at 4.075 billion bushels, down 10 percent from 2011/12 use of 4.550 billion bushels, and down 15 percent from 4.793 billion bushels in 2010/11. There is an obvious inconsistency with corn used for feed down 10 percent in a marketing year when meat and milk production will be down far less. Feed use is not directly measured by USDA and is the result of subtracting estimates of other uses from estimates of carryover supplies and production. Feed and residual increases more than expected in good crop years and declines more in short years. The ‘residual’ in feed and residual use will be near zero for 2012/13.
Market forces are already making more feed available to the U.S. market. The WASDE shows corn imports to be 50 million bushel higher for 2012/13. Industry reports indicate that ships have already been chartered to bring far more corn than that to the U.S. Wheat fed to livestock has been increased to 220 million bushels for 2012/13. If the U.S. winter wheat crop gets off to a good start this fall, the price of wheat in the U.S. could fall compared to the price of corn and pull more old crop wheat, including more imports, and new crop wheat into livestock feed.
In normal times U.S. product prices are competitive with much of the high quality red meat, poultry and dairy products in the world. According to the Foreign Agricultural Service of USDA estimates, for this calendar year among major exporters the U.S. has a 34 percent market share in pork, young chicken meat and turkey and 14 percent in beef and veal. The share in high quality beef is much higher. The U.S. milk products export share is 16.4 percent for 2012.
The drought in the U.S. has impacted feed prices around the world and taken some of the cost pressure off the U.S. meat export suppliers. Industry reports indicate that small hog producers in China are already reducing production because of high prices of imported corn and soybean meal. That is not a reason to be complacent. Countries like Brazil, Argentina and Australia are sourcing local feeds at lower costs than the U.S. and will compete aggressively to gain market shares.
The U.S. export companies had a good first half of 2012. Young chicken meat exports were up 13 percent in volume to 1.8 MMT, while turkey volume was up 11 percent to 166,000 metric tons. Pork exports were up 5 percent in volume to 1.13 MMT, but beef export volume was down 11 percent to 550,000 metric tons. Export values were up across all products.
Additional market access could create new opportunities despite higher feed costs. Beef markets should expand in Taiwan with adoption of international standard for the presence of ractopamine. Talks continue with Japan on its limit on beef to animals 20 months old and younger. With Russia now part of the WTO, markets should be more consistent.
U.S. exporters will be challenged over the next 15 months as higher feed prices increase product costs and limit supplies. Steady markets with a strong U.S. presence in those markets should help U.S. exporters to retain their positions. U.S. product supplies in those markets are as important to consumers in those markets as to the U.S. companies that supply them.
Ross Korves is an Economic Policy Analyst with Truth About Trade and Technology