U.S. meat producers may pare back output

Reuters / Despite nearly record-high feed prices, U.S. meat production has continued to trend higher in recent months, and the latest monthly statistics show that beef, pork and chicken output all remain above the five-year average.

Brisk meat exports combined with strong domestic wholesale and retail prices have encouraged these high production levels, but a seasonal downturn in exports may lead to a glut of domestic inventories towards year-end unless meat manufacturers dial down their current output pace.

So far, 2012 has been one of the toughest years on record for animal feeders as the price of key feed ingredients such as corn, soymeal and distillers grains have sharply outperformed cattle and hog prices.

Hog and feeder cattle prices have actually traded in negative territory in recent months as high input costs and anemic meat demand stamp out profit potential.

Even so, meat makers have been able to pass on some portion of their higher costs on to consumers, as retail and wholesale meat prices pushed toward record heights in 2012. This rising retail price environment in turn encouraged meat producers to maintain their output levels even in the face of soaring input costs in 2012.

Exports on the rise

One of the bright spots for the U.S. meat production industry over the last few years has been the steady climb in overseas consumption of American meat products. Indeed, U.S. meat shipments hit a record in 2011 and look to be on course to better that total for 2012.

Demand growth appears to be widespread across beef, pork and chicken, although the prominence of Asian nations is clear in the beef and pork markets in particular.

Nonetheless, there is a clear tendency for meat shipments to taper off towards the end of the year, especially in beef and chicken. Any pronounced dip in overseas demand could quickly result in a build in domestic supplies, which in turn could weigh on domestic meat prices and thus undermine one of the few supportive factors working for the U.S. meat manufacturers at the present time.

So while the recent brisk pace of meat exports may give the impression of sustained robust off-take of American meat products — even in the face of historically high prices — U.S. meat producers should be wary. Now may be a better time for proactive cutbacks in production.

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