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Thursday April 26, 2018

Is the market ready for another bird flu outbreak?

In early March, USDA confirmed a highly pathogenic form of bird flu in a breeding flock of 73,500 Tennessee broiler chickens. Alerted after hundreds of birds died suddenly, the agency identified the cause as a strain of the flu virus that came from wild birds, unrelated to the virus that caused the 2015 U.S. outbreak, but deadly and contagious nonetheless. Officials destroyed the entire flock to keep the virus from spreading, as well as worked with workers to ensure they didn't carry the disease to other farms.

Although the avian fluenza response plan worked as designed, this latest outbreak may have marketers wondering: Are we at risk of facing turkey, chicken or egg shortages should another widespread outbreak occur similar to the last one, in 2015? USDA called that 2015 outbreak the largest animal health emergency in U.S. history, costing farmers nearly 50 million birds and a conservatively estimated total economic impact of more than $3.3 billion before ending in June of that year. Retail turkey prices weren't noticeably affected, but egg prices soared in response.

Where do poultry markets stand going into this upcoming flu-risk season?

Chicken. Broiler meat production in January was 2 percent above last year at this time, at 3.5 billion pounds, owing mostly to an increase in the number of birds slaughtered, USDA reports. December production was 3.3 billion pounds, 4 percent above December 2015 on a per day basis. Preliminary data suggested that February production was also higher than a year earlier on a per-day basis; however, bird weights may have been lower, masking a larger number of birds in the supply than implied by the slaughter data. Growers appear to be continuing a trend toward sending birds to processing at lighter weights, in order to alleviate some reported quality problems. These recent developments, as well as the recent resumption of growth in average weights, contributed to increased expectations for first-quarter production. The forecast was raised 50 million pounds above the previous first-quarter forecast.

Meanwhile, stocks of broiler meat in cold storage as of Dec. 31 were 783 million pounds, 6 percent below a year earlier, but 3 percent above November, largely due to a higher breast meat total. Year-ending stocks for 2017 were increased 30 million pounds.

The March 5 announcement confirming avian flu led some countries to restrict imports of poultry from this country, although most of these countries had limited their restrictions to poultry and products from Tennessee or from within a more limited area in the vicinity of the finding. Although those restrictions would in theory save some supply for domestic use, only a small proportion of U.S. broiler meat would be affected by these restrictions, USDA says.

Eggs. In late February, USDA revised egg production estimates upward for the last two years, bringing the size of the U.S. table-egg layer flock as of Jan. 1 higher by about 4 million birds from the previous estimate, to 314 million birds, a record level for that date. This led 2017 production forecasts for both table and hatching eggs to be increased substantially from the February forecasts, totaling 2.82 billion eggs more in aggregate for the year.

In fact, December data for the average number of table-egg layers in the national flock was the highest since the series began in 1984. This contributed to higher-than-expected production for the fourth quarter, at 22.8 billion. In addition, the nation's flock appears to getting more productive, now laying 80.6 eggs per 100 hens, an all-time record.

As with chicken meat exports, the appearance of flu in Tennessee will likely lower U.S. egg and egg product exports, but exports in 2017 are now forecast to reach 305 million dozen, a 9-percent increase above 2016.

Turkey. Turkey farmers appear to be making up for losses incurred during the last flu outbreak. USDA reports production grew 5 percent in January 2017 compared with a year earlier, as the industry continued to build on the gains made in 2016. Recent growth is largely due to increased young turkey placements from turkey hatcheries, which have averaged 6 percent higher over the last 6 months compared with the same period a year earlier. The forecast for production in the first half of 2017 was raised 15 million pounds to account for the placement expansion. Total production in 2016 reached 6.0 billion pounds, an increase of 6 percent over 2015 and 4 percent greater than 2014. Year-ending stocks reached 279 million pounds to close out 2016, the highest since 2012. As a result, 2017 ending stocks were increased to 300 million pounds.

Where are beef prices heading?

Just five years ago, the American beef cow herd was at its lowest size in half a century. Battered by withering years-long drought, ranchers had sold cattle off in order to weather the lack of feed and grazing, resulting in a herd size at 1950 levels.

In testament to the old adage about coming down and going up, today USDA reports cattle farmers are on a steam-up that's nearly unprecedented in pace. The total expansion that's taken place since 2014 is the largest breeding-herd size increase the country's experienced since 1970. The number of cattle and calves USDA counted on Jan. 1 is 2 percent higher than a year ago, and the number of breeding cows, those available to produce more calves, is 3.5 percent higher. Total beef-cow numbers are now at their largest point since 2010, and the number for the Central Plains region which includes Nebraska are up 22 percent vs. 2016.

Naturally, that surplus of female cattle ready to have calves portends a higher supply. USDA estimates last year's total calf crop will be up 3 percent over the year and up 4.5 percent over the year before that. And because those beef cows take two years to produce an offspring that salable as a beef animal, that increase in breeding animals is calling for expectations for incease in beef supply well into 2018 and even 2019.

Does all the promised supply increase mean we are looking at a coming beef price crash? Live cattle prices continue to be pushed downward by higher inventories and resulting larger meat supplies. Beef has followed all livestock, poultry and milk prices that have retreated in response to larger supplies. Since prices peaked in 2014, U.S. beef, pork and chicken production have all increased quicker than the number of consumers to buy it. Combined with the effects of a strong dollar on export sales, the result has been a sharp reduction in prices. Projected prices for 2017 are 28 percent below the 2014 level for fed cattle. However, projections by University of Missouri expect the price decline to be stable, albeit falling, and not turn into a wholesale crash. Retail prices, in particular, should stabilize. Retail meat prices have been declining, Missouri reports, though not as rapidly as wholesale and farm meat and animal prices. Retail prices tend to exhibit less volatility than other segments of the marketing chain. When meat supplies are large, farmers tend to take a smaller percentage of consumer dollars spent for meat.

USDA's latest projections call for wholesale beef cutout values were already being driven upward toward the end of the first quarter by the annually anticipated tendency for both Choice and Select beef cutouts to gain momentum heading into the spring grilling season. At this time, the market transitions from lower-valued end cuts to more expensive middle-meat cuts. Select cutout values were gaining as a result during March; however, wholesale boxed beef cutout values began showing signs of weakness in late-March.

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