Source: Tom Johnston, MEATINGPLACE, 4/6/17

Agricultural economist John Nalivka gave an hour-long talk on the red meat markets that covered every imaginable dynamic, but he admitted that he thought of devoting his discussion solely to trade.

Speaking here Wednesday to attendees at the North American Meat Institute’s Meat Industry Summit, Nalivka emphasized that exports are going to be crucial as the U.S. beef and pork industries continue to expand production in an era in which, unlike drought-ridden 2014, the industry is dealing with demand risk rather than supply risk.

“The only way the industry is going to remain profitable and have any support on the price side is going to be exports,” said Nalivka, principal of Vale, Ore.-based Sterling Marketing Inc.

Favorable market conditions, including plenty of rain to produce ample feed and, particularly on the pork side, expansion in slaughter capacity, is driving producers to continue to increase supplies. Total per-capita supplies of red meat (and poultry) are going up, to 218 pounds in 2017, an 8 percent increase over 2014 (202 pounds), and to 223 pounds in 2018, an 11 percent increase over 2014, Nalivka said.

Profit margins in beef and pork, while well down from record levels in recent years, are still in the black.

Bilateral agreements, particularly with Asian countries whose populations and incomes are growing, will be integral in ensuring continued profitability because domestic demand simply isn’t strong enough to consume the excess supply, Nalivka said.
The underlying key to the success of exports is currency. From June 2014 until late 2016, for example, the U.S. dollar strengthened by 28 percent, he said.

However, Nalivka said these high supplies have lowered prices so much that the significant increase in the U.S. dollar has not been a hindrance to exports.

Producers can help the effort to meet demand, meanwhile, by continuing to produce quality product. Beef meeting choice grade, for example, has run consistently at 80 percent or more of total production.

"That's a huge goal that the industry has to work toward, is to maintain quality," Nalivka said.

For more stories, go to www.meatingplace.com.