Source: Rita Jane Gabbett, MEATINGPLACE, 9/28/16

With cattle and hog production continuing to rise, the future of U.S. pork and beef prices rests heavily in the hands of export markets, John Nalivka, president of Sterling Marketing told participants at the North American Meat Institute Annual Meeting and Outlook Conference here.

“From the processors’ standpoint, demand has got to grow,” he said. “On the supply side, suddenly, we’ve got a lot of meat and a lot of grain to support that.”

Beef
The United States is regaining global market share despite the strong dollar, thanks to increased beef production that has lowered U.S. beef prices. While tight supplies and high prices drove exports down by 12 percent in 2015, Nalivka predicted beef exports would rebound by 8 percent in 2016 and gain another 5 percent in 2017.

At the same time, he expects U.S. beef imports to decline by 13 percent this year and drop another 12 percent in 2017, led by a big drop in imports from Australia.

“I believe we will shut down this expansion,” Nalivka said, predicting the U.S. cattle inventory would increase by 2 percent in 2017, remain flat in 2018 then decline by 1.5 percent in 2019.

Commercial cattle slaughter, which declined by 5 percent in 2015, is expected to rise by 5 percent this year and by 4 percent in 2017. While weights have been down, Nalivka said if grain prices remain low, “they will put more weight on those cattle.”

He predicted U.S. commercial beef production, which fell by 2 percent in 2015, would rise by 5 percent this year then by another 5 percent in 2017.

Meanwhile, wholesale beef prices could be down by 17 percent to 18 percent this year and drop by another 15 percent next year, Nalivka projected. Beef packer margins, however, he predicted would remain “fairly respectable.”

“The big factor is whether exports will take off or not,” he said.  

Pork
The pork industry remains heavily dependent on export markets for its financial health. Nalivka predicted modest gains in pork exports of 4 percent in 2016 and 2 percent in 2017.

With exports down to traditional markets like Mexico, Japan and South Korea, increased pork exports to China are largely responsible for the rise. He warned, however, that China’s economy is not growing at a rate that would necessarily allow that market to continue to escalate import rates at a pace that would continue to support U.S. pork prices.

Pork producers continue to expand, with commercial market hog slaughter, which was up 8 percent in 2015, expected to rise another 2 percent in 2016 and another 1 percent in 2017, according to Nalivka, who noted carcass weights are increasing.
Commercial pork production, which rose 7 percent 2015, is expected to rise 2 percent this year and an additional 2 percent 2017.

All these hogs have pushed hog producer margins into the red, but packer margins, while down, are still “not too bad,” according to Nalivka. “Next year will still have a positive margin, but below where we have been this year,” he said.  

With a handful of new pork processing plants in various stages of construction, Nalivka expects pork processing capacity to increase 6 percent in 2017 and by 8 percent by 2018 or 2019, a situation he warned might exacerbate an existing labor shortage problem.

Responding to a question, he said it is also possible the increased competition these new pork plants represent could put a few existing plants out of business. He did not speculate on which plants might be vulnerable.

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