The animal industries finally have a positive multi-year outlook, according to Purdue University agricultural economist Chris Hurt. The favorable income prospects are based on feed prices re-setting to lower levels, continued reductions in drought affected pastures, and strengthening domestic incomes.
Animal industries will be in a “mini-boom phase” in coming years, Hurt expects. The mini-boom will be led by rising per capita consumption, continued small growth in U.S. population, and growing export demand. A determining force of how big the boom will be will depend to what level feed prices re-set.
The three important causes of declining per capita consumption are shifting from negative to positive. Feed prices are much lower, drought continues to abate in the Southern Plains, and the U.S. economy continues a slow but steady process of bringing more families back into the work force. All will help mid-Atlantic producers.
Much of the 20 pound per person reduction in meat consumption will be recovered in coming years. How much depends on the magnitude of the changes in the drivers. As an example, 219 pounds of meat consumption per person was based on a period when corn prices averaged about $2 a bushel and soybean meal $200 a ton. As feed prices re-set in the coming era, few believe feed prices will drop back to those low levels. Given current expectations for future feed prices, a recovery of 10 to 12 pounds of the lost 20 seems like a reasonable estimate. This means a recovery from 199 pounds to near 210 pounds.
Hurt says high grain prices from 2006-2012 led livestock farmers to downsize herds to cover the extra feed expenses. The price of livestock products increased, fewer meat products were available on the market, and consumers began to eat less meat. So this year, prices are at record highs for cattle, hogs, poultry, milk and eggs. With record-high animal prices and now much lower feed prices, profit margins for the animal industries have risen to strongly favorable levels, Hurt says. Profit prospects have these industries ready to expand.
“If the years from 2007 to 2013 could be described as the ‘Grain Era,’ in which crop sector incomes had an extraordinary run, the coming period may be described as the ‘Animal Era,’ when producers of animal products have strong returns,” Hurt says.
Rising per-capita consumption of meat will also be a driver in this mini-boom phase, since animal products will become more affordable, Hurt said. As an example, the amount of meat available each year reached about 220 pounds per-capita when corn was $2 a bushel. By this year, only 200 pounds is available. “We can expect that a portion of this lost consumption will be recovered in the next three to five years as producers increase supplies and drive down retail prices of animal products for consumers,” Hurt says. This positive period for animal agriculture will also be economically good for rural communities and businesses that carry animal management supplies. “The animal industries finally have a positive multiyear outlook,” Hurt concludes.