Saskatoon - Higher meat prices may be in store for consumers next year as hard-hit North American farmers thin herds of cattle and pigs, but the scale of downsizing may hinge on whether recession-weary consumers are willing to pay more.
High feed costs and slumping pork exports due to H1N1 flu fears are dogging North American livestock producers, with Canadian farmers reeling additionally from narrowed U.S. access for live animals because of country of origin labelling and severe drought.
"Consumers are going to pay more for meat - they have to," said Steve Meyer president of Iowa-based Paragon Economics, who sees herd downsizing lifting meat prices in late 2010.
"There are going to be record-high prices in the U.S. for all species by then. Everyone has to cover these higher costs."
Canada's hog herd was down 8.58% by the first quarter of 2009 compared with a year ago, with a total of 11.9 million pigs, British analyst Kona Haque of Macquarie Bank Limited in London wrote recently, citing Statscan and Macquarie figures. The size of the U.S. pig herd has not noticeably diminished, but Haque notes the U.S. weekly slaughter rate picked up in late June.
"Although a sow herd liquidation in the U.S. would inflate already burdensome pork supplies in the near-term, this would be a necessary step towards a future price rebound," Haque wrote.
The U.S. cattle herd is also declining, with calf numbers falling to a 57-year low of 14.93 million head in January, Haque said. Canada's beef herd declined 13% to 13.1 million head in the 18-month period leading up to Jan. 1.
The variable in the equation is how consumer demand plays out during a recession. If consumers don't have money to pay more, they'll continue the recent shift to cheaper beef cuts, pork and chicken, said Haque.
If they buy less meat altogether or if H1N1 flu continues to strangle pork export demand, North American farmers face culling their herds more deeply, Meyer said.
"Demand is the No. 1 risk factor we face."
Chicago Mercantile Exchange August lean hog futures were trading at about 62 cents per pound on Tuesday. CME August live cattle were priced just under 84 cents per pound. Those prices are down sharply from record or near-record prices a year ago of more than US$1 per pound for cattle and 76-77 cents per pound in near months for lean hogs.
Higher meat prices next year should coincide with an improving U.S. economy, predicts Jim Robb, director of the Colorado-based Livestock Marketing Information Center.
"We'll have tighter supplies and hopefully improving demand due to improving economic conditions and that will set the stage for higher prices," he said. "...There's no way there won't be higher meat prices."
But some say a lingering recession will ward off higher prices.
"I see it fairly steady for the next year or so on prices just because demand's down and supply's down and those two offset each other," said Harlan Hughes, professor emeritus at North Dakota State University. He sees a gradual reduction ahead for the U.S. cattle herd as far as 2015.
The move to smaller herds and higher prices would echo from the farm gate down the supply chain.
With fewer animals to feed, farmers' demand for corn and soy meal will shrink next year, Haque wrote.
Diversified farmers who grow their own feed may stand to gain the most from higher prices, Meyer said.
Herd liquidation will force packers like Smithfield Foods and Maple Leaf Foods to aggressively compete for animals to maintain volumes, but higher meat prices will eventually help, Robb said.
Feed companies like Land O'Lakes Inc, ADM Alliance Nutrition, a subsidiary of Archer Daniels Midland Company, and Ridley Inc stand to lose the most from smaller herds because their volumes would shrink accordingly, Meyer said.
Restaurants and grocers have a bigger concern than higher meat costs - weak consumer demand for pricey products, Robb said.
The cycle of demand, herd size and price is familiar in the livestock industry, but farmers have suffered years of setbacks, causing some to predict smaller herds for the foreseeable future.
"If the predicted herd liquidations take place, it will take a long period of increased profitability before livestock producers would begin to rebuild herds," Haque wrote.
