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Domestic Demand Still Driving Force in Livestock Markets

What's going on the domestic demand is the major deciding factor in how profitable U.S. livestock and dairy producers will be in 2006, says Scott Brown, economist from the University of Missouri's Food and Agricultural Policy Research Institute.   

Brown shared his views at the American Farm Bureau Federation annual convention Sunday in Nashville, Tenn.

The livestock industry is coming off of record prices with things in 2005 overall looking very good, Brown says. But with 90% of U.S. production consumed domestically, those levels will need to keep up to maintain the past years' high prices. In 2004, prices resulted from phenomenal demand. That demand was down slightly in 2005, and Brown expects domestic demand to stabilize a little in 2006.

In cattle, other factors in play include the reopening of the Japanese market and growing cattle inventories. Brown forecasts only a short billion pounds of beef to Japan for 2006, only 35% of total pre-BSE levels. Mexico is close to pre-BSE levels currently.

Cattle inventories are expected to grow in 2006 to over 97 million head. Additional supplies of domestic beef from a growing cow herd will work to pressure prices as the industry continues to move through the expansion phase of the cattle cycle.  

Brown says feeder cattle prices are forecast lower ($115) and fed cattle at $83.50. "Prices have been at record highs and encouraged additional supplies," he says. "Expect a downward slide on costs unless exports are much higher than I think we'll see."

Increased exports carried U.S. pork prices the last two years. This year Brown expects weaker domestic demand and lower exports as Asian markets reopen to U.S. beef. Expansion in the industry remains stable, although production increases per sow reached 150 extra pounds/year/sow in 2005. Exports are forecast at only 100 million pound increase in exports for 2006.  

Brown estimates pork prices in the $43-$44 range.

Milk income production is expected to expand by another 4.5 billion pounds in 2006 after increasing by 6 billion pounds in 2005. The additional supplies of milk will result in lower milk prices in 2006. 

World prices for nonfat dry milk are expected to remain at levels that allow for U.S. commercial exports of NDM and will keep prices $0.15 to $0.20 above the Commodity Credit Corporation price support level.

The extension of the Milk Income Loss Contract Program brings an additional $1 billion into dairy income. Milk prices are expected to decline by nearly $2 per hundredweight in 2006 with the additional supplies of milk. Milk prices will likely continue the volatility they have shown the last several years.