University of Missouri Extension Economist Ron Plain and David Miller, with the Iowa Farm Bureau, conduct an annual survey of members of the Agricultural and Applied Economics Association (AAEA). Their survey goes to Extension marketing economists who are members of the AAEA’s Extension Section, and the focus is on the supplies and prices of many commodities. The results of the 2010 survey were released at the AAEA annual meeting held last week in Denver.
The average responses of the surveyed economists regarding cattle, hog and chicken output and projected prices appear in Table 1. The column headed “N” indicates the number of respondents for each item.
Pork Supplies Edge Upward
The nine analysts providing pork supply and price forecasts look for pork supplies to begin growing in Q2 of next year and continue the rest of the year near 1% higher than in 2010. Total 2010 pork production is expected to increase 0.9%. This reversal of the production trend is very close to my forecasts, except that I expect slight growth in output in Q1-2011.
Survey respondents also expect 2010 production to end the year 3.3% lower than in 2009, so even with a short 1% growth, 2011 output will remain significantly lower than that of 2009.
The analysts expect hog prices to remain relatively constant with 2010; however, predicting summer prices will average in the $75-76/cwt., carcass, range and the annual average to be $72.73/cwt., just 1.2% lower than the average price for 2010. While not stated in survey responses, the relatively small price decline indicates that analysts, on average, expect hog demand to be strong in 2011.
Cattle Supplies Trimmed
The surveyed analysts believe beef production will continue to be below year-earlier levels all the way through 2011. They expect the largest year-on-year decline in production to come this fall when supplies are expected to be 1.8% lower than in 2009, on average. The largest 2011 quarterly drop is expected to be in Q1 at 1.3% lower than in Q1-2010. Annual declines are expected to be 1.1% for both 2010 and 2011.
Choice slaughter steer prices in the five major feeding areas are expected to average in the $92-95/cwt., live weight, range for the rest of this year, bringing the 2010 average price to $93.01. Lower supplies in 2011 will push fed steer prices slightly higher with both Q2 andQ4 averaging over $96/cwt., live, and the entire year averaging over $95/cwt. The annual price estimates ranged between $93 and $97/cwt. live.
Good News about Chicken
Perhaps the best news in the survey results is that analysts believe chicken prices will hold up well in the face of a new surge in chicken output.
Broiler production has grown from year-ago levels in both Q1 and Q2 of this year, and analysts expect the pace to pickup, up to over 3% in Q3 and Q4. They expect that pace to continue in early 2011, projecting annual growth to amount to 2.8%.
Analysts have 2011 prices pegged to be higher than this year, with 12-city broilers expected to be higher than in 2010 in Q1 and Q2 of next year and equal to this year in Q3 and Q4. The annual price for 2011 is forecast to be $82.90/cwt., compared to this year’s $83.30/cwt., very little change given nearly 3% higher output.
I think the chicken price will be very critical to the performance of pork and hog markets next year. While beef will be quite supportive to the entire meat/poultry complex, pork and chicken are much closer competitors than they once were. Strong chicken prices are very helpful to wholesale pork prices, and this survey says the support should be good next year.
Feed-Cost Projections
Seven analysts also took a shot at corn production and prices for next year. They have the 2010 crop pegged at 13.204 billion bushels, with 2011 ending stocks at 1.338 billion bushels.
The average prediction for the season average U.S. farm price, the price that USDA forecasts in the monthly World Agricultural Supply and Demand Estimate (WASDE) reports, is $3.88/bu. Analysts also forecast nearby contract Chicago Mercantile Exchange (CME) Group corn futures price on Dec. 1, 2010, March 1, 2011 and June 30, 2011 to be $3.96, $4.23 and $4.26/bu., respectively. Those would be for the December, March and June contracts on the given dates, and they indicate we could see prices near $4/bu. for cash corn in some areas.
Eleven respondents predicted, on average, that 2010 soybean production would total 3.351 billion bushels and that year-end stocks in August 2011 would be back up to a relatively healthy 321 million bushels. Analysts also predicted the season average soybean price to be $9.10/bu. and the nearby CME Group soybean meal futures contracts on Dec. 1, March 1 and June 30 to be $277.10, $282.90 and $281.60/ton, respectively.
Economic Indicators
Finally, 12 survey respondents took a shot at predicting year-on-year changes for gross domestic product (GDP) and the consumer price index (CPI) for all items.
They expect this year to end with a GDP 2.1% higher than one year ago and predicted the same rate of annual growth for next year. Research Director for the Kansas City Federal Reserve Bank, Alan Barkema, told another audience at the AAEA meetings that the Federal Reserve Open Market Committee, when surveyed at its last meeting, expects annual GDP growth well over 3% for the next two years.
Eleven AAEA survey respondents expect the CPI for all items to be 1.7% higher than last year in both Q3 and Q4, which will leave the CPI up the same 1.7% for all of 2010. Those respondents expect prices to rise slightly faster next year (+2.1%), with Q4 registering the highest price growth rate (+2.5%).
I think it is fair to characterize the economists at the AAEA meeting as being quite concerned about inflation as the economy recovers – given the amount of money pumped into the money supply the last two years. The critical factor will be how smoothly the Federal Reserve can contract the money supply to control aggregate demand without stifling the recovery.
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Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
e-mail: steve@paragoneconomics.com