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The Agricultural Newsletter
from the Federal Reserve Bank of Chicago
Number 1878

July 1996

AgLetter
MEAT PRODUCTION FORECASTS LOWERED
Recent reports add to the growing evidence that the uptrend
in meat production is slowing, especially for red meats.
The number of hogs shipped to packers this spring fell well
below earlier projections and updated forecasts point to
continued year-over-year declines in pork production during the second half. Alternatively, beef and veal production
this spring proved larger than expected as a variety of factors led to heavy culling of the beef cow herd and steppedup shipments of calves to packing plants. But these
developments, along with a marked slowing in the movement of cattle into feedlots, foreshadow curtailed beef production the rest of this year and into next year.
The changing prospects for meat production are suggested by the pattern of forecast revisions made by the U.S.
Department of Agriculture—and most other analysts—
since March. At that time, the USDA was forecasting that
total meat production during the last three quarters of 1996
would be up 4 percent from the same period the year before.
Since then, the projected gain has been cut to less than 1.5
percent. (The rise for the last half of this year is now
pegged at 1 percent). Pork accounted for most of the revision. The USDA’s latest projection shows pork production
during the final three quarters will be down 4.5 percent
from last year and more than 8.5 percent less than had been
projected in March. In comparison, the projections for beef
and poultry production for the final three quarters have
been cut less than 1 percent. For beef, however, the revisions lumped much more production into the second quarter while scaling back the forecasts for summer and fall.
Several factors have contributed to the revised forecast. Earlier estimates of second-quarter pork production
were tied to a USDA report last December that showed an
increase in the number of pigs born and raised last fall.
But the curtailed shipments of hogs to packing plants this
spring confirmed that the expansion in the SeptemberNovember 1995 pig crop never occurred. Subsequent revisions have cut the estimate of that pig crop by nearly
6 percent and trimmed the estimate of the December 1,
1995 inventory of hogs on farms by 2.5 percent.
Other factors altering the outlook for meat production
are mostly tied to the high prices and limited availabilities

of feeds and forages. The price of corn—the most common
grain fed to livestock and poultry—has trended sharply
upward since hitting a cyclical low of about $1.90 a bushel
in November 1994. The steady uptrend reflected weatherrelated damage to the 1995 harvest, several months of exceptional strength in export sales and shipments, and
evidence of expanding needs for use as feed, fuel, and
sweeteners here at home. Prices accelerated into the $4.50
to $5.00 a bushel range this spring as the strength in exports
and domestic usage threatened to deplete available stocks
in some areas and as weather problems hindered plantings for the new crop. In addition, an extended drought
severely depleted the grazing capacity of pasture and
ranchland in the Southwest. These developments started
altering the flow of livestock and poultry to processing
plants this spring as producers belatedly adjusted their
production and feeding practices to shelter against soaring
feed costs.
In addition to lowering earlier estimates, the USDA’s
most recent Hogs and Pigs report foreshadows lagging pork
production well into next year. It indicates that sow farrowings during the six months ending with May were down
5.5 percent from the year-earlier pace and well below the

Cuts in hog production are especially
large in District states
Iowa
Million Percent
head change2
Pig crop
Dec.-Feb.
Mar.-May

Other
District states1
Million Percent
head change2

United States
Million Percent
head change2

4.64
5.12

´–8.4
–16.6

4.12
4.62

–8.8
–13.6

23.5
25.5

–1.6
–6.0

June 1 inventory
Market hogs
12.0
Breeding
1.3
Total
13.3

–7.7
–13.3
–8.2

9.2
1.3
10.5

–12.0
–13.4
–12.2

51.1
6.9
58.0

–3.4
–4.8
–3.6

Intended sow
farrowings
June-Aug.
Sept.-Nov.
Total

–13.8
–7.0
–10.7

.50
.47
.97

–11.9
–7.5
–9.8

2.87
2.78
5.65

–4.6
–1.2
–3.0

1

.56
.53
1.09

Illinois, Indiana, Michigan, and Wisconsin.
From same date or period a year ago.
Source: U.S. Department of Agriculture
2

Hog prices holding well above year-ago levels
dollars per cwt.
65
1990-94 range
55

1996

45

1995
35

25
Jan.

Mar.

May

July

Sept.

Nov.

Note: July 1996 data are preliminary.
Source: U.S. Department of Agriculture.

12 and 15, respectively. Elsewhere, only three states registered gains. Hog numbers in Kansas were up 7 percent
from a year ago, while those for North Carolina and Oklahoma were up 17 and 46 percent, respectively. The opening of
some very large operations in Oklahoma over the past year
has moved that state’s ranking in hog production up five
notches to 11th place.
The geographical shifts in hog production are also becoming more evident in packing plants. It appears Illinois
will lose its second-place ranking in hog slaughter to North
Carolina. As recently as 1990, the number of hogs processed
at packing plants in Illinois was over three times that for
North Carolina, which ranked tenth at the time. Last year,
the margin for Illinois narrowed to less than 8 percent. And
recently released figures for the month of May show for the
first time that packing plants in North Carolina handled
more hogs than those in Illinois.

levels reported earlier as producers’ farrowing intentions.
However, the reduction in the December-May pig crop
was held to less than 4 percent as the number of pigs
saved per litter ratcheted upward again this year. The
smaller pig crop is reflected in lower inventories. The
number of hogs on farms nationwide as of June 1 was indicated to be 58.0 million head, down 3.6 percent from a
year ago and the lowest for that date in five years. The
decline was slightly smaller for hogs intended for market
and considerably larger (4.8 percent) for the hogs being
held for breeding purposes. In line with the smaller inventory of breeding stock, the latest reading on intended
sow farrowings for the summer quarter points to a 5 percent
cut, both from a year ago and from the initial summer intentions that were reported in March. Farrowing intentions for the fall (September-November) quarter point to a
1 percent decline from the downward-revised year earlier
estimate. These measures of recent and prospective
trends in hog production foreshadow lagging pork production well into next year.

The flow of cattle and calves to market is also being
adjusted, with differing temporal implications for beef production. Cattle producers have been hit hard this year. In
addition to rising cost pressures from limited supplies of
feed and forages, their earnings have been squeezed by the
low cattle prices that have coincided with the cyclical upturn in beef production since 1993. Those who maintain
the beef cow herd and sell calves have been hit the hardest.
This reflects both the steeper decline in prices for calves and
feeder cattle and the tendency of these producers to be located
where grazing conditions are under the most stress from
drought. Because of the stressed earnings, the movement of
both calves and beef cows to packing plants picked up significantly this year. Following a 13 percent rise in 1995, the
year-over-year gain in commercial calf slaughter through
May of this year moved up to 24 percent. In addition, reports
from federally-inspected plants suggest the year-over-year
rise in beef cow slaughter has gone from 11 percent in calendar 1995, to 16 percent in the first quarter of this year, and to
34 percent in the second quarter.

The share of U.S. hog production coming from District states continues to decline as the on-going structural
shift toward mega producers proves more attractive elsewhere. The June 1 inventory of hogs on farms in the five
states of the Seventh Federal Reserve District was down
10 percent and accounted for only 41 percent of all hogs
on farms nationwide. As recently as four years ago, the
District states’ share was over 48 percent. Iowa retains the
number 1 ranking in hog production although its wide
margin over North Carolina continues to erode. The
rankings of most other District states fell over the past
year. Minnesota moved up a notch, dropping Illinois to
number 4. Indiana retained the number 5 ranking while
Michigan and Wisconsin each dropped a notch or two—to

The number of all cows—including dairy cows—
shipped to packing plants in the first half was the highest in
a decade. Similarly, the ratio of first-half cow slaughter to
the January 1 inventory of cows was also at a ten-year high.
This heavy culling of the cow herd has tended to push recent
beef supplies well above expectations. Reflecting this,
second quarter beef production was about 3.5 percent
above what USDA—and many other—analysts had projected back in March. Over the longer horizon, however, both
the heavy culling (liquidation) of the cow herd and the
shrinking supply of feeder cattle will dampen the flow of
beef that otherwise would reach consumers. The extent of
the dampening will hinge on how pronounced the liquidation of the cow herd ultimately proves to be.

broilers and turkeys processed and—despite very high
feed costs—an increase in the weight of the birds moving
through processing plants. Moreover, USDA analysts
project another 6 percent gain in poultry production for
the second half of this year, followed by a narrowing to
4 percent in the first half of next year.

Feeder cattle prices have declined more
than fed cattle prices
dollars per cwt.
100

90

Feeder cattle*
80

70

Fed cattle**
60

50
1993

1994

1995

1996

*600 to 650 pound steers at Oklahoma City.
**Choice, 1,100 to 1,300 pound steers, Nebraska direct.
Source: U.S. Department of Agriculture.

For operators who finish out cattle in commercial feedlots, the steeper decline in feeder cattle prices (versus fed cattle prices) has helped to offset the squeeze on earnings from
high feed costs. Nevertheless, most feedlot operators have
experienced substantial losses in recent months. Iowa State
University studies show those losses averaged $91.50 per
head on cattle marketed in the second quarter. In line with
the emerging losses, USDA reports that track the flow of cattle through large feedlots in major states show the uptrend in
the number of cattle placed in feedlots ended in December.
Placements in the first quarter of this year were down considerably from the high year-ago level but were still well
above the levels that prevailed from 1992-94. In April and
May, however, placements were off sharply and by far the
lowest for that period in at least five years.
As the number of cattle placed in feedlots slowed
this year, the movement of finished cattle out of lots held
at a high level. With those divergent trends, the inventory
of cattle in large feedlots in major states fell from an unusually high level in January to a four-year low on June 1.
Among all 7 states surveyed, the year-over-year decline
was 11 percent. In Iowa, the June 1 inventory of cattle in
large feedlots was down 16 percent. The smaller inventories suggest the large first-half gain in beef production (6
percent) will end quickly, especially if the liquidation of
the cow herd slows. USDA analysts project that secondhalf beef production will be down nearly 1.5 percent from
last year, followed by a decline of over 2.5 percent in the
first half of next year.
In contrast to red meats, poultry production remains
well above year-ago levels. Preliminary indications show
first-half poultry production was up nearly 6 percent from
the year ago pace, reflecting an increase in the number of

Forecasts of meat production should be viewed with
healthy skepticism until there is more evidence on the
likely balance between grain (feed) supplies and demands
in the months ahead. With carryover stocks depleted, this
year’s grain harvest—here and worldwide—will be the
critical factor in determining whether the feed shortages of
recent months are eased, exacerbated, or extended. In the
interim, grain prices are likely to remain high, and highly
volatile, while livestock prices strengthen due to prospects
for smaller growth in meat production.
The balance between prospective feed costs and prospective livestock/poultry prices will be the key factor
guiding future trends in livestock and poultry production.
That balance could shift quickly in either direction. As
things now stand, however, the growth in total meat production will fall below trend over the near term as declines for red meats counter most of the gains still projected
for poultry. In addition, growing exports will further trim
the meat supplies available for domestic consumers. Historically, the U.S. was a net importer of red meats. But
with exports growing and imports lagging, the U.S. became a net exporter of pork last year and is expected to become a net exporter of beef this year. Poultry exports
continue to grow also, with this year’s shipments likely to
absorb 15 percent of production. On a per capita basis,
U.S. meat production—adjusted for net trade flows—
registered a 1 percent trend rate of increase annually from
1984 to 1994. A modest decline broke the uptrend last
year. Slower growth in second-half production and continued strength in exports imply the trade-adjusted production of all meats available to domestic consumers this year
will retreat to a three year low.
Gary L. Benjamin
AgLetter (ISSN 1080-8639) is published monthly by the Research
Department of the Federal Reserve Bank of Chicago. It is prepared by
Gary L. Benjamin, economic adviser and vice president, Mike A. Singer,
economist, and members of the Bank’s Research Department, and is
distributed free of charge by the Bank’s Public Information Center. The
information used in the preparation of this publication is obtained from
sources considered reliable, but its use does not constitute an endorsement of its accuracy or intent by the Federal Reserve Bank of Chicago.
To subscribe, please write or telephone:
Public Information Center
Federal Reserve Bank of Chicago
P.O. Box 834
Chicago, IL 60690-0834
Tel. no. 312-322-5111

SELECTED AGRICULTURAL ECONOMIC INDICATORS

Percent change from
Latest
period

Value

Prior
period

Year
ago

Two years
ago

Prices received by farmers (index, 1990–92=100)
Crops (index, 1990–92=100)
Corn ($ per bu.)
Hay ($ per ton)
Soybeans ($ per bu.)
Wheat ($ per bu.)
Livestock and products (index, 1990–92=100)
Barrows and gilts ($ per cwt.)
Steers and heifers ($ per cwt.)
Milk ($ per cwt.)
Eggs (¢ per doz.)

June
June
June
June
June
June
June
June
June
June
June

119
141
4.19
92.30
7.43
5.31
100
56.80
61.30
14.50
71.5

7.2
7.6
1.2
–4.9
–3.4
–7.3
4.2
–1.6
6.4
1.4
2.6

19
25
67
7
31
38
11
31
–3
20
22

19
31
61
4
11
65
6
31
–5
15
24

Consumer prices (index, 1982–84=100)
Food

June
June

157
153

0.1
0.4

3
3

6
6

Production or stocks
Corn stocks (mil. bu.)
Soybean stocks (mil. bu.)
Wheat stocks (mil. bu.)
Beef production (bil. lb.)
Pork production (bil. lb.)
Milk production* (bil. lb.)

June 1
June 1
June 1
May
May
June

1,718
623
375
2.30
1.41
11.2

N.A.
N.A.
N.A.
7.0
–4.8
–4.8

–50
–21
–26
5
–7
–3

–27
12
–34
16
1
–1

Receipts from farm marketings (mil. dol.)
Crops**
Livestock
Government payments

March
March
March
March

13,977
6,977
6,961
40

6.5
11.1
4.6
–78.1

–12
12
–8
N.A.

–7
26
–14
N.A.

Agricultural exports (mil. dol.)
Corn (mil. bu.)
Soybeans (mil. bu.)
Wheat (mil. bu.)

April
April
April
April

5,107
198
53
93

–6.6
–7.3
–43.4
–15.7

13
20
–34
1

48
130
52
22

Farm machinery sales (units)
Tractors, over 40 HP
40 to 100 HP
100 HP or more
Combines

June
June
June
June

5,803
4,199
1,604
761

–2.2
8.1
–21.7
55.0

4
2
10
–1

–6
–4
–12
–9

N.A. Not applicable
*22 selected states.
**Includes net CCC loans.
AgLetter is printed on recycled paper
using soy-based inks

Federal Reserve Bank of Chicago
Public Information Center
P.O. Box 834
Chicago, Illinois 60690-0834
312-322-5111

AgLetter

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