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FARM and RANCH BULLETIN Federal Reserve Bank of Dallas D ecem ber 1976 PRICE DECLINE LIKELY TO SLOW BROILER PRODUCTION Broiler production in 1976 is expected to be up 13 percent over the 1975 level, stimulated by record industry profits last year and favorable feeding margins most of this year. But this surge in production has likely ended. Larger supplies of poultry, turkey, and red meat have caused broiler prices to decline sharply in recent months. And costs of production, pro cessing, and marketing in October are estimated to have exceeded prices. Therefore, placements on feed will likely decline in late 1976 and early 1977. The number of broiler placements is a leading indicator of changes in production about two months later. As a result, the rate of increase in poultry meat output may turn downward in the first half of 1977. The number of broilers placed on feed this year has expanded significantly. For the nation as a whole, placements in the first ten months of 1976 averaged 11 percent more than a year earlier and 12 percent greater than in the same period in 1974. Placements increased more in Texas, however. The number placed on feed in the tenmonth period was 16 percent higher than at the same time in 1975 and 13 percent above the com parable 1974 level. Although placements may decline from these high levels, poultry meat sup plies at supermarkets should be plentiful in the next few months as third-quarter placements were up a tenth from a year earlier. Central management The big increase in production, despite lower prices than last year, can be partly explained by the structure of the industry. The production, processing, and marketing of broilers to retail outlets are usually under the same management control. The broiler industry is mostly made up of large companies called integrators, which have single ownership or management of hatchery supply flocks, hatcheries, broiler flocks, process ing plants, feed mills, and distribution facilities. Individual producers or growers are engaged by contract to feed and care for the broilers. Under the usual contract agreement, individ ual growers provide the buildings, equipment, and labor while the integrator furnishes the broiler chicks, feed, and medical supplies. The integrator makes the managerial and marketing decisions and assumes the risk of price varia tions. Growers are normally paid a flat fee per broiler fed plus an allowance for efficient feed conversion and minimal death loss. Low costs The linkage in production, processing, and marketing has proved an effective means of low ering per-unit costs and securing the necessary financing for operations. In fact, contract feed ing and integration of the three phases have ac celerated the adoption of cost-reducing technol ogies and innovations. As a result, the broiler industry is highly con centrated, with relatively few large firms control ling the entire chain of production, processing, and marketing. But it is this control that helps hold down the overall costs of operations. Fur- BROILER PLACEMENTS AND WHOLESALE PRICES PLACEMENTS PRICE 25 MILLION ----------------------------- CENTS PER POUND 60 22 — AVERAGE MONTHLY WHOLESALE PRICE, — 54 thermore, adjustments can be made anywhere along the chain. If, for example, losses are in curred at the production stage, they are often offset by profits at the processing and marketing stages. Continued production even with declining prices could also reflect marketing orders and contracts that integrators sign with retail out lets to supply poultry meat. And too, inventories of feed and other inputs are usually purchased by contract several months in advance. Production in the first half of 1977 depends on production costs and broiler prices. A bounti ful grain harvest and lower grain prices would stimulate production of broilers. On the other hand, further pressure on profit margins would likely curtail production. Smaller beef supplies may add some support to broiler prices in 1977, but broilers will face strong competition from a sizable increase in pork supplies and lower pork prices. HIGH SOYBEAN PRICES STIMULATE PRODUCTION High prices for soybeans, which may limit domestic use and exports, have resulted from a small 1976 U.S. crop. And in the light of high prices, world production— mainly in the United States and Brazil— will likely expand next year. But a larger Brazilian crop and a sizable gain in U.S. soybean acreage in 1977 could lead to much lower prices by next fall. Because soybean prices were low relative to prices for other crops last spring, farmers nation wide cut back plantings 8 percent to 50.3 million acreas. And with lower yields, production this year is expected to total 1.25 billion bushels, reflecting a substantial decrease of 18 percent from 1975. Domestic use and exports are pro jected to outstrip production by about 150 mil lion bushels, resulting in stocks of only 100 million bushels by September 1, 1977. That would be enough supplies to meet requirements for about a month. U.S. SOYBEAN SUPPLY AND DISTRIBUTION 2.5 BILLION BUSHELS 2.0 — CARRYOVER EXPORTS PRODUCTION DOMESTIC USE bushels, down 10 percent from the record high last year. With the decline in crushings, produc tion of soybean meal and oil will be lower, indi cating tighter supplies and higher prices for those commodities this season. Although increased livestock feeding will likely boost the use of soy bean meal for feed, overall demand for soybean meal and oil will be checked somewhat by in creased supplies of cottonseed meal and oil, a rise in U.S. lard production, and large world sup plies of palm oil. Exports down YEARS BEGINNING SEPTEMBER 1 1 9 75 preliminary; 1976 projected SOURCE: U.S. Departm ent of Agriculture Conversely, output in the southwestern states of Louisiana, Oklahoma, and Texas could total 59.2 million bushels, 2 percent more than in 1975 and 4 percent more than in 1974. The larger out put in the Southwest is due to increased acreages planted in Louisiana and higher yields in Texas. Prices up The U.S. farm price of soybeans, strengthened by strong export demand and an expansion in pork and poultry production, has risen signifi cantly the past few months. Market prices re ceived by U.S. farmers in October, at $5.90 a bushel, averaged nearly $1 a bushel above prices in the same month last year and $1.62 above those in December 1975. Prices are likely to aver age between $6 and $7 a bushel this season. Higher soybean prices and increased supplies of competitive fats, oils, and protein feeds may curtail domestic and world disappearance of U.S. soybeans in 1976-77. The quantity of soybeans crushed and processed may total 785 million U.S. soybean exports have been projected at 525 million bushels, slightly below the record 555 million bushels shipped to foreign buyers in the 1975-76 marketing season. Sales will likely be down slightly despite large shipments to the Soviet Union and Japan. The Soviet Union has already contracted for about 55 million bushels of the 1976 crop, which is more than 4 y 2 times the quantity purchased in 1975-76. Japan is ex pected to purchase at least 110 million bushels this season, leaving fewer supplies available for other export markets. U.S. exports will likely face strong competi tion in world markets from Brazilian soybeans. The 1977 crop in Brazil has been forecast at about 489 million bushels, which would be 17 percent more than the 1976 harvest and nearly four times the size of the 1972 crop. Although average yields have increased, harvested acreage has risen from 5.8 million acres in 1972 to an esti mated 16.5 million acres in 1977. Along with this growth in production, exports have expanded sharply. On a crop-year basis, Brazilian exports in the 1976-77 season are projected to be 165 million bushels, or 25.7 million bushels more than in 1975-76. Although supplies will be tight this marketing year, high prices point to a larger 1977 crop. Just as acreage was shifted from soybean production to corn and cotton production last spring, farm ers in the United States could shift acreage back to soybeans. A big 1976 grain crop and a further buildup in supplies suggest that relative price and profit prospects may favor soybeans over corn and other grain crops. However, high cotton prices may sharply increase the number of acres planted to that crop. PECAN OUTPUT TO FALL SHARPLY Pecan production in 1976 is expected to be sharply lower than last year. Output in the South west this year, based on October 1 conditions, is estimated at 48 million pounds— 64 percent below the bumper 1975 crop and 15 percent less than in 1974. In the nation as a whole, the pecan crop is expected to total 114 million pounds— less than half last year’s harvest and 17 percent lower than PECAN PRODUCTION IN THE SOUTHWEST 70 MILLION POUNDS ---------------------------------------- in 1974. In fact, the 1976 crop will be the smallest in the United States since 1962. Output in all four producing southwestern states will likely lag 1975 levels. While slightly lower pecan production is expected in New Mex ico, an 81-percent drop is projected for the Lou isiana crop. The harvest in Oklahoma may be only a tenth as large as the 1975 crop. And production in Texas is estimated at about 27 million pounds, only two-fifths the size of last year’s crop. The pecan crop has been plagued by unfavor able weather, as well as insect and disease dam- < age. But much of the output decline results from:, a cyclical tendency of pecan trees to have a! smaller nut set following a bumper crop year. Production has declined more for native and seedling varieties than for the improved varieties. Operations with pecan groves planted in im proved varieties are generaly under more inten sive production and management control, and, thus, there is less year-to-year variation in out put of such varieties. In this holiday season, the smaller supply of pecans will likely cause prices to be somewhat higher. Alan M. Young 1976 indicated October 1 SOURCE: U.S. Department of Agriculture
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