Across the board, anyone engaged in the production of proteins should expect 2021 to be a continuation of many of the challenges seen in 2020.
A new report from analysts with RaboResearch Food and Agribusiness shows the focus will be largely on trade, with China representing a huge unknown moving forward. In addition, key issues will be African swine fever (ASF), higher feed prices, and a trend where governments in many nations are increasing their engagement in the areas of animal protein production.
Continued challenges around recovery from COVID-19 will be top-of-mind for many, with the unknown around what happens in food-service industries controlling much of the direction for the protein market during at least the first half of 2021.
Dustin Aherin, animal protein analyst with RaboResearch, told DTN in mid-November that it feels like things are moving backward when it comes to recovery, not forward as he had hoped.
"Looking at dine-in data for October, we were down 30%, compared to year-ago levels," he said. "In November, we are down a little over 50%, compared to year-ago levels. So that is a big drop-off, and it is concerning. Food service altogether, as of the end of October, was down 14% to 15%. Takeout and quick service have helped those numbers. Some quick-service food distributors are at or above last year's levels. But as we move into winter, I think numbers for dine-in especially will struggle. It was appealing in many areas to eat outside on the patio during the summer months, but going into the winter, that isn't something people will want to do. We could even see more restrictions or outright bans ahead on indoor dining. I really think food service is going to be a tough go for the next few months."
Annual meetings and conventions are another area where protein consumption, especially beef, will be affected by COVID-19-forced cancellations.
Aherin notes, "Typically, at the end of the year, or the first of the new year, we see a lot of big conferences and conventions. Almost all of that has shifted to virtual events or been postponed. A lot of dollars are spent on good meals, with animal proteins front and center at those type events."
Questions about recovery are hard for anyone to answer as Americans approach the end of the year fatigued, tired of limitations and, in many cases, unemployed. But recovery will be key to consumption of protein moving through 2021. Aherin believes it is going to take about two years for the economy to start to stand on its own again.
"Looking back at the food service industry, remember that during the great recession, it took about eight to 10 quarters (two to two-and-a-half years) for sales to fully recover. That was a different situation. I believe what we are looking at now is more severe, and to be frank, I am concerned that we have not reached the true depths of this recession yet. We are getting to that point, but the government stimulus early on offset that to some degree. If we see a new relief package in early 2021, it may soften the blow, but we will still have to work through the real impact of this and at some point see the economy stand on its own."
WHERE THE DATA POINTS TODAY
Looking at the North American portion of RaboResearch's most recent report on proteins, along with USDA's most recent Livestock, Dairy and Poultry Outlook, key takeaways in this last quarter of 2020 all seem to point toward growth in production across sectors.
-- BEEF PRODUCTION
Look for supply chain disruptions to continue in early 2021, with moderate ongoing liquidation of the cow herd expected. Due to disruptions in the beef processing sector, it is projected that, in 2021, fed slaughter levels will reach their highest point since 2010 -- a 4.6% year-over-year increase, to 26.6 million head. Carcass weights, which have been heavy in 2020, are projected to return to more normal levels. Overall, the report projects beef production for 2021 up 1.5% year over year.
Looking to the end of 2020, USDA reported production increases pushed per capita disappearance in the second half of this year to levels not seen in a decade. Fed steer prices were holding, but feeder steer prices were lower in this last quarter of 2020, with higher expected feed prices playing a role in that market swing.
U.S. beef imports in September 2020 were up 26%, the largest ever recorded for that month at 300 million pounds. Meanwhile, beef exports, also in September, were down 6% from year-earlier levels to 239 million pounds. The fourth-quarter export forecast was bullish, going to 770 million pounds on expectations for improved demand from China and major trading partners.
-- PORK PRODUCTION
Exports in 2020 have contributed to a strong rally in pork prices and helped absorb North American supplies. USDA reports third-quarter pork exports 7.4% higher than in 2019, mostly due to strong shipments to both China and Hong Kong. RaboResearch notes it expects production in China to recover, as the country is said to be getting a handle on ASF. As trade restrictions to that country ease, a temporary imbalance is likely.
Reductions in the North American breeding herd in 2020 curtailed, and for 2021, supplies are expected to grow 1.6%. This will likely be driven by gains in production in both the U.S. and Canada.
Fourth-quarter pork production was projected by USDA at about 1% below 2019 levels, due to lower slaughter numbers resulting from processing margins. Exports for this last three-month period are forecast at 1.9 billion pounds, unchanged from earlier estimates.
Higher feed costs will pressure margins for poultry in 2021. In 2020, U.S. broiler production was up 1.8%, but disappointing margins and rising feeds costs are expected to limit production growth in the first half of 2021.
A bright note here is that, despite midyear disruptions, U.S. chicken export volumes are on pace to reach a new record in 2020.
The fourth-quarter broiler price forecast has increased recently, along with exports on expectations that broiler meat will be attractive as an affordable protein moving forward.
Victoria G. Myers can be reached at Vicki.Myers@dtn.com
Follow her on Twitter @myersPF
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