The stage is set for further increases in 2016.

The latest USDA Hogs and Pigs report showed that the hog breeding herd as of December 1 was 6 million head, 1.1 per cent higher than the previous year.

The last time the breeding herd was this large was in December 2008. But in December 2008 producers were saving about 9.5 pigs per litter compared to 10.53 pigs per litter in the latest report (10 per cent improvement).

Sow utilisation rates have not improved in the last couple of years, in part because of the PEDv disruptions. But they may, at least modestly.

A larger breeding herd, more pigs saved per litter and very modest improvements in sow utilisation have set the stage for further gains in pork production. The latest USDA forecast set 2016 pork production at 24.943 billion pounds, 400MM (+1.6 per cent) more than in 2015.

Beef supplies are also expected to increase in 2016 thanks to a larger calf crop in 2014 and 2015, a larger supply of cull cows and lower feed costs that will allow producers to maximise the pounds they put on cattle before they get them to market.

Pasture conditions are often a key factor going forward and we expect them to play a critical role in 2016.

In 2014 and 2015 pasture conditions were above average and this allowed producers to put more pounds on cattle outside of feedlots, which in turn contributed to the significant carcass weight gains this year.

Drought in the summer of 2016 could bolster beef supplies in the short term (bearish for summer and fall markets) but it would slow down the pace of growth in the beef industry. However, ample moisture could further accelerate the expansion that is currently under way and set the stage for even lower beef prices in 2017 and 2018.

Dramatic increases in chicken production set the stage for significant price deflation across all major meat proteins in 2015 and we think the broiler industry will once again play a key role next year.

The broiler hatching flock is large. Producers continue to bring heavier and heavier birds to market. And export demand has so far been extremely disappointing.

Will broiler producers be able to reign in some of their expansion plans? USDA seems to think so, as they have broiler production in 2016 up just 1.8 per cent from 2015 levels.

Still, at 40.5 billion pounds broiler production in 2016 is expected to be up 2.3 BILLION pounds compared to what it was in 2014 (+6.1 per cent).

But if broiler producers continue to ramp up bird numbers, after all the hatching flock on December 1 was up 3.1 per cent, the plentiful and extremely competitive chicken supplies may continue to limit price inflation for all proteins.

Domestic and export demand: Domestic demand in 2015 has been relatively good but export markets have struggled due to the strong US dollar, disruptions caused by the West Coast port strike, bird flu and generally low purchasing power in emerging markets.

Russia has struggled mightily and that has meant large world exporters that used to count on Russian business had to try and sell some of their products elsewhere. Selling more US beef, pork and chicken in this environment has been difficult.

Going forward, the expectation is that currency will continue to play a role but we do not expect the US dollar to decline much against key currencies (this remains bearish). Also, with oil prices low, emerging markets may continue to struggle for a bit longer. Coupled with supply expansion, this will continue to temper price inflation expectations for 2016.