dr. steve meyer - meat/poultry economic update & outlook
DESCRIPTION
Meat/Poultry Economic Update & Outlook - Dr. Steve Meyer, Paragon Economics, Inc., from the 2014 Missouri Pork Expo , February 11 - 12, 2014, Columbia, MO, USA. More presentations at http://www.swinecast.com/2014-missouri-pork-expoTRANSCRIPT
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From information, knowledge
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Steve R. Meyer, Ph.D.Paragon Economics, Inc.
Missouri Pork Producers – Feb 2014
Meat/Poultry Economic Update &
Outlook
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October‟s government shutdown – Impact?
No disruptions of animal or product flows –Inspectors were deemed “essential”
No apparent “gouging” but a few price shenanigans
- Most markets remained stable
- Packers did not pressure prices – MUCH
- Margins were tight by the end – lower prices
Big backlog of data – as much detail as we will see is now available
6/20/2013 2
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Demonstrated the importance of USDA data
Many relied on Urner Barry‟s Yellow Sheet
- Poultry and eggs have always used YS prices
- Good coverage for beef and pork as well
CattleFax probably signed up a lot of new members – fed cattle markets were okay
Hogs and Feeder Cattle were the voids
- NPPC‟s effort for voluntary hog price reporting by packers
» Good but too late
» Antitrust challenges
6/20/2013 3
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Now what?
Another shutdown avoided – for now
CME Group has to have a better plan
- Dodged a potential bullet with Oct LH close
- Feeder cattle is cash settled, too - - MUCH trickier due to dispersion of data
- Need “auditable” data if from a private source
Buyers & sellers should be investigating alternatives just in case
NPPC hog system is functional – what legal criteria must be met?
6/20/2013 4
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Smithfield and Tyson announcements
Smithfield announced that it is “asking” its contract growers to adopt group sow housing by 2022
- “You don‟t have to but contract extensions are less likely” = “change or else”
- “Sliding scale” incentives to adopt faster
- NOT A SURPRISE
» Company-owned farms began switching in ‟07
» 54% now in group systems
» Productivity has been maintained
6/20/2013 5
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Tyson announcement is MUCH bigger deal
Because it‟s TYSON
- #2 packer (77k/day), #12 producer (52k sows)
- Successor to IBP which never backed down from a fight over priniciple
- Historically a staunch defender of producers
Sow housing PLUS key items required for contract growers, “recommended” for all
- Stop using blunt force euthanization
- Pain mitigation for castration, tail docking
- Video monitoring in all barns
6/20/2013 6
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Key Factors for 2014
Costs
6/20/2013 7
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„14 production costs – down ~$15/cwt carc.
6/20/2013 8
. . . ~$30/hd. better profits w/o price change!
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USDA Jan WASDE – LOWER corn yield, crop . . .
. . . Record crop, higher F/R, steady ethanol
USDA
January
USDA
February
% Chng
vs '12-13
Acres Planted Mil A 91.9 97.2 95.4 95.4 -1.9%
Acres Harvested Mil A 84.0 87.4 87.7 87.7 0.3%
Yield Bu/A 147.2 123.4 158.8 158.8 28.7%
Beginning Stocks Mil Bu. 1128 989 821 821 -17.0%
Production Mil Bu. 12360 10780 13925 13925 29.2%
Imports Mil Bu. 29 162 35 35 -78.4%
Total Supply Mil Bu. 13517 11932 14781 14781 23.9%
Feed & Residual Mil Bu. 4557 4335 5300 5300 22.3%
Ethanol for fuel Mil Bu. 5000 4648 5000 5000 7.6%
Non-Ethanol FSI Mil Bu. 1428 1396 1400 1400 0.3%
Exports Mil Bu. 1543 731 1450 1600 118.9%
Total Usage Mil Bu. 12528 11111 13150 13300 19.7%
Carryover Mil Bu. 989 821 1631 1481 80.4%
Stocks/Use Pct. 7.9% 7.4% 12.4% 11.1% 50.7%
Nat. Wtd. Avg. Farm Price $/Bu. 6.22 6.89 4.10 - 4.70 4.20 - 4.80 -36.1%
Source: USDA World Supply and Demand Estimates
U.S. CORN SUPPLY AND UTILIZATION -- FEBRUARY
Units 2011/12 2012/13
2013/14
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Better yields and record highs in the east
6/20/2013 10
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Big increases for all corn uses – exc ethanol
6/20/2013 11
. . . Feed ingredient supply back near pre‟08
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RFS is clearly not realistic due to gas usage
. . . 13 bil. gal. of corn ethanol
X
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Note the prod & cons trend change in „04 . . .
6/20/2013 13
. . . But not much change in stocks level
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World stocks are higher but S/U still tight . . .
6/20/2013 14
. . . Due to persistently larger usage levels!
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U.S. biofuels policy fueled growth . . .
6/20/2013 15
. . . and new, ongoing corn competition
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Have we seen the bottom for corn?
. . . Likely, especially with Feb WASDE changes
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Corn is cheap versus about everything!
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World soybean situation is quite different . . .
World output +6.2% in „13-‟14
Consumption +4.4%
Ending stocks +20%, S/U tied for 3rd high
. . . Record high output, consumption, stocks
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But SB prices are still near $13 . . .
. . . Primarily due to China‟s appetite & means
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Jan WASDE: Larger SB yield, crop . . .
. . . Steady – and TIGHT – stocks, higher meal
USDA
January
USDA
February
% Chng
vs '12-13
Acres Planted Mil A 75.0 77.2 76.5 76.5 -0.9%
Acres Harvested Mil A 73.8 76.2 75.9 75.9 -0.4%
Yield Bu/A 41.9 39.8 43.3 43.3 8.8%
Beginning Stocks Mil Bu. 215 169.0 141 141 -16.6%
Production Mil Bu. 3094 3034.0 3289 3289 8.4%
Imports Mil Bu. 16 36.0 25 30 -16.7%
Total Supply Mil Bu. 3325 3239.0 3454 3459 6.8%
Crushings Mil Bu. 1703 1689.0 1700 1700 0.7%
Exports Mil Bu. 1365 1320.0 1495 1510 14.4%
Seed Mil Bu. 90 89.0 87 87 -2.2%
Residual Mil Bu. -2 1.0 22 12 1100.0%
Total Usage Mil Bu. 3155 3099.0 3304 3309 6.8%
Carryover Mil Bu. 169 141.0 150 150 6.4%
Stocks/Use Pct. 5.4% 4.5% 4.5% 4.5% 0%
Nat. Wtd. Avg. Farm Price $/Bu. 12.50 14.40 11.75 - 13.25 11.95 - 13.45 -15.3%
Soybean Oil Price Cents/lb. 51.90 47.13 35.50 - 39.50 34.50 - 37.50 -23.6%
Soybean Meal Price $/ton 393.53 468.11 375 - 415 425 - 465 -4.9%
Source: USDA World Supply and Demand Estimates
U.S. SOYBEAN SUPPLY & UTILIZATION - FEBRUARY
Units 2011/12 2012/13
2013/14
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And MEAL has carried the value!
Mar SBM Futures
Mar SB Oil Futures
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Are “high” costs behind us?
Depends on your definition of “high”
“Normal” 2014 crops will give us corn at $3.50 and beans at $9.00 – maybe less for both
Reason: Yields (and acres) have finally caught up with ethanol usage
$90-plus hog costs will be rare – only when we have a severe drought
Key issue: Veg oil prices
6/20/2013 22
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Key Factors for 2014
Costs
Demand
6/20/2013 23
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The macro-economy – Improving
Good things:
- GDP growth, improving housing market, low interest rates, job growth (+175k Sept, +200k Oct, +203k Nov but only +74k in Dec)
- Wealth effect has been positive – Record equity values prior to recent “correction”
Question marks:
- U fell to 6.7% in Dec – due to -347k “seekers”
- U-6 is 13.1% -- improving but still high
- Personal disposable income – better, but ????
6/20/2013 24
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2013 RPDI growth averaged 0.1%/month . . .
. . . And December was abysmal at -3.4%, yr/yr
6/20/2013 25
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Per cap consumption is flat thru „14 . . .
6/20/2013 26
. . . Chicken, pork will grow, beef will decline
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Retail prices are at or near record highs . . .
. . . Would not be if demand was, in fact, soft
6/20/2013 27
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Meat/Poultry demand has been good in‟13
6/20/2013 28
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Beef, chicken & pork are up, turkey lower
6/20/2013 29
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Pork exports: BIG 2013 issue & remain soft . .
. . . USDA (and I) expect some growth in „14 (?)
6/20/2013 30
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Decexports – +33.3% for Mexico, +17% Others
YTD: Canada -1.6%, Mexico +9%, Others +12%
6/20/2013 31
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Key Factors for 2014
Costs
Demand
Competitors
6/20/2013 32
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Chicken is now in a full growth mode
Industry started positioning for growth last winter – delayed by backfilling Mexico AI losses
6/20/2013 33
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Breeder flock grew modestly thru July . . .
6/20/2013 34
. . . Up 4.6% to 4.8%, yr/yr, Aug-Nov; +3.3% Dec
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Chicken is now in a full growth mode
Industry started positioning for growth last winter – delayed by backfilling Mexico AI losses
Profitable at present and going forward –but can‟t stand prosperity
Egg sets have been +2-3%, placements up only fractionally vs. ‟13 since Jan1
I expect 3-5% more broiler supply in 2014
Chicken will be very competitively priced
6/20/2013 35
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Beef – Now in full expansion mode, too
Range/pasture conditions are good enough to support cow herd expansion
6/20/2013 36
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Replacement cow prices are record high . . .
6/20/2013 37
. . . and even higher???
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Cow-calf operations should get best of it!
6/20/2013 38
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Feedlot breakevens are still VERY high . . .
6/20/2013 39
. . . Due to record-high calf, feeder prices
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Beef – Now in full expansion mode, too
Range/pasture conditions are good enough to support cow herd expansion
Heifer retention is tightening an already-tight feeder and fed cattle supply
6/20/2013 40
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Jan Cattle report: Slow expansion . . .
6/20/2013 41
2013 2014Pct of Yr
AgoAverage Range
All Cattle & Calves 89,300 87,730 98.2 98.6 98.0 - 99.1
Cows & Heifers That Have Calved 38,515 38,251 99.3 98.9 98.7 - 99.3
Beef Cows 29,297 29,042 99.1 98.5 98.3 - 99.1
Dairy Cows 9,218 9,209 99.9 99.9 99.8 - 100.0
Heifers 500 Pounds & Over 19,134 18,751 98.0 99.0 97.9 - 99.6
Beef Cow Replacements 5,381 5,471 101.7 103.1 102.4 - 103.5
Dairy Cow Replacements 4,551 4,539 99.7 100.3 98.9 - 101.1
Other Heifers 9,203 8,741 95.0 95.9 93.2 - 97.1
Steers 500 Pounds & Over 15,813 15,415 97.5 98.4 97.3 - 99.6
Bulls 500 Pounds & Over 2,056 2,035 99.0 99.0 98.4 - 99.7
Heifers, Steers & Bulls Under 500 Pounds 13,782 13,278 96.3 97.9 97.0 - 99.1
January 1 Cattle On Feed, All Feedlots 13,364 12,695 95.0 95.0
Rev 2012 2013
Calf Crop 34,279 33,930 99.0 97.9 97.7 - 98.1
Source: USDA National Agricultural Statistics Service, Urner Barry
Pre-Report Estimates*
JANUARY 1, 2014 -- U S CATTLE INVENTORY
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Beef – Now in full expansion mode, too
Range/pasture conditions are good enough to support cow herd expansion
Heifer retention is tightening an already-tight feeder and fed cattle supply
Per capita beef availability in 2014 will be down 3-5% -- RECORD HIGH prices again
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RECORD-HIGH cutout values – in JANUARY!
Weekly averages hit $238 and $236 the week of January 24
Value is being carried by END meats
Tighter supplies are still to come!
6/20/2013 43
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Beef – Now in full expansion mode, too
Range/pasture conditions are good enough to support cow herd expansion
Heifer retention is tightening an already-tight feeder and fed cattle supply
Per capita beef availability in 2014 will be down 3-5% -- RECORD HIGH prices again
LONG reaction period – I don‟t expect more beef, yr/yr, until 2016
AN OPPORTUNITY FOR PORK & CHICKEN!
6/20/2013 44
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Key Factors for 2014
Costs
Demand
Competitors
Hog Numbers
6/20/2013 45
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Imports from Canada are -11% for 2013 . . .
. . . FP -11.7%, MH -14%, S&B -1.1%
6/20/2013 46
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Sow slaughter was -6.5% yr/yr Q3 & Q4 . . .
6/20/2013 47
. . . And was down 2.9% for the year
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And gilt slaughter has been below average
6/20/2013 48
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Dec Hogs and Pigs – BH was a surprise . . .
6/20/2013 49
. . . Other numbers were not – picked up PEDv?
Inventories on December 1
All hogs and pigs 66,374 65,940 99.3 99.9 -0.6
Kept for breeding 5,819 5,757 98.9 101.0 -2.1
Kept for marketing 60,555 60,183 99.4 99.8 -0.4
Under 50 lbs. 19,299 19,049 98.7 99.7 -1.0
50-119 lbs. 16,752 16,669 99.5 99.7 -0.2
120-179 lbs. 12,634 12,626 99.9 99.9 0.0
180 lbs. and over 11,871 11,838 99.7 100.1 -0.4
Farrowings
Sep-Nov sows farrowed 2,888 2,882 99.8 100.4 -0.6
Dec-Feb Intentions 2,788 2,825 101.3 100.9 0.4
Mar-May Intentions 2,816 2,855 101.4 101.2 0.2
Sep-Nov Pig Crop 29,319 29,298 99.9 101.2 -1.3
Sep-Nov pigs saved per litter 10.15 10.16 100.1 100.8 -0.7
*Thousand head ** Thousand Litters Source: WSJ (formerly DowJones)
2012 2013
'13 as
Pct of
'12
Pre-
Report
Est's
Actual -
Est
December 27, 2013
USDA QUARTERLY HOGS & PIGS REPORT
Category
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Sep-Nov litter size does show PEDv signs. . .
6/20/2013 50
. . . Closest to year-ago level since Q3 2003!
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What about PEDv? -- 1/26 was a new record . .
6/20/2013 51
. . . Big jump in IL, IN went from 9 to 25 in 1 wk.!
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PEDv – Must remember timing
First case was April 15 – in spite of conspiracy/neglect/incompetency theories
Sow/boar and suckling pig cases began to grow sharply in June – DECEMBER slghtr
Rules of thumb: 2.3, 2.5, 2.7 pigs/sow
Anecdotal figure at present ~ 1.7M sows and growing
1.9M x 2.5 = 4.75M pigs lost in 8 months
7.1M in 12 months = ~6% of „14 pig crop
6/20/2013 52
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Is Oklahoma a harbinger for other states?
6/20/2013 53
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Immediate impact: RECORD HIGH pig prices
6/20/2013 54
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Sept H&P: Growth in Q4, sizable growth in „14
6/20/2013 55
. . . But from 9/1: -4.4% vs. „12, -3.0% vs. pred?
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Hogs & Pigs indicates tight supplies Q1-Q2
6/20/2013 56
. . . Higher numbers in Q3-Q4 – farrowings?
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Making up for some losses with weights . . .
6/20/2013 57
+2.7% since shutdown, nearly +3% in „14 . . .
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Paragon Economics, Inc.
Cutout has improved but hogs are lagging . . .
Expect MUCH higher prices in March-April
Summer highs at $105-$110
6/20/2013 58
. . . “Near last year” may become a refrain
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„14 forecast profits are now best since „87. . .
. . . For those who have avoided PEDv -- All?
6/20/2013 59
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Slaughter forecasts per Dec Hogs & Pigs
6/20/2013 60
Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge
2013 Q1 27.874 -0.8%
Q2 26.778 0.4%
Q3 27.668 -1.1%
Q4 29.730 0.8%
Year 112.050 -1.0%
2014 Q1 27.580 -1.1% 27.428 -1.6% 27.829 -0.2% 27.800 -0.3%
Q2 26.479 -1.1% 26.494 -1.1% 26.579 -0.7% 26.355 -1.6%
Q3 27.685 0.1% 27.923 0.9% 27.990 1.2% 27.088 -2.1%
Q4 30.027 1.0% 30.476 2.5% 30.496 2.6% 29.320 -1.4%
Year 111.744 -0.3% 112.321 0.2% 112.894 0.8% 110.563 -1.3%
Green figures are actual data from USDA. . Blue figures are estimated using USDA data 1/13/14
December 2013 Hogs & Pigs -- Commercial Slaughter ForecastsMizzou ISU LMIC Paragon
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Price forecasts per Dec Hogs & Pigs
6/20/2013 61
Mizzou ISU LMIC Paragon CME
Producer-Sold
Net Price, All
Methods
Ia-Mn Wtd.
Avg. Base
Lean Hog
National Wtd
Avg. Base Price
National Net
Neg'd Price,
Wtd. Avg.
CME Lean Hog
Futures
2013 Q1 83.53 80.83 81.08 82.73 83.34**
Q2 91.80 88.06 89.32 90.83 90.66**
Q3 97.90 94.34 95.25 98.00 98.98**
Q4 84.99 82.57 82.98 85.26 83.93**
Year 89.56 86.45 87.16 89.21 89.23**
2014 Q1 84 - 88 85 - 90 85 - 87 83 - 86 86.28
Q2 94 - 98 95 - 100 91 - 95 95 - 99 100.88
Q3 92 - 96 91 - 96 92 - 97 96 - 100 104.10
Q4 77 - 81 80 - 85 81 - 87 82 - 86 85.86
Year 86 - 90 88 - 93 87 - 92 89 - 93 94.28
Green figures are actual data from USDA. Blue figures are estimated using USDA data **CME Lean Hog Index 2/10/14
December 2013 Hogs & Pigs -- Price Forecasts
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Key Factors for 2014
Costs
Demand
Competitors
Hog Numbers
Strategic Issue for Pork -- Capacity
6/20/2013 62
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I‟m still concerned about packing capacity
6/20/2013 63
. . . 2014 is okay – 2015 and beyond????
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Paragon Economics, Inc.
Closing thoughts . . .
Lower feed costs will drive expansion, especially for pork and chicken
Demand is good, macro conditions are improving – positive prefs for meat?
Beef supplies will be tight thru 2015 – high prices and opportunities for competitors
Chicken will be MUCH more competitive
Hog supplies will be lower due to PEDv ---profitable but less price advantage
6/20/2013 64
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Questions or Comments?
6/20/2013 65