farmecon llc a source of information on global farming and food systems thomas e. elam, phd...

FarmEcon LLCA source of information on global farming and food systems

Thomas E. Elam, PhDPresident

2012 Turkey and Protein Sector Outlook

Dr. Thomas E. ElamPresidentFarmEcon LLCJanuary 18, 2012 1

FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident

$5.50-7.00 corn, $300-400 soybean mealLimited feed suppliesRecord-high meat and poultry exports

Value, andVolume

Southwest drought, declining beef supplySlow, but positive, domestic demand growthAll squeezing U.S. meat and poultry availability, and thus strong prices

Overall Protein Market Drivers

2


$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00

$0$50

$100$150$200$250$300$350$400$450

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12Ju

l-12

Corn

, $/B

ushe

l, Ce

ntra

l IL

Soyb

ean

Mea

l, $/

Ton,

Cen

tral

IL

Soybean meal, Central Ill. July Meal FuturesCorn, Central Ill. July Corn Futures

Feed Cost Drivers: Corn and Soymeal(Futures prices current as of 1-26-2012)

3


0¢

5¢

10¢

15¢

20¢

25¢

30¢

0¢

10¢

20¢

30¢

40¢

50¢

60¢

1/1/

2001

7/1/

2001

1/1/

2002

7/1/

2002

1/1/

2003

7/1/

2003

1/1/

2004

7/1/

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1/1/

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7/1/

2005

1/1/

2006

7/1/

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1/1/

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7/1/

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7/1/

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7/1/

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1/1/

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7/1/

2010

1/1/

2011

7/1/

2011

Stan

dard

Dev

iatio

n

RTC

Cost

, Cen

ts/P

ound

RTC Feed Cost/Lb Gain 12 Month Trailing Standard Deviation

Translated to HigherFeed Costs AND Volatility

4

RFS 1

RFS 2


Low U.S. grain stocksMediocre U.S. yieldsDeclining U.S. major crop acreageGrowing global demand

Increasing U.S. biofuels mandatesHigh crude oil and finished fuels pricesHot/dry southern hemisphere weather

Feed Cost Drivers

5


0

10

20

30

40

50

60

0

2

4

6

8

10

12

1/20

007/

2000

1/20

017/

2001

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027/

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037/

2003

1/20

047/

2004

1/20

057/

2005

1/20

067/

2006

1/20

077/

2007

1/20

087/

2008

1/20

097/

2009

1/20

107/

2010

1/20

117/

2011

Hog

and

Ste

er/H

eife

r Co

rn P

rice

Ratio

s

Broi

ler/

Milk

/Tur

key F

eed

Ratio

s

Broiler-feed Milk-feed Turkey-feed Hog-corn Steer and heifer-corn

Protein wholesale prices relative to feed costs:A mixed bag of recent profitability trends

6


Turkeys up 1-2%Pork up 2-3%, export-drivenBeef down 4-5% – drought-drivenMilk up 1-2% Broilers down 2-4% - 2011 financial lossesWholesale prices for all likely to increase

2012 Protein Production Outlook

7


0

50

100

150

200

250

Poun

ds/P

er C

apita TURKEY

BROILERS

PORK

BEEF

Per Capita Meat DisappearanceFirst 3 4 5 Year Decline on Record

8


Continued tight feed supplies=Higher feed costs, lower availability=Need for higher product prices=Need to cut production

Perceived risks on feed costsRecord-high meat and poultry exports2008-2009 recession and lingering effects

Why?

9


Feedgrains Ending Stocks/Use Ratio

10

0%2%4%6%8%

10%12%14%16%18%20%


163.1 148.0 157.8 140.9 136.7 127.7 120.9

30.131.2

30.127.9 27.8

27.4 27.3

12.115.9

21.325.9 29.8 33.7 33.1

0

50

100

150

200

250

2005/ 2006 2006/ 2007 2007/ 2008 2008/ 2009 2009/ 2010 2010/ 2011 2011/2012 Forecast

Mill

ion

Met

ric To

nsU.S. Total Feedgrains Feed/Residual Use

Plus Soybean Meal and Estimated DDGS Feed Use

Feedgrains Soybean Meal Estimated DDGS

U.S. Feeding, Major Ingredients

11


Ethanol Use and Corn Prices

12

10%

15%

20%

25%

30%

35%

40%

45%

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

% U

sed

for

Etha

nol

$/Bu

shel

September 1 Crop Year

U.S. Average Farm Price, Corn, $/Bu. % Feedgrains Used for Fuel Ethanol


Total Meat and Poultry Exports

13

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2005 2006 2007 2008 2009 2010 2011 2012 Fcst.

Mill

ion

Poun

ds E

xpor

ted


2012 TURKEY OUTLOOK DETAILS

14


2012 SummaryCurrent pricing and low ending stocks imply modest 2012 turkey industry production growth. However, growth will be muted by continued high feed costs, and the need to recover those costs in wholesale pricing.

15


2012 Turkey Outlook Features 1/1/2012 cold storage near record low 2011 level Profitability supported by exports and pricing Production:

Q1 2012: very near 2011 Q2 2012: production +1% to +2% Q3/Q4 2012: production also +1% to +2%

Flat or lower bird numbers, higher weights Farbest adding 3 million birds, but not online until

2013 Exports expected to decline slightly Lower beef and broiler supply, higher prices Feed costs remain the major wild card 16


2011 production & use = balanced inventories

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

000

Pou

nds

Whole Birds Other Turkey

17


FarmEcon Model: RTC Value Per Pound and Feed Costs

Based on FarmEcon LLC model of 70% cut-up and 30% whole bird marketing mix. Prices are USDA/AMS. Does not include value-added products.

18

0¢

20¢

40¢

60¢

80¢

100¢

120¢

140¢

Ce

nts

/Po

un

d, R

TC

Ba

sis

Weighted Product Price Feed Cost Weighted Product Price - Feed Costs


U.S. Market RTC Turkey Consumption

4,6004,700

4,8004,900

5,0005,1005,200

5,3005,400

Mill

ion

Poun

ds

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

est

2012

F

19


U.S. Market RTC Turkey Consumption(Per Capita)

15.0

15.5

16.0

16.5

17.0

17.5

18.0

Pou

nds

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

est

2012

f

20

Profitable

Unprofitable


$0

$1

$2

$3

$4

$5

$6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$ Bi

llion

Wholesale Value of Parts and Whole Birds Sets New Record

21


Poult Placements, UB, Weekly,Point to Flat Q1 2012 Bird Numbers

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

6,500,000

200920102011

22


Turkey Export TonnageRecord November Volume, 29% Annualized Gain Over 2009

23

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2006 2007 2008 2009 2010 Jan -Nov 2010

Jan -Nov 2011

000

Lbs.

South Asia

Other Europe

Oceania

European Union-27

Former Soviet Union-12

South America

Middle East

Southeast Asia

Sub-Saharan Africa

Central America

Caribbean

East Asia

North America


Turkey Export ValueRecord Annual Value, 49% Annualized Gain over 2009

24

-

100,000

200,000

300,000

400,000

500,000

600,000

2006 2007 2008 2009 2010 Jan -Nov 2010

Jan -Nov 2011

$Mill

ion

Sub-Saharan Africa

Southeast Asia

South Asia

South America

Other Europe

Oceania

North America

Middle East

FSU12

EU27

East Asia

Central America

Caribbean


Turkey Export Tonnage Shares by Product

25

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010 Jan -Nov 2010

Jan -Nov 2011

Shar

e

PR-CKD, SMKD

PREPS, OTHER

COMNUTD MST

WHOLE, FR, CH

BREAST, FZN

PREPS, MISC

SAUSAGE, FRANKS

OFFALS, FZN

WHOLE, FZN

WINGS, FZN

MDT, FZN

LEGS W/BONE, FZN

OTHER

CUTS FR/CH


Turkey Export Value Shares by Product

26

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010 Jan -Nov 2010

Jan -Nov 2011

Valu

e Sh

are

COMNUTD MST

PR-CKD, SMKD

PREPS, OTHER

OFFALS, FZN

WHOLE, FR, CH

BREAST, FZN

TRKY,WING,FZN

PREPS, MISC

SAUSAGE, FRANKS

WHOLE, FZN

LEGS W/BONE, FZN

MDT, FZN

OTHER

CTS FR/CH


2012 Turkey Forecast Details(Production, Use and Stocks in Million Pounds)

27

2008 2009 2010 2011 est 2012 fcstPct.

Change

Beginning Stocks 261 397 262 192 206 7%Production 6,216 5,626 5,569 5,720 5,765 1%Total Supply 6,477 6,023 5,831 5,912 5,971 1%Exports 676 534 582 674 650 -4%U.S. Consumption 5,404 5,226 5,082 5,053 5,141 2% Per Capita (Lbs.) 17.7 17.0 16.4 16.2 16.3 1%Total Use 6,080 5,760 5,664 5,727 5,791 1%Ending Stocks 397 262 192 206 200 -3%

USDA Hen Price, $/lb. $0.878 $0.782 $0.902 $1.030 $1.060 3%USDA Tom Price, $/lb. $0.873 $0.783 $0.900 $1.031 $1.050 2%USDA Breast Meat, $/lb $1.660 $1.367 $2.142 $2.495 $2.400 -4%USDA Thighs, $/lb $1.010 $0.935 $1.217 $1.374 $1.400 2%USDA MST, $/lb $0.251 $0.326 $0.261 $0.290 $0.320 10%

Margin over Feed, ¢/lb 31.6¢ 30.1¢ 53.0¢ 49.0¢ 50.0¢ 2%


60¢

65¢

70¢

75¢

80¢

85¢

90¢

95¢

100¢

105¢

110¢

16.0 16.2 16.4 16.6 16.8 17.0 17.2 17.4 17.6 17.8

Wei

ghte

d Av

erag

e Pr

ice,

Cen

ts p

er P

ound

U.S. Consumption, Pounds Per Capita

20052006

2007

20082009

2010

2011

Excellent Wholesale Demand Growth

28


Early 2012 Price Comparisons

29

2010 2011 2012UB Category 18-Jan 17-Jan 16-JanHens 0.77 0.91 1.03Tom Breast Meat 1.52 2.42 2.35Drums, Tom, Frzn 0.6 0.76 0.77Wings, Frzn 0.75 0.72 0.75Tenderloins, Frzn 2.03 2.22 2.03BSTM, Frzn 1.17 1.32 1.47


2012 Feed Cost Outlook

30


Acreage and weatherSouthern hemisphere nowU.S. spring plantings and summer growing season

USDA reports that have more “surprises”Grain and meat/poultry export demandEthanol mandate up 215 million bushels

Major Risk Factors for 2012

31


Corn Price Model Forecast

32

Regression for Season Average Corn Price, Feedgrain Crops of 1990-2009

Variable Coefficient Standard Error t Stat Intercept 4.218 0.543 7.763 Stocks/Use Ratio -20.623 7.208 -2.861 Stocks/Use Ratio2 48.087 22.972 2.093 Ethanol Production, Over 4 Billion Gallons 0.199 0.0274 7.271 Ethanol Price, Omaha Blender, over $2/Gallon 1.778 0.589 3.018

2011/2012 Assumptions:Feedgrains Stocks/Use Ratio = 7.1%Ethanol Production = 13.7 Billion GallonsEthanol Price = $2.65 per Gallon

Predicted 2011/2012 average farm price received = $6.09 per bushel, and a new record-high


Despite record high crop prices and

farm income our acreage is

declining.

33

Commodity 1990 20111990-2011

Change

Corn 66,953 83,936 16,983

Barley 7,529 2,239 (5,290)

Sorghum 9,089 4,432 (4,657)

Oats 5,948 939 (5,009)

Net Change, Feedgrains 2,027

Rapeseed/Canola 77 1,050 973

Soybeans 56,513 73,676 17,163

Sunflowerseed 1,851 1,473 (378)

Flaxseed 253 224 (29)

Peanuts 1,801 1,114 (687)

Wheat 69,103 45,705 (23,398)

Net Change, Oilseeds and Wheat (6,355)

Rye 376 242 (134)

Rice 2,822 2,624 (198)

Dry Edible Beans 2,086 1,124 (962)

Dry Edible Peas 159 350 191

Potatoes 1,359 1,073 (286)

Sugarbeets 1,378 1,208 (170)

Sugarcane 791 883 92

Tobacco 730 337 (393)

Hay 61,557 57,605 (3,952)

Total All Crops 290,374 280,234 (10,140)Total Corn + Soybeans 123,466 157,612 34,146 Total Food Crops 85,822 55,262 (30,560)


E10 market is saturatedRequires about 13 billion gallons of ethanolWe produced 14 billion gallons in 2011We exported 1 billion gallonsWhy not sell more E85?

Ethanol BTUs are priced at 50% over gasolineParity is equal cost per BTU

Corn priced higher than energy parityWhy? The RFS is set too high

Blend Wall or Corn Wall?

34


Ethanol/Gasoline Cost/BTUEthanol Is Not An Affordable Fuel!

35

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

Jan-

82Ja

n-83

Jan-

84Ja

n-85

Jan-

86Ja

n-87

Jan-

88Ja

n-89

Jan-

90Ja

n-91

Jan-

92Ja

n-93

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94Ja

n-95

Jan-

96Ja

n-97

Jan-

98Ja

n-99

Jan-

00Ja

n-01

Jan-

02Ja

n-03

Jan-

04Ja

n-05

Jan-

06Ja

n-07

Jan-

08Ja

n-09

Jan-

10Ja

n-11

Etha

nol/

Gas

olin

e BT

U C

ost R

atio


Typical E85 Price

36


Equal Cost/Mile E85 Price

37


Proud of the Product?


Corn/Soymeal Outlook – 2012Cash corn prices remain at $5.50-$7.00, meal at $300-400, through March/April (basis Illinois cash markets)Upside risks on poor South America/Australia weatherU.S. acreage, weather and demand drive Jun-Dec prices2012 predicted corn acreage up, soybeans downEthanol production will decline slightly (no tax credits)Slightly less DDGS production, and ethanol use mandate = increased corn demand

Increasing ethanol and DDGS exportsEnergy prices are also critical to outlookHigh volatility in all feed ingredient prices likely

39


Record 14.3 billion bushel cropMake it possible to price corn for:

E85 salesHigher feed useMore exports

Build stocksLikely season average farm price $3.35-$4.00How likely, and is it repeatable?

What Would 165 Bu. Corn Do?

40


12.6 billion bushel crop2012 crop = current use rateNo room to increase useHigher 2013 RFS crowds out feeding and exportsEthanol priced per gallon higher than gasolineLikely season average farm price $7-$8How likely? About the same chance as 165

What Would 145 Bu. Corn Do?

41


Summary:Continued high, and volatile, feed costs$5+ corn & $300+ soybean meal=new normal until a bumper corn cropFeed cost volatility an ongoing issue

Four broiler company bankruptcies in 2011Increasing RFS, weather, and limited acreage are on a collision courseAnother 2008 spike in the next 3-5 years?

42


RFS reform for conventional ethanolFarm Bill reform to encourage acreageVigilance on the GIPSA/EPA/FDA fronts

What Needs to Happen?

43


Questions?Comments?

44

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