vitaplus swine summit – march 2012 · 4/3/2012 1 from information, knowledge paragon economics,...

4/3/2012

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From information, knowledge

Paragon Economics, Inc.

Steve R. Meyer, Ph.D.Paragon Economics, Inc.

VitaPlus Swine Summit – March 2012

Meat Sector Economic Outlook



Key issues for ‘12 . . .

Exports – World economy, exchange rates, trade policy, disease status U.S. demand – has softened recently, U.S.

economy, prices of competitor goods Feed prices – S. American crops, moisture

situation, 2012 acreage/yields Supplies – Potential profits, constraints,

productivity, herd health, weights Packing capacity vs. hog numbers – 2013?

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MACRO-ECONOMIC FACTORS



Status of economies worldwide – January ‘11

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Same graphic -- January 2012



World growth expected – except for EU

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U.S. GDP: Improving again– but still slow



Job gains have rebounded from last summer

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Consumer sentiment: Highest since June . . . . . . Improving employment/unemployment



Real PDI, though, is stagnant vs. year-ago

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Big question: How will $4 gas play out?



Where will oil prices peak?

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MEAT & POULTRY DEMAND



Food spending is rising again

Grocery store sales +3.7%, yr/yr in Feb. Foodservice sales +7.7%, yr/yr in Feb. Combined: +5.9% yr/yr

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RPI improved thru Dec – before falling in Jan



Domestic meat demand improved in ’11 . . . . . ‘12 thru January is mixed – soft since then?

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Monthly yr/yr indexes for January -- mixed



PC consumption fell sharply in 2011 . . .

. . . But demand is strong! How so?

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Record-high – or nearly so – prices . . .

. . . Lower Q supplied/demanded, not lower D



Dollar Index futures have gained 6-7%

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Pork exports: up 23% in ‘11, RECORD LARGE

U S PORK EXPORTSCarcass Weight, Annual

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1988 1991 1994 1997 2000 2003 2006 2009 2012

Bil. Pounds



Pork exports led by China/HK at +128% . . . .. . . Korea up 106%, Mexico -0.1%, Japan +15%

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Beef exports were RECORD LARGE in 2011

U S BEEF AND VEAL EXPORTSCarcass Weight, Annual

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1988 1991 1994 1997 2000 2003 2006 2009 2012

Bil. Pounds



Broiler exports were RECORD LARGE in 2011

U S BROILER EXPORTSRTC, Annual

0

1

2

3

4

5

6

7

8

1988 1991 1994 1997 2000 2003 2006 2009 2012

Bil. Pounds

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CROPS AND COSTS



March WASDE – no changes from February . . .. . . Tighter year-end stocks, stocks/use ratio

2009/10

USDA February

USDA March

%Chng vs. '10-

'11

Acres Planted Mil A 86.4 88.2 91.9 91.9 4.2%Acres Harvested Mil A 79.5 81.4 84 84 3.2%Yield Bu/A 164.7 152.8 147.2 147.2 -3.7%

Beginning Stocks Mil Bu. 1673 1708 1128 1128 -34.0%Production Mil Bu. 13092 12447 12358 12358 -0.7%Imports Mil Bu. 8 27 20 20 -25.9%Total Supply Mil Bu. 5961 14182 13506 13506 -4.8%Feed & Residual Mil Bu. 5125 4793 4600 4600 -4.0%Ethanol for fuel Mil Bu. 4591 5021 5000 5000 -0.4%Non-Ethanol FSI Mil Bu. 10183 1395 1405 1405 0.7%Exports Mil Bu. 1980 1835 1700 1700 -7.4%Total Usage Mil Bu. 13066 13053 12705 12705 -2.7%Carryover Mil Bu. 1708 1128 801 801 -29.0%Stocks/Use 13.1% 8.6% 6.3% 6.3% -27.0%Nat. Wtd. Avg. Farm Price $/Bu. 3.55 5.18 5.80 - 6.60 5.90 - 6.50 18.1%

2010/11 Estimate

2011/12

U.S. CORN SUPPLY AND UTILIZATION - MARCH

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USDA Plantings: BIG corn, lower SB & wheat

Corn acres > HIGH of expectations Corn acres could still be LOW – March 1

survey, EARLY planting, good conditions SB and wheat < LOW of expectations

2011 Low High Average 2012Corn 91.921 93.700 95.700 94.658 95.864Soybeans 74.976 74.500 76.700 75.429 73.902All Wheat 54.409 56.000 58.300 57.551 55.908

Analysts' Pre-Report Estimates

USDA PROSPECTIVE PLANTINGSMarch 30, 2012



Historical perspective for acreages

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Grain Stocks

No big surprises – wheat and corn slightly lower than expected No big revisions, either Probably neutral – especially versus acres

UnitsUSDA,

Mar 1 '11USDA,

Dec1, '11 Low High AverageUSDA,

Mar 1, '12Wheat Bil. Bu. 1.425 1.662 1.181 1.400 1.250 1.201Corn Bil. Bu. 6.523 9.647 5.925 6.300 6.151 6.009Soybeans Bil. Bu. 1.249 2.369 1.228 1.467 1.361 1.372

GRAIN STOCKS, MARCH 1, 2011March 30, 2012 Grain Stocks Report

Analysts' Estimates, Mar 1, '11



Corn stocks to use ratio near historic lows

- 30 -

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World corn: Stocks 3rd lowest, S/U record low



Ethanol now uses more corn than feed/res.

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Corn went to ethanol due to PROFITS!!!!

Ethanol price = $2.29/galCorn price = $6.17/bu.NG price = $2.28/mmBtu



Grains for feed – Lower 6 of last 7 years

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Add in DDGS – still 6 of 7 but decline is less How can we grow output? Drive down prices?



Corn futures now BELOW the 2011 range!

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NW Cornbelt is still dry . . .



Higher S/U ratio but HIGHER price = Demand

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World soybean stocks/use is in good shape



SBM future have RISEN in past 2 weeks. .

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Still have ample wheat stocks



And wheat is NOT keeping up with corn . . . . . . More feeding is likely a long-term trend

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Soybeans are fighting – corn and WEATHER!



Beans will also take some cotton acres

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Hog costs were record high in ’11 . . .. . . ‘12 costs are down and DECLINING



CHICKEN

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High costs drove 15 months of losses



Huge reduction of the broiler brdng. flock

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AGGRESSIVE broiler cuts since mid-summer. .

2011 cuts offset ALL of 2010 increases – down

3.5% for the year

DOWN 5.4% YTD 2012

Placements were down 2.6% for 2011

Are -4.0% YTD 2012



AGGRESSIVE broiler cuts since mid-summer. .

Finally hit broiler slaughter in Q4 – Down

7.4%

DOWN 6.4% YTD 2012

But production is down only 5.7% YTD

Significant but smaller than other numbers

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Reason: Higher weights – are persisting . . . . . . Continuing breast meat glut, low prices



Broiler cutout FINALLY moved to mid-$90s. . .

. . . traction from cutbacks has been slow

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And breast meat has shown signs of life . . .. . . We look for $140-$150 thru summer



Leg quarters will remain strong -- exports

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CATTLE AND BEEF



Drought is still the driver for beef industry

State Beef Cows(Thousand)

TX 5025OK 2036KS 1478FL 926CO 727AL 659GA 502MS 495NM 488LA 461NC 351SC 184AZ 180Total 13512Share 43.8%

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Lowest U.S. beef cow inventory since 1963



Beef: Four smallest calf crops since 1950

-0.7 Percent2010 = 35.7 Million Head

-0.5 Percent

2011 = 35.5 Million Head

-1 Percent2011 = 35.3 Million Head

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COF was +2.6% on Mar 1 – 21 months up . . . . . . How to reconcile with LOWER slaughter?



Slaughter down yr/yr in 21 of last 24 wks.. . .and is down 5% YTD – HORRIBLE margins

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FC supplies on Jan 1 were down 4% from ‘11



Heifers retained were 1.4% lower than in ‘11

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Add in growing exports and . . . . . . U.S. consumption/availability: -3.8% in ‘12



Choice cutout was headed for $200-plus . . . . . . But has gotten “slimed” – still at $189!

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Higher cattle/beef will last through 2014!



HOGS AND PORK

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Frozen pork stocks are a concern - +9% vs. ‘11

. . . Chicken DOWN 16%, ALL up 0.4% vs. ‘11



Storage as pct of prod is not out of line . . .

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Stocks & exports – positively related . . . . . . but anecdotal evidence of soft exports



Dec H&P Report: Continued slow growth . . .

Category 2010 20112011 as Pct of

Pre-Report

Actual - Estimate

Inventories on December 11

All hogs and pigs 64,925 65,931 101.5 101.3 0.2Kept for breeding 5,778 5,803 100.4 100.8 -0.4Kept for market 59,147 60,128 101.7 101.3 0.4

Under 50 lbs. 18,864 19,271 102.2 101.8 0.450-119 lbs. 16,519 16,895 102.3 101.5 0.8120-179 lbs. 12,233 12,472 102.0 101.0 1.0180 lbs. and over 11,531 11,490 99.6 101.2 -1.6

Farrowings2

Sep-Nov sows farrowed 2,874 2,894 100.7 99.9 0.8 Dec-Feb Intentions 2,843 2,865 100.8 100.6 0.2 Mar-May Intentions 2,917 2,890 99.1 100.8 -1.7Sep-Nov Pig Crop1 28,488 29,014 101.8 101.6 0.2Sep-Nov pigs saved per litter 9.91 10.02 101.1 101.6 -0.5*Thousand head **Thousand litters

USDA Quarterly Hogs and Pigs ReportDecember 23, 2011

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March report expectations . . .



Litter size growth 2.0% over past 4 years. . . . . . How high can litter size go?

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YTD slaughter 2.3% lower than expected. . . . . . Expect Q2 & Q3 ‘12 supplies up 1.5 – 2.5%



Packer margins have been under pressure . .. . . plunged last week with cutout decline

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Negative meat spreads, HIGH by-products



Weights remain large and GROWING. . . . . YTD ‘12 increases due to margins, cutbacks

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YTD pork production is +0.7% from 2011



Cutout value began ‘12 near ‘11 level . . .

. . . Normal sideways move – until last week!

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Neg’d Net prices -- above $80 from Jan ‘11!



Sows very likely to remain at $60-plus in ‘12

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‘12 profits reached $19/hd in mid-Feb . . . . . . But have fallen sharply with LH futures



June LH are UGLY at present – bottom today?

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Slaughter forecasts from Dec Hogs & Pigs

Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge

2010 Q1 27.630 -3.1%

Q2 26.074 -3.7%

Q3 26.931 -5.3%

Q4 29.626 0.0%

Year 110.260 -3.0%

2011 Q1** 27.486 -0.5%

Q2 26.113 0.1%

Q3 27.374 1.6%

Q4* 29.892 0.9%

Year 110.862 0.5%

2012 Q1 27.734 0.9% 27.668 0.7% 27.953 1.7%

Q2 26.392 1.1% 26.392 1.1% 26.600 1.9%

Q3* 27.233 -0.5% 27.233 -0.5% 27.240 -0.5%

Q4** 30.699 2.7% 30.851 3.0% 30.310 1.9%

Year 112.058 1.1% 112.144 1.1% 112.103 1.3%Green figures are actual data from USDA. Blue figures are estimated using USDA data 12/28/11

*Quarter has one LESS slaughter day vs. year ago **Quarter has one MORE slaughter day vs. year ago

December 2011 Hogs & Pigs Slaughter ForecastsMizzou ISU LMIC Paragon



Futures are now BELOW Dec price ranges

Missouri ISU LMIC Paragon CME

Producer-Sold Net Price, All

Methods

Ia-Mn Wtd. Avg.

Base Lean Hog1 National Wtd Avg. Base Price

National Net Neg'd Price,

Wtd. Avg.CME Lean Hog

Futures3/29/12

2010 Q1 68.20 71.99 65.91 69.13 69.38**Q2 79.54 85.18 77.04 81.89 81.42**Q3 80.68 82.19 78.21 81.90 81.88**Q4 69.26 68.97 67.3 67.12 68.23**Year 74.42 77.08 82.42 75.01 75.23**

2011 Q1 80.63 78.92 78.38 80.91 81.54**Q2 92.39 89.37 89.49 94.89 93.97**Q3 95.74 92.31 92.71 97.61 97.49**Q4 87.68 85.03 85.03 88.74 88.11**Year 89.12 86.41 86.40 90.54 90.28**

2012 Q1 84 - 88 83 - 88 85 - 89 84.39**Q2 91 - 95 89 - 95 92 - 96 88.15Q3 91 - 95 91 - 97 92 - 96 89.62Q4 79 - 83 82 - 89 81 - 85 80.90Year 86 - 90 86 - 92 87 - 91 85.77

1Prior to Q2-11, ISU forecasts were Ia-Mn Live Price converted using a 75% yield **Average of CME Lean Hog Index

December 2011 Hogs & Pigs Price Forecasts

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Monthly price forecasts



Pork outlook

2012 supplies will be 1.5 – 2.5% larger with bulk in Q2 and Q3, Q4 steady w/ ‘11 Weights remain high – and likely growing Prices much like ‘11 – mid ‘$90s in summer Questions:

- Will demand hold? – Competitor prices, economy, $US and exports, consumers

- Is there enough finishing space?- Slaughter capacity, fall ’12– and ‘13?

vitaplus swine summit – march 2012 · 4/3/2012 1 from information, knowledge paragon economics,...

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