Pork Management Conference– June 2011
Hog and Pork Market Outlook
Steve R. Meyer, Ph.D. Paragon Economics, Inc. Paragon Economics, Inc. From information, knowledge
Thought for the day
Betty White on The David Letterman Show as one of Top 10 Betty White Tips for Leading a Long and Happy Life:
“Take some wheat grass, soy paste and carob. Toss them in the garbage and cook yourself a big ass piece of pork.”
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MEAT/POULTRY DEMAND
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What do we need for sustained recovery . . .
Moderate growth in GDP Steady private sector job gains Resumption of income growth Normal spending by consumers Reduction in household debt Increase in the savings rate An end to the real estate debacle AND ALL BUT THE LAST ARE OCCURRING TO SOME DEGREE! Paragon Economics, Inc. From information, knowledge
Moderate growth in GDP . . . . . . 3.2-3.5% expected in 2011, „10 was +2.9%
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Steady private sector job growth – May?
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Growing incomes – but slowed April . . . . . . And October forward was revised down
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A return to “normal” consumer spending
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Lower household debt . . . . . . Falling more slowly, but still declining
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Higher saving rate . . . Also happening . . . . . But we aren‟t sure we like it!
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An end to the real estate debacle . . . . . . not happening yet – and it will take time
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Unemployment RATE remains high . . . . . . And is negatively related to confidence
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Domestic meat demand has improved . . . . . For all species – last data point is May-Apr
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Yr/yr change in monthly indexes -- POSITIVE March monthly index vs. ‘10: Pork: +5.4% Chicken: +3.1% Beef: +0.1%
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What will be the impact of record prices? . . . NOT lower demand but lower Q demanded
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How much damage from high gas prices?
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EXPORTS
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$US is falling again -- but . . . . . . may be down only until the next Euro crisis
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Components – NOT indicative of U.S. trade
DOLLAR INDEX WEIGHTINGS Currency Euro British Pound Canadian Dollar Swedish Krona Swis Franc Japanese Yen Total
Percent 57.6 11.9 9.1 4.2 3.6 13.6 100.0 Paragon Economics, Inc. From information, knowledge
ALL customer currencies are gaining
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Competitors: All are gaining since mid „10
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‟10 pork value got close to 2008 “outlier”
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Pork exports +19% YTD – Korea, Japan . . . . . . Pork & VM values are up 19% & 17%, YTD
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CATTLE/BEEF
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Lowest U.S. beef cow inventory since 1963
2011 = 30.9 Million Head -1.6 Percent
2011 = 9.1 Million Head +0.7 Percent
Livestock Marketing Information Center Data Source: USDA/NASS
C-N-02 07/23/10
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Three smallest calf crops since 1950
2010 = 35.7 Million Head -0.7 Percent
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Feeder cattle supplies were down 1.4% . . . . . . -2.6% in July, Jan 500+ cattle were -4.5%
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But COF were +5% on April – 11 months up . . . . . . must stop soon – or USDA is wrong.
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Yr/yr decline is coming in Q3 and forward . . . With significant drops in 2012
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Consumption/availability: Falling thru „12
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Choice cutout has fallen since April 1. . . . . . But will likely rebound in summer/fall
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Fed cattle have made their seasonal high . . . . . . Expect a bottom ~$105 and then rise
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Annual average prices rising sharply in „11
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Choice steers BE‟s of $125+ by year‟s end
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Profits in cow-calf – enough to drive growth?
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CHICKEN
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Broiler companies are dealing with LOSSES!
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Egg sets have fallen in recent weeks! After being sharply higher MUCH of 2010! Last 5 weeks: -2% vs. ‘10
Placements are still +0.8% YTD – but -2.3% the week of June 7 Paragon Economics, Inc. From information, knowledge
May broiler flock was -2.6% from ‟11 . . . . . . But slightly higher than April
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Production is still +2.4% mainly due to wts. . . . . . But lower placements => lower prod
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One driver has been lack of a summer rally
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Breasts & wings are still VERY LOW . . .
Leg Quarters are carrying VALUE! Paragon Economics, Inc. From information, knowledge
COSTS
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The U.S. situation is at least as uncertain . . .
Late plantings and potential use of prevented planting insurance Flooding – Ohio, Mississippi Valley, Missouri Valley, Dakotas Drought – Southeast, Southern Plains - VERY negative impact on HRW wheat crop
SRW wheat is priced favorably to corn but the carry will encourage storage How many acres planted? Harvested? Yield? Paragon Economics, Inc. From information, knowledge
The key factor for the foreseeable future:
ETHANOL WILL COMPETE SUCCESSFULLY FOR CORN IN 2011 REGARDLESS OF POLICY ISSUES!
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Oil prices have fallen slightly . . . . . . But not enough to dent corn prices much
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RFS is 12.6 bil. gal. this year – 4.5 bil. bu. . . . . . . will grow by 600 mil. bu./yr. thru 2015
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Current price forecasts
USDA June WASDE - Nat. Wtd. Avg. Farm Price -- $6.00-$7.00 - Soybean Meal -- $375-$405/ton
Dr. Wisner’s most likely yields-pre WASDE - Corn at $5.80 - SBM at $370/ton
CME Group Futures – average for next 12 months, close on June 16 - Corn -- $6.76 – down $0.65 in a week! - SBM -- $352.48 – down $12Paragon in a week! Economics, Inc. From information, knowledge
Feed cost index dropped $20/ton in a week
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DDGS should remain very affordable
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2011 costs= $85.60, down $1.30 in a week . . . . . . Next 12 mos. = $87.75, down nearly $4 !
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HOGS & PORK
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March Hogs & Pigs Report – bearish? USDA Quarterly Hogs and Pigs Report March 25, 2011 Category Inventories on March 1* All hogs and pigs Kept for breeding Kept for market Under 50 lbs. 50-119 lbs. 120-179 lbs. 180 lbs. and over Farrowings** Dec-Feb sows farrowed Mar-May Intentions June-Aug Intentions Dec-Feb Pig Crop* Dec-Feb pigs saved per litter *Thousand head
2010
2010
63,568 5,760 57,808 18,757 15,993 12,307 10,742
63,964 5,788 58,176 18,898 16,225 12,309 10,744
2,872 2,856 2,929 2,854 2,944 2,867 27,597 27,986 9.61 9.80 **Thousand litters
2010 as Pct Pre-Report Actual of 2009 Estimates Estimate 100.6 100.5 100.6 100.8 101.5 100.0 100.0
100.0 99.8 99.9 100.7 100.1 99.5 99.2
0.6 0.7 0.7 0.1 1.4 0.5 0.8
99.4 97.4 97.4 101.4 102.0
99.2 98.6 99.5 100.9 101.7
0.2 -1.2 -2.1 0.5 0.3
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Farrowing intentions are low re. BH size . . . . . . Is one wrong? Or are litters/sow falling?
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Litter size back to 2% yr/yr growth . . . . . . How high can litter size go?
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„11 weekly slaughter much like „10 . . . . . . Since March 1 – Actual-Expected = -0.40%
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Weights driven by grain quality, capacity . . . . . . Below yr-ago levels for 1st time in a YEAR!
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YTD „11 prod slightly higher than last year . . . . . . Expect more of that through Q3
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Last week 2011 profits were -$3.15/head . . . . . . And 2012 were -$10.64/head!
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Pre-Memorial Day rally was impressive . . .
. . . But did not hold, cutout lowest since Feb
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Pork packer margins – lowest since 10/09 . . . Add to “current” situation. Rebound?
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April rally produced RECORD-HIGH prices . . . . . . Most likely lower for rest of 2011
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LH futures are still beyond analysts‟ prices! March 2011Hogs & Pigs Price Forecasts Missouri ISU LMIC Producer-Sold ISU Lean Hog National Wtd Price Net Price, All Avg. Base 1 Methods Forecast Price 2010 Q1 Q2 Q3 Q4 Year 2011 Q1 Q2 Q3 Q4 Year 2010 Q1 1
68.20 79.54 80.68 69.26 74.42 80.54 84 - 88 85 - 89 79 - 83 82 - 86 84 - 88
71.99 85.18 82.19 68.97 77.08 80.14 92 - 95 91 - 94 83 - 86 87 - 89 83 - 86
65.87 76.92 78.08 67.19 72.02 78.25 83 - 88 82 - 87 73 - 79 79 - 83 80 - 82
Prior to Q2-11, ISU forecasts were Ia-Mn Live Price converted using a 75% yield
Meyer National Net Neg'd Price, Wtd. Avg. 69.13 81.89 81.90 67.12 75.01 80.91 90 - 94 90 - 94 83 - 86 86 - 87 82 - 86
CME CME Lean Hog Futures 6/15/11 69.38** 81.42** 81.88** 68.23** 75.23** 81.54** 91-92 94.14 86.98 90.40 88.53
**Average of CME Lean Hog Index
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Bottom Line
Pork and hogs . . . - Seasonal highs may be in – August rally? - Little incentive for expansion – liquidation?? - Producers are still wary of corn crop and cost
Beef will be a major driver through 2011 and 2012 – 2013 - Lower numbers and SLOW turn-around - $200 Choice beef cutout is VERY possible - Exports are a key
Competition from chicken? Paragon Economics, Inc. From information, knowledge
Risks to the forecast
Double-dip recession – low probability?? - Impact of Japan disaster - Persistent high oil prices
A short corn 2011 crop - Drought -- last one was in ’88 (23 yrs. ago) - Flood, wet conditions
More trade games with China, Russia “Black Swan” event – Trade-disrupting animal disease in the U.S., terror attack Paragon Economics, Inc. From information, knowledge