Market Outlook
NPB Swine Educators Meeting – Sept 2012
The 2012 Drought and Current Meat and Poultry Economics Outlook Steve R. Meyer, Ph.D. Paragon Economics, Inc. Paragon Economics, Inc. From information, knowledge
An unprecedented situation . . .
A wonderful beginning to the 2012 crop year Early onset of dry, hot conditions Now classified as the worst drought in over 50 (or 80?) years Comes on top of a huge buildup in corn usage since 2006 – and low carryouts The market must ration a limited supply among various usages—potentially brutal Paragon Economics, Inc. From information, knowledge
Late April – concerned about N. Ia-S. Minn . . .
. . . But subsoil moisture was short!
Paragon Economics, Inc. From information, knowledge
Minn improved while rest of U.S. worsened . . . . . 8/21: 77% drought, 44% severe or worse
Paragon Economics, Inc. From information, knowledge
Hurricane Isaac helped SE and Ohio Valley. . . . . . But western plains remain VERY dry
Paragon Economics, Inc. From information, knowledge
Corn crop condition went from best ever . . . . . . To near the worst ever in 7 weeks
Paragon Economics, Inc. From information, knowledge
Same thing has happened to soybeans . . . . . . But far too little, too late to help much
Paragon Economics, Inc. From information, knowledge
The question went from “Which trend?” . . . . . . to “How far below ANY trend will we be?”
Paragon Economics, Inc. From information, knowledge
Same for soybeans – down 17% vs. trend
Paragon Economics, Inc. From information, knowledge
USDA Sept WASDE – A bit better than August U.S. CORN SUPPLY AND UTILIZATION - SEPTEMBER 2010/11 Acres Planted Acres Harvested Yield Beginning Stocks Production Imports Total Supply Feed & Residual Ethanol for fuel Non-Ethanol FSI Exports Total Usage Carryover Stocks/Use Nat. Wtd. Avg. Farm Price
Mil A Mil A Bu/A Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. $/Bu.
88.2 81.4 152.8 1708 12447 28 14182 4793 5021 1407 1834 13055 1128 8.6% 5.18
2011/12 USDA USDA August Sept 91.9 91.9 84 84 147.2 147.2 1128 1128 12358 12358 25 25 13511 13511 4550 4400 5000 5000 1390 1390 1550 1540 12490 12330 1021 1181 8.2% 9.6% 6.20 - 6.30 6.25
2012/13 USDA % Chng vs August USDA Sept '11-12 96.4 96.4 4.9% 87.4 87.4 4.0% 123.4 122.8 -16.6% 1021 1181 4.7% 10779 10727 -13.2% 75 75 200.0% 11875 11983 -11.3% 4075 4150 -5.7% 4500 4500 -10.0% 1350 1350 -2.9% 1300 1250 -18.8% 11225 11250 -8.8% 650 733 -37.9% 5.8% 6.5% -32.0% 7.50 - 8.90 7.20 - 8.60 -24.6%
Paragon Economics, Inc. From information, knowledge
S/U ratio=(6.5%) – still 2nd lowest ever . . .
Paragon Economics, Inc. From information, knowledge
All usage estimates are lower . . .
Paragon Economics, Inc. From information, knowledge
Before I go on – I wasn’t to dispel a rumor . . .
I am NOT opposed to ethanol
Paragon Economics, Inc. From information, knowledge
Before I go on – I wasn’t to dispel a rumor . . .
I am NOT opposed to ethanol I DO PREFER IT AGED IN OAKEN BARRELS OR PRETTY GLASS BOTTLES!
Paragon Economics, Inc. From information, knowledge
Corn is well ahead of oil price now . . . . . When will this reconcile?
Paragon Economics, Inc. From information, knowledge
Ethanol margins hare the worst on record. . . . . . Even with higher ethanol prices Ethanol: $2.59/gal Corn: $7.69/bu Natural Gas: $2.72/mmBtu
Paragon Economics, Inc. From information, knowledge
Why will ethanol cut back before $9.00?
Paragon Economics, Inc. From information, knowledge
There is still pricing space vs. RBOB
Paragon Economics, Inc. From information, knowledge
RFS is 13.2 bil. gal. this year – 4.7 bil. bu. . . . . . . 13.8 bil. in 2013, up to 15 bil. 2015
Paragon Economics, Inc. From information, knowledge
Ethanol policy status
15% blend is allowed for 2001 & later cars - This is an allowance, not a requirement - Little uptake yet -- logistics? Liability?
BTC and Import Tariff expired in Dec ‘11 – still some state subsidies, no federal The current BIG debate is about the RFS - EPA can wave or modify it - Sec of Ag has no direct say – and sees nothing wrong with it! - Question: Will waiver make any difference? Paragon Economics, Inc. From information, knowledge
Question: How many RINs are out there? . . . ~2 to 2.5 bil. gallons – will they be used ?
Paragon Economics, Inc. From information, knowledge
Ethanol has indeed responded – down ~10%
Paragon Economics, Inc. From information, knowledge
Dec Corn -- May have topped
Paragon Economics, Inc. From information, knowledge
My concern is March ‘13 and beyond . . .
Paragon Economics, Inc. From information, knowledge
Sept WASDE – no big changes but bullish . . . . . . Bidding for S.A. acres? U.S. SOYBEAN SUPPLY & UTILIZATION - SEPTEMBER 2010/11 Acres Planted Mil A Acres Harvested Mil A Yield Bu/A Beginning Stocks Mil Bu. Production Mil Bu. Imports Mil Bu. Total Supply Mil Bu. Crushings Mil Bu. Exports Mil Bu. Seed Mil Bu. Residual Mil Bu. Total Usage Mil Bu. Carryover Mil Bu. Stocks/Use Nat. Wtd. Avg. Farm Price $/Bu. Soybean Oil Price Cents/lb. Soybean Meal Price $/ton
77.4 76.6 43.5 151 3329 14 3495 1648 1501 87 44 3280 215 6.6% 11.30 53.20 345.52
2011/12 2012/13 USDA USDA USDA % Chng vs August Sept August USDA Sept '11-12 75.0 75.0 76.1 76.1 1.5% 73.6 73.6 74.6 74.6 1.4% 41.5 41.5 36.1 35.3 -14.9% 215 215.0 145 130 -39.5% 3056 3056.0 2692 2634 -13.8% 15 16.0 20 20 25.0% 3286 3287.0 2857 2785 -15.3% 1690 1705.0 1515 1500 -12.0% 1350 1360.0 1110 1055 -22.4% 88 88.0 89 89 1.1% 13 3.0 27 25 733.3% 3141 3157.0 2742 2670 -15.4% 145 130.0 115 115 -11.5% 4.6% 4.1% 4.2% 4.3% 5% 12.45 12.45 15.00 - 17.00 15.00 - 17.00 28.5% 51.75 52.00 53.00 - 57.00 54.00 - 58.00 7.7% 360.00 397.00 460 - 490 485 - 515 38.9%
Paragon Economics, Inc. From information, knowledge
Near record-low S/U for beans as well
Paragon Economics, Inc. From information, knowledge
Where will SBM go? – Depends on Brazil
Paragon Economics, Inc. From information, knowledge
Wheat S&U – Much better than corn or beans U.S. WHEAT SUPPLY AND UTILIZATION - SEPTEMBER 2012/13 2010/11
Acres Planted Acres Harvested Yield Beginning Stocks Production Imports Total Supply Food Seed Feed/Residual Domestic Usage Exports Total Usage Carryover Stocks/Use Nat. Wtd. Avg. Farm Price
Mil A Mil A Bu/A Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. $/Bu.
53.6 47.6 46.3 976 2207 97 3279 926 71 132 1128 1289 2417 862 35.7% $5.70
2011/12 Estimate 54.4 45.7 43.7
USDA August 56.0 48.8 46.5
862 743 1999 2268 112 130 2974 3141 941 950 77 73 163 220 1181 1243 1050 1200 2231 2443 743 698 33.3% NA $7.24 7.60 - 9.00
USDA %Chng September vs. '10-'11 56.0 2.9% 48.8 6.8% 46.5 6.4% 743 2268 130 3141 950 73 220 1243 1200 2443 698 28.6% 7.50 - 8.70
-13.8% 13.5% 16.1% 5.6% 1.0% -5.2% 35.0% 5.2% 14.3% 9.5% -6.1% -14.2% 13.3%
Paragon Economics, Inc. From information, knowledge
Corn is a primary driver of wheat . . .
Paragon Economics, Inc. From information, knowledge
Total grains for F/R DOWN 37% since 2004
Paragon Economics, Inc. From information, knowledge
Add in DDGS and you are STILL down 21%
Paragon Economics, Inc. From information, knowledge
What will it take to recover?
Paragon Economics, Inc. From information, knowledge
In a nutshell, this boils down to . . .
Who can blink? How quickly can they blink? Who WILL blink? How many times will they blink? What will be the impact of all the blinking?
Paragon Economics, Inc. From information, knowledge
Implications of the animals themselves
Beef cow slaughter saves little or NO grain Dairy cow slaughter DOES save grain – up to 20-25 lbs. per day per cow All cattle are caught between high grain and poor pasture/lower hay supply Sow slaughter saves very little feed for 6 months Chicken and turkey can respond FAST and have a big impact on feed – esp SBM Paragon Economics, Inc. From information, knowledge
Implications (continued)
One response variable for cattle and hogs is weights! -
Cattle FE is 5.5:1 to 6.0:1 on a DM basis Hog FE is 3 to 3.5 near market weight Seasonality is critical for weights About the only short-run response for pigs
ONLY POULTRY AND DAIRY CAN BLINK QUICKLY – - Beef normally could but pasture limits it now - Pork is VERY limited Paragon Economics, Inc. From information, knowledge
Can we cut feed usage? . . . Hog, Cattle, Dairy Cows, Turkey, Chicken
Paragon Economics, Inc. From information, knowledge
Impact: Costs +4% in ‘12, +6-10% more in ‘13
Paragon Economics, Inc. From information, knowledge
Futures-implied losses of $40-$47 this fall
Paragon Economics, Inc. From information, knowledge
DEMAND
Paragon Economics, Inc. From information, knowledge
Real PDI growth has improved to 1% in June. . . . . still far below pre-recession levels
Paragon Economics, Inc. From information, knowledge
Persistent unemployment, poor sentiment . . . . . Slow & declining consumption growth
Paragon Economics, Inc. From information, knowledge
RPI improved in June and was driven by . . . . . . the Current Situation component
Paragon Economics, Inc. From information, knowledge
Grocery store sales growth is slowing
Grocery stores Yr/Yr growth has been less than 3% since March F/S data support the RPI – rebound to 7.4% in July
Paragon Economics, Inc. From information, knowledge
Domestic demand indexes are mixed . . . . . . Up for beef, turkey; down for chicken, pork
Paragon Economics, Inc. From information, knowledge
Pork demand has been SOFT this summer . . . . . . Higher volumes will push RPCE up
Paragon Economics, Inc. From information, knowledge
Per cap cons
The 2012 Drought and Current Meat and Poultry Economics Outlook Steve R. Meyer, Ph.D. Paragon Economics, Inc. Paragon Economics, Inc. From information, knowledge
An unprecedented situation . . .
A wonderful beginning to the 2012 crop year Early onset of dry, hot conditions Now classified as the worst drought in over 50 (or 80?) years Comes on top of a huge buildup in corn usage since 2006 – and low carryouts The market must ration a limited supply among various usages—potentially brutal Paragon Economics, Inc. From information, knowledge
Late April – concerned about N. Ia-S. Minn . . .
. . . But subsoil moisture was short!
Paragon Economics, Inc. From information, knowledge
Minn improved while rest of U.S. worsened . . . . . 8/21: 77% drought, 44% severe or worse
Paragon Economics, Inc. From information, knowledge
Hurricane Isaac helped SE and Ohio Valley. . . . . . But western plains remain VERY dry
Paragon Economics, Inc. From information, knowledge
Corn crop condition went from best ever . . . . . . To near the worst ever in 7 weeks
Paragon Economics, Inc. From information, knowledge
Same thing has happened to soybeans . . . . . . But far too little, too late to help much
Paragon Economics, Inc. From information, knowledge
The question went from “Which trend?” . . . . . . to “How far below ANY trend will we be?”
Paragon Economics, Inc. From information, knowledge
Same for soybeans – down 17% vs. trend
Paragon Economics, Inc. From information, knowledge
USDA Sept WASDE – A bit better than August U.S. CORN SUPPLY AND UTILIZATION - SEPTEMBER 2010/11 Acres Planted Acres Harvested Yield Beginning Stocks Production Imports Total Supply Feed & Residual Ethanol for fuel Non-Ethanol FSI Exports Total Usage Carryover Stocks/Use Nat. Wtd. Avg. Farm Price
Mil A Mil A Bu/A Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. $/Bu.
88.2 81.4 152.8 1708 12447 28 14182 4793 5021 1407 1834 13055 1128 8.6% 5.18
2011/12 USDA USDA August Sept 91.9 91.9 84 84 147.2 147.2 1128 1128 12358 12358 25 25 13511 13511 4550 4400 5000 5000 1390 1390 1550 1540 12490 12330 1021 1181 8.2% 9.6% 6.20 - 6.30 6.25
2012/13 USDA % Chng vs August USDA Sept '11-12 96.4 96.4 4.9% 87.4 87.4 4.0% 123.4 122.8 -16.6% 1021 1181 4.7% 10779 10727 -13.2% 75 75 200.0% 11875 11983 -11.3% 4075 4150 -5.7% 4500 4500 -10.0% 1350 1350 -2.9% 1300 1250 -18.8% 11225 11250 -8.8% 650 733 -37.9% 5.8% 6.5% -32.0% 7.50 - 8.90 7.20 - 8.60 -24.6%
Paragon Economics, Inc. From information, knowledge
S/U ratio=(6.5%) – still 2nd lowest ever . . .
Paragon Economics, Inc. From information, knowledge
All usage estimates are lower . . .
Paragon Economics, Inc. From information, knowledge
Before I go on – I wasn’t to dispel a rumor . . .
I am NOT opposed to ethanol
Paragon Economics, Inc. From information, knowledge
Before I go on – I wasn’t to dispel a rumor . . .
I am NOT opposed to ethanol I DO PREFER IT AGED IN OAKEN BARRELS OR PRETTY GLASS BOTTLES!
Paragon Economics, Inc. From information, knowledge
Corn is well ahead of oil price now . . . . . When will this reconcile?
Paragon Economics, Inc. From information, knowledge
Ethanol margins hare the worst on record. . . . . . Even with higher ethanol prices Ethanol: $2.59/gal Corn: $7.69/bu Natural Gas: $2.72/mmBtu
Paragon Economics, Inc. From information, knowledge
Why will ethanol cut back before $9.00?
Paragon Economics, Inc. From information, knowledge
There is still pricing space vs. RBOB
Paragon Economics, Inc. From information, knowledge
RFS is 13.2 bil. gal. this year – 4.7 bil. bu. . . . . . . 13.8 bil. in 2013, up to 15 bil. 2015
Paragon Economics, Inc. From information, knowledge
Ethanol policy status
15% blend is allowed for 2001 & later cars - This is an allowance, not a requirement - Little uptake yet -- logistics? Liability?
BTC and Import Tariff expired in Dec ‘11 – still some state subsidies, no federal The current BIG debate is about the RFS - EPA can wave or modify it - Sec of Ag has no direct say – and sees nothing wrong with it! - Question: Will waiver make any difference? Paragon Economics, Inc. From information, knowledge
Question: How many RINs are out there? . . . ~2 to 2.5 bil. gallons – will they be used ?
Paragon Economics, Inc. From information, knowledge
Ethanol has indeed responded – down ~10%
Paragon Economics, Inc. From information, knowledge
Dec Corn -- May have topped
Paragon Economics, Inc. From information, knowledge
My concern is March ‘13 and beyond . . .
Paragon Economics, Inc. From information, knowledge
Sept WASDE – no big changes but bullish . . . . . . Bidding for S.A. acres? U.S. SOYBEAN SUPPLY & UTILIZATION - SEPTEMBER 2010/11 Acres Planted Mil A Acres Harvested Mil A Yield Bu/A Beginning Stocks Mil Bu. Production Mil Bu. Imports Mil Bu. Total Supply Mil Bu. Crushings Mil Bu. Exports Mil Bu. Seed Mil Bu. Residual Mil Bu. Total Usage Mil Bu. Carryover Mil Bu. Stocks/Use Nat. Wtd. Avg. Farm Price $/Bu. Soybean Oil Price Cents/lb. Soybean Meal Price $/ton
77.4 76.6 43.5 151 3329 14 3495 1648 1501 87 44 3280 215 6.6% 11.30 53.20 345.52
2011/12 2012/13 USDA USDA USDA % Chng vs August Sept August USDA Sept '11-12 75.0 75.0 76.1 76.1 1.5% 73.6 73.6 74.6 74.6 1.4% 41.5 41.5 36.1 35.3 -14.9% 215 215.0 145 130 -39.5% 3056 3056.0 2692 2634 -13.8% 15 16.0 20 20 25.0% 3286 3287.0 2857 2785 -15.3% 1690 1705.0 1515 1500 -12.0% 1350 1360.0 1110 1055 -22.4% 88 88.0 89 89 1.1% 13 3.0 27 25 733.3% 3141 3157.0 2742 2670 -15.4% 145 130.0 115 115 -11.5% 4.6% 4.1% 4.2% 4.3% 5% 12.45 12.45 15.00 - 17.00 15.00 - 17.00 28.5% 51.75 52.00 53.00 - 57.00 54.00 - 58.00 7.7% 360.00 397.00 460 - 490 485 - 515 38.9%
Paragon Economics, Inc. From information, knowledge
Near record-low S/U for beans as well
Paragon Economics, Inc. From information, knowledge
Where will SBM go? – Depends on Brazil
Paragon Economics, Inc. From information, knowledge
Wheat S&U – Much better than corn or beans U.S. WHEAT SUPPLY AND UTILIZATION - SEPTEMBER 2012/13 2010/11
Acres Planted Acres Harvested Yield Beginning Stocks Production Imports Total Supply Food Seed Feed/Residual Domestic Usage Exports Total Usage Carryover Stocks/Use Nat. Wtd. Avg. Farm Price
Mil A Mil A Bu/A Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. $/Bu.
53.6 47.6 46.3 976 2207 97 3279 926 71 132 1128 1289 2417 862 35.7% $5.70
2011/12 Estimate 54.4 45.7 43.7
USDA August 56.0 48.8 46.5
862 743 1999 2268 112 130 2974 3141 941 950 77 73 163 220 1181 1243 1050 1200 2231 2443 743 698 33.3% NA $7.24 7.60 - 9.00
USDA %Chng September vs. '10-'11 56.0 2.9% 48.8 6.8% 46.5 6.4% 743 2268 130 3141 950 73 220 1243 1200 2443 698 28.6% 7.50 - 8.70
-13.8% 13.5% 16.1% 5.6% 1.0% -5.2% 35.0% 5.2% 14.3% 9.5% -6.1% -14.2% 13.3%
Paragon Economics, Inc. From information, knowledge
Corn is a primary driver of wheat . . .
Paragon Economics, Inc. From information, knowledge
Total grains for F/R DOWN 37% since 2004
Paragon Economics, Inc. From information, knowledge
Add in DDGS and you are STILL down 21%
Paragon Economics, Inc. From information, knowledge
What will it take to recover?
Paragon Economics, Inc. From information, knowledge
In a nutshell, this boils down to . . .
Who can blink? How quickly can they blink? Who WILL blink? How many times will they blink? What will be the impact of all the blinking?
Paragon Economics, Inc. From information, knowledge
Implications of the animals themselves
Beef cow slaughter saves little or NO grain Dairy cow slaughter DOES save grain – up to 20-25 lbs. per day per cow All cattle are caught between high grain and poor pasture/lower hay supply Sow slaughter saves very little feed for 6 months Chicken and turkey can respond FAST and have a big impact on feed – esp SBM Paragon Economics, Inc. From information, knowledge
Implications (continued)
One response variable for cattle and hogs is weights! -
Cattle FE is 5.5:1 to 6.0:1 on a DM basis Hog FE is 3 to 3.5 near market weight Seasonality is critical for weights About the only short-run response for pigs
ONLY POULTRY AND DAIRY CAN BLINK QUICKLY – - Beef normally could but pasture limits it now - Pork is VERY limited Paragon Economics, Inc. From information, knowledge
Can we cut feed usage? . . . Hog, Cattle, Dairy Cows, Turkey, Chicken
Paragon Economics, Inc. From information, knowledge
Impact: Costs +4% in ‘12, +6-10% more in ‘13
Paragon Economics, Inc. From information, knowledge
Futures-implied losses of $40-$47 this fall
Paragon Economics, Inc. From information, knowledge
DEMAND
Paragon Economics, Inc. From information, knowledge
Real PDI growth has improved to 1% in June. . . . . still far below pre-recession levels
Paragon Economics, Inc. From information, knowledge
Persistent unemployment, poor sentiment . . . . . Slow & declining consumption growth
Paragon Economics, Inc. From information, knowledge
RPI improved in June and was driven by . . . . . . the Current Situation component
Paragon Economics, Inc. From information, knowledge
Grocery store sales growth is slowing
Grocery stores Yr/Yr growth has been less than 3% since March F/S data support the RPI – rebound to 7.4% in July
Paragon Economics, Inc. From information, knowledge
Domestic demand indexes are mixed . . . . . . Up for beef, turkey; down for chicken, pork
Paragon Economics, Inc. From information, knowledge
Pork demand has been SOFT this summer . . . . . . Higher volumes will push RPCE up
Paragon Economics, Inc. From information, knowledge
Per cap cons
