Challenges Facing The Livestock Industry
Transcript of Challenges Facing The Livestock Industry
Purdue Center for Commercial Agriculture
Challenges Facing the Livestock Industry
Dr. James Mintert Professor of Agricultural Economics &
Assistant Director of Extension Purdue University
Presentation at
American Farm Bureau’s Annual Meeting Honolulu, Hawaii January 9, 2012
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Livestock Industry Challenges 1) Feed costs
2) Recouping higher production costs
3) Economic growth…or lack thereof
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Ethanol Dramatically Increased Corn Demand
1.001.17 1.32
1.60
2.12
3.03
3.71
4.59
5.02 5.00
0.0
1.0
2.0
3.0
4.0
5.0
6.0
02 03 04 05 06 07 08 09 10 11
Billion
Bu.
Harvest Year
Corn Used for Ethanol
Source: USDA WASDE Report: 11.09.11
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Ethanol Was A Small Part of Corn Demand
11%
62%
0%
10%
20%
30%
40%
50%
60%
70%
02 03 04 05 06 07 08 09 10 11
% o
f Cor
n Pr
oduc
tion
Harvest Year
Corn Used for Ethanol Production & Feed Consumption% of U.S. Corn Production
Ethanol Usage Feed & Residual Usage
Source: USDA, World Agricultural Supply and Demand Estimates & James Mintert, Purdue University
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But Ethanol Now Rivals Feed Usage
11%
40%
62%
38%
0%
10%
20%
30%
40%
50%
60%
70%
02 03 04 05 06 07 08 09 10 11
% o
f Cor
n Pr
oduc
tion
Harvest Year
Corn Used for Ethanol Production & Feed Consumption% of U.S. Corn Production
Ethanol Usage Feed & Residual Usage
Source: USDA, World Agricultural Supply and Demand Estimates & James Mintert, Purdue University
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Farmers Responded By Increasing Acreage
60
65
70
75
80
85
90
95
100
40 45 50 55 60 65 70 75 80 85 90 95 00 05 10
Million
Acres
Harvest Year
U.S. Corn Planted Acreage
Source: USDA WASDE Report: 11.09.11
“Old” acreage range
“New” acreage range
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And Corn Production Increased Dramatically
4
5
6
7
8
9
10
11
12
13
14
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
Billion
Bu.
Harvest Year
Total U.S. Corn Production
Source: USDA WASDE Report: 11.09.11
5 largest corn crops on record
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But We Still Have Tight Feed Grain Stocks
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Billion
Bu.
Harvest Year
U.S. Corn Ending Stocks
Source: USDA WASDE Report: 11.09.11
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Stocks Are Even Tighter Compared To Usage
0%
10%
20%
30%
40%
50%
60%
70%
74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
%
of
Usage
Harvest Year
Corn Ending StocksEnding Stocks as % of Total Usage
Source: USDA WASDE Report: 11.09.11
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The Result: Dramatic Corn Price Increase
$1.50
$2.50
$3.50
$4.50
$5.50
$6.50
$7.50
74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
$
per
bushel
Harvest Year
U.S. Average Corn Price .
Source: USDAWASDE Report 11.09.11
Historic Corn Price Range
1974-2005 Avg. = $2.35
USDA’S 2011/2012 forecast
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$200$225$250$275$300$325$350$375$400$425$450
98 99 00 01 02 03 04 05 06 07 08 09 10 11
$
per
cow
Year
Cow-Calf Feed Costs Per Cow in Kansas
Source: Kansas State Farm Management Association & Kansas State Farm Management Guides, 2011 Forecast
Feed Helped Drive Production Costs Up
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$400
$450
$500
$550
$600
$650
$700
$750
$800
98 99 00 01 02 03 04 05 06 07 08 09 10
$
per
cow
Year
Cow-Calf Total Production Costs in Kansas
Source: Kansas State Farm Management Association & K-State Farm Management Guides
Cow-Calf Production Costs Rising Rapidly
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$80$90
$100$110$120$130$140$150$160$170$180
98 99 00 01 02 03 04 05 06 07 08 09 10 11
$
per
cwt.
Year
Breakeven Calf PricesRequired to Cover Estimated Total Production Costs in Kansas
Source: Kansas State Farm Management Association & Kansas State Farm Management Guides, 2011 Forecast.
Rising Breakevens Putting Pressure On Cow-Calf Sector Estimated 2011 Breakevens Up 66% Compared to 2006
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Rising Corn Prices Pushed Hog Breakevens Higher
45
50
55
60
65
70
75
80
85
90
95
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$
per
cwt.
Year
Monthly Iowa Farrow-to-Finish Breakeven PricesCarcass Weight
Source: Iowa State University
2011 breakevens 60% higher than in 2002
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Record Large Meat Consumption in Mid-Decade
195
200
205
210
215
220
225
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Lbs.
per
person
Year
Annual U.S. Red Meat & Poultry ConsumptionPer Capita
Source: USDA
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Putting Fewer Pounds on Consumers’ Plates
195
200
205
210
215
220
225
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Lbs.
per
person
Year
Annual U.S. Red Meat & Poultry ConsumptionPer Capita
Source: USDA, LMIC Forecasts for 2012
Consumers Will Have To Pay Higher Prices for Meat
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50
60
70
80
90
100
110
120
130
140
25 30 35 40 45 50 55 60 65 70 75
Million
Head
Year
U.S. Cattle InventoryJanuary 1, 1925-1975
Source: USDA
A Picture of A Healthy Industry
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50
60
70
80
90
100
110
120
130
140
75 80 85 90 95 00 05 10
Million
Head
Year
U.S. Cattle InventoryJanuary 1, 1975-2011
Source: USDA
A Shrinking Industry Responding to a Long-Run Lack of Profitability
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10094
88 8683
79 7670 69
66 65 6259 58 56 55 53 51 50 52 54 56 55
5963 61
57 58 56 54 53
0
10
20
30
40
50
60
70
80
90
100
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Index
Value
Year
Retail Choice Beef Domestic Demand IndexAnnual, 1980-2010
Source: USDA, Dept. of Commerce & James Mintert, Purdue UniversityPrice Deflated By CPI, 1980 =100 for Choice Beef Demand Index
Index Tracks Demand Changes
But the Demand Index does not address why demand shifts occurred
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Beef Demand Project Results The Big Picture
Consumers Value Convenience Beef falling behind More new product development needed
Consumers are receptive to information about health and nutrition Food safety significant to consumers Income is very important demand driver
Source: Mintert, Tonsor & Schroeder, January, 2009
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-100
-50
0
50
100
150
200
250
300
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
$'s
Per
Cow
Year
Estimated Kansas Cow-Calf Returns1975-2010
Source: Kansas Farm Management AssociationReturns Above Variable Costs
Rising Costs Helped Push Returns Down Returns Were In The Red From 2007 to 2010
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40
50
60
70
80
90
100
01/08 02/26 04/16 06/04 07/23 09/10 10/29 12/17
Thousand
Head
Week Ending
U.S. Beef Cow SlaughterWeekly, Federally Inspected
2010
2011
5 Yr Avg
Source: USDA & James Mintert, Purdue University
As Drought Intensified Cow Slaughter Increased
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4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Million
Head
Year
Annual F.I. Cow Slaughter1980-2011
Source: USDA & James Mintert, Purdue University
Weak Returns & Drought in Southern Plains Driving Cow Slaughter
Cow slaughter in 2011 was up over 4% compared to 2010
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30
31
32
33
34
35
36
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Million
Head
Year
U.S. Beef Cow InventoryJanuary 1, 1995-2011
Source: USDA
Beef Cow Inventory Declining
January 1, 2011 inventory down 1.6% vs. 2010 2012 inventory expected to fall another 1 to 2%
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31
32
33
34
35
36
37
38
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Million
Head
Annual U.S. Commercial Cattle Slaughter
Year
Source: USDA, LMIC Forecast for 2012
And Smaller Inventory Pushing Slaughter Down
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23.0
23.5
24.0
24.5
25.0
25.5
26.0
26.5
27.0
27.5
99 00 01 02 03 04 05 06 07 08 09 10 11 12
Billion
Lbs.
Year
Annual U.S. Beef Production
Source: USDA, 2012 LMIC Forecast
Beef Production Expected to Decline
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Billion
Lbs.
Year
Annual U.S. Beef Exports
Source: USDA & LMIC, 2012 Forecast
And Beef Exports Expected To Break Pre-BSE Record
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Look at the “Net” Trade Impacts
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
80 82 84 86 88 90 92 94 96 98 00 02 04
Billion
Lbs.
Year
Annual U.S. Net Beef Imports
Source: USDA & LMIC
The Year After BSE Struck the U.S.
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The Change Has Been Dramatic
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Billion
Lbs.
Year
Annual U.S. Net Beef Imports
Source: USDA & LMIC, 2012 Forecast
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545556575859606162636465666768
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Lbs.
Per
Capita
Year
Annual U.S. Retail Beef ConsumptionPer Capita
S K-State Dept of Ag. Econ.www.agmanager.infoSource: LMIC, 2012 Forecast
Declining Production & Rising Exports Will Push U.S. Retail Supplies Down
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Record High Prices Ahead
55
65
75
85
95
105
115
125
135
85 87 89 91 93 95 97 99 01 03 05 07 09 11
$
per
Cwt.
Year .
Kansas Slaughter Steers Annual Average Prices .
Source: USDA-AMS, LMIC Forecast for 2012
2012 Prices Up 47% Compared to 2009
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Fed Cattle Prices Will Support Yearling Prices
60
70
80
90
100
110
120
130
140
150
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
$
per
cwt.
Year
Dodge City, KS 700-800 Lb. Steer Prices .
Source: AMS-USDA, Dodge City, KS, LMIC Forecast 2012
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And Calf Prices
60
70
80
90
100
110
120
130
140
150
160
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
$
per
cwt.
Year
Dodge City, KS 500-600 Lb. Steer Prices .
Source: AMS-USDA, Dodge City, KS, LMIC Forecast for 2012
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North American Pork Industry
70
80
90
100
110
120
130
140
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
Million
Head
Year .
U.S. & Canadian Hog Slaughter Annual, 1981-2011
U.S. Commercial Hog Slaughter
Canadian F.I. Hog Slaughter
Source: USDA , Agriculture and Agri-Food Canada & LMIC
30% increase over 20 years
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0.00.51.01.52.02.53.03.54.04.55.05.5
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Billion
Lbs.
Year
Annual U.S. Pork Exports
Source: USDA, LMIC Forecasts 2012
Export Growth Was a Big Help
2011 U.S. Exports Up 15% compared to 2010 2011 Exports Up 54% compared to 2007’s
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Exports Have Become Important For All Meats But Pork’s Had the Most Success
0%
5%
10%
15%
20%
25%
60 65 70 75 80 85 90 95 00 05 10
%
of
Prod.
Year
U.S. Meat Exports .% of U.S. Production .
Beef Exports
Pork Exports
Poultry Exports
Source: USDA
23% of U.S. pork prod. exported in 2011
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While Exports Were Increasing Pork Production Declined
11
13
15
17
19
21
23
25
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Billion
Pounds
Year
U.S. Commercial Pork ProductionAnnual
Source: USDA & LMIC, 2011 & 2012 forecast
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Result: Fewer Lbs. of Pork for Consumers
46
47
48
49
50
51
52
53
54
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Lbs
per
capita
Year
Annual U.S. Retail Pork ConsumptionPer Capita
Source: USDA & Livestock Marketing Information CenterForecasts for 2011 & 2012
Per capita supply down 7% since 2009
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Smaller Supplies Led to Skyrocketing Retail Prices Starting in mid-2010
280
290
300
310
320
330
340
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Cent's
Per
Pound
Month
U.S. Retail Pork Price2010 2009 5 Yr Avg
Source: USDA
Prices increased 13% from 1st quarter to 4th quarter
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Pork Price Rally Continued in 2011
100
125
150
175
200
225
250
275
300
325
350
375
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
Cent's
Per
Pound
Year
Monthly Retail Pork Prices
Source: USDA
Record high retail prices Prices in 2011 up 11% compared to 2010
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What’s Ahead in 2012?
80
85
90
95
100
105
110
115
120
90 92 94 96 98 00 02 04 06 08 10 12
Million
Head
Year
Annual U.S. Commercial Hog Slaughter
Source: USDA, LMIC forecast for 2012
Hog slaughter in 2012 will increase about 1%
Purdue Center for Commercial Agriculture
What About the Economy?
-15%
-10%
-5%
0%
5%
10%
15%
20%
30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05 10
%
Change
prior
year
Year
% Change in U.S. Real Disposable IncomeAnnual, Per Capita, 1930-2011
Source: U.S. Department of Commerce
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Unusually Severe Recession Recovery Will Be Slow
-6%
-4%
-2%
0%
2%
4%
6%
8%
60 65 70 75 80 85 90 95 00 05 10
%
Change
prior
year
Year
% Change in U.S. Real Disposable IncomeAnnual, Per Capita, 1960-2011
Source: U.S. Department of Commerce
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Savings vs. Expenditures Will Be Important
0
2
4
6
8
10
12
80 85 90 95 00 05 10
%
of
Disposalbe
Inc.
Year
U.S. Savings RateAnnual, 1980-2011
Source: U.S. Department of Commerce, 2011 estimated
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All Meats Will Benefit From Smaller Supplies of Competing Meats
195
200
205
210
215
220
225
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Lbs.
per
person
Year
Annual U.S. Red Meat & Poultry ConsumptionPer Capita
Source: USDA, LMIC Forecast for 2012
Meat consumption in 2012 will be down over 10% compared to 2007
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How Much Strength Can We Expect in the Japanese Market?
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Billion
Pounds
Year
Annual U.S. Pork Exports To Japan .
Source: USDA & James Mintert, Purdue University
Japan’s share of U.S. pork exports was 29% in 2011
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Leading Pork Producers in 2010
1. China 49% 2. EU 22% 3. US 10% 4. Brazil 3% 5. Russia 2% 6. Canada 2% 7. Japan 1%
Share of World Production
Source: USDA-FAS
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Leading Pork Importing Nations in 2010
1. Japan 20% 2. Russia 15% 3. Mexico 12% 4. US 7% 5. Hong Kong 7% 6. Canada 4%
Share of World Trade
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Consumers’ Rating Pork “Very Safe”, by Country
U.S. 43%
Canada 44%
Mexico 12%
Japan 12% Source: Schroeder, Tonsor, Mintert & Pennings, 2006
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% of Consumers That Listed Safety Assurance as a Top 5 Beef Purchase Determinant, by Country?
U.S. 26%
Canada 32%
Mexico 36%
Japan 57% Source: Schroeder, Tonsor, Mintert & Pennings, 2006
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How Will Japanese Consumers’ React to Ongoing Food Safety Concerns?
• Japanese consumers
– More concerned about food safety than U.S. or Canadian consumers
– Food safety concerns have sometimes held back demand for food imports in Japan
• Will the reverse be true as result of concerns about radiation contamination in Japanese food supply?
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Profitability Returned in ‘10 & ’11 But Feed Costs & Exports Will Be Key in 2012
($5)
$29
($1)($2)($0)
$23
$34
$1
($4)
$30
$18
$2
$10
($9)
($0)
$6 $9
($27)
($17)
$10
$15
($15)
($3)
$28 $31
$21
$2
($24)($26)
$13
$8
($40)
($30)
($20)
($10)
$0
$10
$20
$30
$40
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
$'s/Head
Year
Iowa Farrow-Finish ReturnsAnnual Average
Source: Iowa State University , 2011 through October
Profit margins will be improve moderately in 2012
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