Livestock Markets 2007 BillionPer CapPriceExpImp lbs 1 lbs 2 $/cwt% 3 % 3 Beef26.465.292.615.411.6...
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Transcript of Livestock Markets 2007 BillionPer CapPriceExpImp lbs 1 lbs 2 $/cwt% 3 % 3 Beef26.465.292.615.411.6...
Livestock Markets 2007Billion Per Cap Price Exp Imp
lbs1 lbs2 $/cwt %3 %3
Beef 26.4 65.2 92.61 5.4 11.6
Pork 21.9 50.8 46.94 14.3 4.4
Broilers 36.1 85.4 77.53 16.0 0.2
Turkeys 5.9 17.6 81.98 9.3 0.2
1/ Billion pounds of US production
2/ Pounds consumed per person per year
2/ As a percent of production
Retail Per Capita Meat Consumption, Retail Pounds/year
0102030405060708090
100
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Beef Pork Chicken Turkey
Remember: Consumption is not demand!
Measuring consumption Balance sheet approach
Beginning inventories+ Production+ Imports- Exports- Ending inventory= Disappearance
Per Capita consumption = Disappearance / Population
A measure of supply rather than demand
US Meat Exports, Carcass Weight (Billion Lbs)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Beef Pork Chicken Turkey
US Beef Trade Balance, Billion Lbs
0.0
1.0
2.0
3.0
4.0
5.0
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Beef Exp Beef Imp Beef Imp + Net Cattle
US Pork Trade Balance, Billion Lbs.
0.0
1.0
2.0
3.0
4.0
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Pork Exp Pork Imp Pork Imp + Net Hogs
Average Carcass Weight for US Cattle and Hogs
650
670
690
710
730
750
770
790
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
175
180
185
190
195
200
205
Beef Pork
2007 v. 1987Beef +17.4%Pork +13.9%
Livestock Marketing Decisions
When to sell• Weight, grade, costs
What to sell• Live, carcass, grid
Where to sell• Type of market• Location
When to sell Classic production function
• Optimal selling weight is where MC=MR• The cost of the next pound = the price of the next pound
Cost per pound decrease then increase with weight • Costs are a function of
» Genetic potential» Cost of diet» Opportunity costs of future production
Price per pound increases then decreases• Weight discounts outside optimal range• Fatter carcasses are discounted• Adding extra weight
MR
MC
Weight
$
When to sell Marginal Revenue
• Uncertain about price if you wait to sell (price trends)
• Typically animals increase the portion of fat relative to muscle produced as they get heavier.
• There is an optimal weight range by packers» Discounts if too light or too heavy
• Optimal degree of “finish”» Different for hogs versus cattle
» Both can be too fat
Estimated Lean Meat Yield for Pork Carcasses by Carcass Weight
88
90
92
94
96
98
100
102
104
106
108
110
170 180 190 200 210 220
When to sell
MC increases at an increasing rate as the animal nears the optimal market time• Function of animal efficiency related to
genetics• Is impacted by feed prices
» For the same efficiency the MC is higher if feed is 10 cents per pound than when feed is five cents per pound.
Marginal and Average Feed to Gain Ratio by Slaughter Weight for Market Hogs
0
1
2
3
4
5
6
230 240 250 260 270 280 290
Average Feed to Gain Marginal Feed to Gain
When to sell
Marginal Revenue • MR increases then decreases due to
premiums and discounts associated with grades
• Is also a function of seasonal price trends that could be higher or lower
Hog Carcass Weight Discounts ($/cwt)
-$20.00
-$18.00
-$16.00
-$14.00
-$12.00
-$10.00
-$8.00
-$6.00
-$4.00
-$2.00
$0.00
145# 155# 165# 175# 185# 195# 205# 215# 225#
Average of the reported range of price discount for carcass weights.
Hog Carcass Upper and Lower Price by Backfat Thickness in Inches for 7.0 sq in Loin Eye, ISM, Aug 26, 2005
$50
$55
$60
$65
$70
$75
$80
0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.405-Day Rolling Average Market Hog: 193.50 lb carcass, 0.75 inch back-fat, 6.90 square inch loin/2.30 inch loin depth, FFLI: 51.28%
Hog Carcass Upper and Lower Prices by Loin Eye Area for 0.7 Inches of Backfat, ISM August 26, 2005
$50
$55
$60
$65
$70
$75
$80
4 5 6 7 85-Day Rolling Average Market Hog: 193.50 lb carcass, 0.75 inch back-fat, 6.90 square inch loin/2.30 inch loin depth, FFLI: 51.28%
When to sell
Complicated decision based on• Season• Current leanness and efficiency• Packer buying program
Also influenced by• Production schedule• Cost of replacement animal
SEASONAL PRICE INDEX -- UTILITY COWSSouthern Plains, 1997-2006
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
Jan Mar May Jul Sep Nov
Index
Max.Index
Avg.Index
Min.Index
C-P-5107/12/07
SEASONAL PRICE INDEX -- FED STEERSSouthern Plains, 1997-2006
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
Jan Mar May Jul Sep Nov
Index
Max.Index
Avg.Index
Min.Index
C-P-51A07/12/07
SEASONAL PRICE INDEX -- FEEDER STEERS700-800 Pounds, Southern Plains, 1997-2006
0.85
0.90
0.95
1.00
1.05
1.10
1.15
Jan Mar May Jul Sep Nov
Index
Max.Index
Avg.Index
Min.Index
C-P-51B07/12/07
SEASONAL PRICE INDEX -- STEER CALVES500-600 Pounds, Southern Plains, 1997-2006
0.85
0.90
0.95
1.00
1.05
1.10
1.15
Jan Mar May Jul Sep Nov
Index
Max.Index
Avg.Index
Min.Index
C-P-51C07/12/07
SEASONAL PRICE INDEX-- SLAUGHTER HOGS
Iowa - Southern Minnesota, 1997-2006
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
Jan Mar May Jul Sep Nov
Index
Max.Index
Avg.Index
Min.Index
H-P-0307/12/07
While are there seasonal price patterns?????
Seasonal supply driven by• Production cycle that impacts
» Conception
» Deathloss
» Cost of gain
Seasonal demand driven by• Weather• Holidays
Where to sell
Terminal markets have declined Auction markets important when assembly is
needed• Feeder cattle and cull cows
• Growing interest in fed cattle in fringe areas
Direct sales• Slaughter cattle and hogs
• Feeder pigs
• Growing in feeder cattle where source verification is important
Slaughter Cattle and Hogs Direct sales most common
• Animals are delivered directly to the packing plant Spot or cash market
• Seller contacts buyer when ready to sell• Negotiate price and terms on each group
Contract market• May be for one group or an ongoing agreement
between buyer and seller• Terms and pricing method determined ahead of
marketing date
Negotiated
Other Market
Formula
Swine or Pork
Market Formula
Other Purchase
AgreementTotal Wt
Avg
HEAD COUNT 37,083 23,563 156,551 54,891 272,088
CARCASS BASE PRICE 71.19 63.7 69.58 66.95 68.68
AVERAGE NET PRICE 72.87 67.01 72.29 68.53 71.12
LOWEST NET LOT 43.77 54.31 46.6 55 54.48
HIGHEST NET LOT 79.86 76.9 80.99 81.41 79.32
AVERAGE LIVE WT 251.66 264.29 261.79 259.21 260.38
AVERAGE CARCASS WT 192.23 201.61 197.36 198.97 197.42
AVERAGE SORT LOSS -1.39 -1.13 -1.19 -0.83 -1.13
AVERAGE BACKFAT 0.75 0.77 0.75 0.75 0.75
AVERAGE LOIN DEPTH (LD) 2.27 2.52 2.47 2.28 2.41
LOINEYE AREA (LD Converted) 6.81 7.58 7.43 6.85 7.26
AVERAGE LEAN PERCENT 53.61 54.23 54.58 53.88 54.29
NATIONAL DAILY DIRECT HOG PRIOR DAY REPORT - SLAUGHTERED SWINE Slaughter Data for Wednesday, August 24, 2005
Mandatory Price Reporting Definitions NEGOTIATED PURCHASES
Cash or spot market purchase of swine by a packer from a producer where there is an agreement on base price and a delivery day not more than 14 days after the date on which the livestock are committed to the packer.
OTHER MARKET FORMULA PURCHASES The pricing mechanism is a formula price based on any market other than the market for swine, pork, or a pork product. It does include formulas based on futures or options contracts.
SWINE OR PORK MARKET FORMULA PURCHASES The formula price based on a market for swine, pork, or a pork product, other than any formula purchase with a floor, window, or ceiling price, or a futures or options contract for swine, pork, or pork product.
Mandatory Price Reporting Definitions OTHER PURCHASE ARRANGEMENTS
This would include long term contract agreements, fixed price contracts, cost of production formulas, formula purchases with a floor, window, or ceiling price.
PACKER OWNED Swine that a packer, including a subsidiary or affiliate of the packer, owns for at least 14 days immediately before slaughter.
PACKER SOLD Swine that are owned by a packer, including a subsidiary or affiliate of the packer, for more than 14 days immediately before sale for slaughter; and sold for slaughter to another packer.
Percent of U.S. Hogs Sold Through Various Pricing Arrangements, January 1999-2007*1999 2000 2001 2002 2003 2004 2005 2006 2007
Hog or meat market formula 44.2 47.2 54 44.5 41.4 41.4 39.9 41.8 38.3
Other market formula 3.4 8.5 5.7 11.8 5.7 7.2 10.3 8.8 8.5
Other purchase arrangement 14.4 16.9 22.8 8.6 19.2 20.6 15.4 16.6 15.2
Packer-sold 2.1 2.2 2.1 2.4 2.6 6.7
Packer-owned 16.4 18.1 17.1 21.4 20 22.7
Negotiated - spot 35.8 25.7 17.3 16.7 13.5 11.6 10.6 10.2 8.6
Producer Sold Hogs: Price by Purchase Type Relative to the Average Price
NegotiatedOther Mkt Formula
Swine/pork Mkt Formula
Other Purchase
Arrangement
2001 100% 95% 100% 98%
2002 96% 103% 96% 112%
2003 98% 102% 97% 105%
2004 104% 91% 102% 99%
2005 104% 95% 101% 98%
2001: May-Dec, 2005: Jan-Aug
Feeder cattle sales Live weight sales
• Various weight classes• In general, lower $/# and heavier weights
Auction is major market• Assembly function important
Video auctions Direct trade Premium paid for
• Large uniform lots• Certification/verification ??????
Feeder pig sales
Price/head or live weight• 40-60 pound classes• Weaned pigs (10-12 pounds)
Primarily direct trade• Rapidly declining auctions• Health and stress concerns
Premiums for• Large uniform, single source• Genetic history
Share of Reported Pig Sales by Weight
0%
10%
20%
30%
40%
50%
60%
70%
2000 2001 2002 2003 2004
EW 40 50
Feeder pig sales
Spot market price• Often through a broker• USDA report
Formula pricing• Based on observable price• Spot market• Hog futures maybe corn and SBM
USDA Reported Pig Sales by Formula or Cash Prices
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
EW10 40 45 50 55 All
Formula Cash
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90O
ct-0
3
Dec
-03
Feb
-04
Ap
r-0
4
Jun
-04
Au
g-0
4
Oct
-04
Dec
-04
Feb
-05
Ap
r-0
5
Formula Cash
USDA Reported Cash and Formula Prices for 40# Pigs
What to sell
Live weight• One average price for all live pounds• Negotiated price before delivery or at auction• Weighing conditions important
» Mud, shrink (fill, time, stress)
• Was most common for hogs but not now• Still common in large cattle feedlots, less in Iowa• Used for feeder cattle and feeder pigs
What to sell
Carcass weight (“in-the-meat”)• One average price for all carcass pounds• Negotiated price before delivery• Dressing percent (also called yield)
» Important to compare bids
» Not important in determining value
• Farmer stands risk of trimming and condemnation
• Common for fed cattle in Midwest
What to sell
Dressing percent• DP = carcass weight / live weight• DP hogs approximately 73-76%• DP cattle approximately 61-64%
DP impacted by:• Weighing conditions• Shrink• Fat thickness• Genetics
What to sell Value-based marketing
• Each carcass evaluated and priced individually
• Premiums and discounts determined ahead of delivery
• Base price may be negotiated or come from formula
• Carcasses are graded and values assigned
• Farmer stands grading risk
• Different buyers have different systems
• Nearly all hogs
• Increasingly popular for fed cattle
Value-based Hog Marketing
Two factors impact premiums Carcass weight and leanness
• Fixed premiums (known dollar amount)• Relative premiums (percent adjustment)
Not USDA graded• Packer employee measures• Objective measures
» Fat-O-Meter, ruler, ultra-sound
Hog Carcass Weight DiscountsCarcass Weight Range
145# -27.70 -8.16
155# -27.70 -5.00
165# -10.39 -0.67
175# -3.40 0.00
185# -1.36 0.00
195# -0.68 0.00
205# 0.00 0.00
215# -3.00 1.36
225# -5.26 0.00IOWA/MINNESOTA DAILY DIRECT NEGOTIATED HOG PURCHASE MATRIX
LM_HG204, Fri, Aug 26, 2005, USDA Market News Des Moines, Iowa
Hog Carcass Price by Backfat and Loin Eye Area
Hog Carcass Price by Loin Eye Area/depth (inches)
Backfat 4.0/1.4 5.0/1.7 6.0/2.0 7.0/2.3 8.0/2.7
0.40 62.00 75.05 63.50 75.00 65.00 75.00 66.00 76.00 66.00 76.00
0.50 59.50 75.05 62.00 75.05 65.00 75.05 66.00 75.00 66.00 76.00
0.60 59.50 75.60 62.00 75.60 63.50 75.60 65.00 75.60 66.00 75.60
0.70 59.50 75.60 59.50 75.60 62.00 75.60 65.00 75.60 66.00 75.60
0.80 57.50 75.60 59.50 75.60 62.00 75.60 63.50 75.60 66.00 75.60
0.90 57.50 72.10 59.50 72.10 59.50 72.55 62.00 73.05 65.00 73.80
1.00 56.50 72.10 57.50 72.10 59.50 72.10 62.00 72.10 63.50 73.05
1.10 55.50 67.90 57.50 68.05 59.50 69.05 59.50 70.27 63.50 71.66
1.20 55.50 67.90 56.50 67.90 57.50 67.90 59.50 68.87 62.00 70.96
1.40 52.00 64.00 55.34 64.70 55.34 66.09 56.86 67.48 56.86 68.87
IOWA/MINNESOTA DAILY DIRECT NEGOTIATED HOG PURCHASE MATRIXLM_HG204, Fri, Aug 26, 2005, USDA Market News Des Moines, Iowa
Comparing bidsPrice in appropriate $/cwt A BBid Price (live) $44.50 ---Bid Price (carcass) --- $59.50Lean premium --- +1.25Sort discount --- -.70Dressing percentage 74.5 74.5Adjusted to live 44.50 44.73Transportation -.85 -.35Net farm gate price $43.65 $44.38
Value-Based Cattle MarketingValue-Based Cattle MarketingThree factor impact premiums
1. Carcass Weights
2. Quality Grade Distribution (USDA Grader)
Based on marbling, proxy for eating experience
3. Yield Grade Distribution (USDA Grader)
Based on lean meat yield
4. Other specs:
Product safety & quality assurance
Acceptable color
Youthfulness
Percent of Beef Grading Prime, Choice, or Select
0%
10%
20%
30%
40%
50%
60%
70%
80%J-
95
J-96
J-97
J-98
J-99
J-00
J-01
J-02
J-03
J-04
J-05
Prime Choice Select
Beef Yield Grade Percentages
0%
10%
20%
30%
40%
50%
60%J-
95
J-96
J-97
J-98
J-99
J-00
J-01
J-02
J-03
J-04
J-05
YG 1 YG 2 YG 3 YG 4+5
Value-Based Cattle MarketingValue-Based Cattle Marketing
Common Ground for Targets1. Carcass Weights 550 - 950 lbs
2. Quality Grade > Se+ or > Ch0
3. Yield Grade 1’s and 2’s
Quality Yield Grade
Grade 1 2 3 4 & 5Prime +$$$$$ +$$$$ +$$$ -$$
Choice+ and Choiceo +$$$ +$$$ +$$ -$$
Choice- +$$$ +$$ Base -$$$Select -$ -$$ -$$$ -$$$$Standard -$$$$ -$$$$ -$$$$ -$$$$Out Cattle -$$$$$ -$$$$$ -$$$$$ -$$$$$
Carcass Merit Grid and Premium TrendsCarcass Merit Grid and Premium Trends
Where are the Grid Rewards & Discounts? Where are the Grid Rewards & Discounts?
Iowa Quality Beef Grid 2005 Base: NE Wted Avg 65-80% Choice Par: Ch YG3 =Base + $2.00 or Plant clean
up which ever is greater
Quality Grade $/cwt• Prime: $6.00• Certified Angus: $3.50• Select USDA• Standard -$15.00• Commercial -$30.00• Dark Cutters -$30.00• Other -$30.00
Yield Grade$/cwt
1:$4.00
2:$3.00
3:Par4:
-$20.005:
-$25.00
Carcass weights$/cwt
Under 500-$40.00
500-549-$15.00
950-999-$8.00
1000 & up-$35.00
Comparing Bids ($/carcass cwt)Price in appropriate $/cwt A BBase bid price 122.00 121.00
Prime 3% --- +6.00Top 2/3 Ch 45% --- +3.50Select 30% --- -8.00Yield 1&2 60% --- +2.50Off weight 3% --- -15.00
Transportation -.65 -1.25Net farm gate price 120.35 120.16Bid A is a straight in the meat bid, Bid B is a valued-based bid.
Summary When to sell is complicated
• Perishable, non-storable
• Rising cost and changing value
What to sell is complicated• Understanding shrink
• Know what is under the hide
Where to sell• Transportation
• Buyer programs
• Number of bidders
Making Pricing Decisions
Regardless of what, when and where to sell the farmer must decide when to price.
Typically, animals priced at delivery Can be priced before delivery with
futures or forward contracts How to decide if to price early?
Price Objectives
Express cost and profit in $/cwt terms• Same units as price
Start with cost of production• Variable cost• Total costs
Set multiple objectives• Return over variable cost• Return over total cost• Desired profit margin
Cost of Production
Raised livestock• Farrow to finish, Cowherd to finish• Accumulate cost from birth through finish• Relatively stable cost over time• Impacted by input prices and production
» Feed is typically 60-70% of cost
» Low productivity increases the cost of those that make it to finish because the fixed costs are divided by a smaller number.
Cost of Production
Purchased feeder livestock• Derived demand for feeder animal• Highly variable price• Depends upon
» Expected selling price for finished animal
» Feed costs
Feeder & Financing 729.24 60.77+ Feed Costs 186.71 76.33+ Operating Costs 30.46 78.87+ Labor Costs 36.55 81.91+ Fixed Costs 24.63 83.96+ Desired Return 25.00 86.05
Objective Based Pricing Strategy
550# steer calf fed to 1200 slaughter weight
Cost/hd $/cwt
Objective Based Pricing
Compare price objectives to price offered• Basis adjusted futures• Basis adjusted options floor price• Forward contract price from packer• Price forecast of cash prices
How much to pay for feeder animal
Work back from total revenue
Expected revenue 1020.00 185.45- Interest Costs 41.74 177.87- Feed Costs 186.71 143.92- Operating Costs 30.46 138.38- Labor Costs 36.55 131.74- Fixed Costs 24.63 127.26- Desired Return 25.00 122.71550# steer calf fed to 1200 slaughter weight
Cost/hd $/cwt
Breakeven Purchase Price for 550# Steers
Fed Cattle Price
FCOG $81 $83 $85 $87 $89
24.72 119 123 127 131 136
26.72 117 121 125 129 133
28.72 114 119 123 127 131
30.72 112 116 120 125 129
32.72 110 114 118 122 126
Corn WDGS hay int yard other
$1.75 $32.00 $50 7% $0.30 $30