Meat & Poultry Situation & Outlook … · Food spending is rising again Grocery store sales +3.7%,...

From information, knowledge

Paragon Economics, Inc.

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

PPIC-RAC – Raleigh, NC – April 2012.

Meat & Poultry Situation & Outlook



IT’S DEMAND, STUPID!



IT’S DEMAND, STUPID!

(and supply, too, for some things!)



Broiler production is down 5.6% YTD



Pork production is up only 1% YTD



Beef production is down 3.5% YTD



Total supply is down 2.8% -- & exports are up



Some demand factors are positive: GDP



Consumer sentiment: Highest since June . . .

. . . Improving employment/unemployment



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



RPI improving– and driven by PERFORMANCE!



Domestic meat demand improved in ’11 . . .

. . ‘12 thru Feb. is mixed – soft since then?



Beef per cap consumption – fell 2.3# in ‘11



Per cap pork consumption fell by 2# in ‘11 . . .

. . . But demand is strong! How so?



Monthly yr/yr indexes for February-- mixed



Others are NOT – PDI stagnant since May. .

. . Per cap PDI was DOWN, yr/yr in Jan & Feb



2008 record was $4.165 – How much higher?



And along comes LFTB – and now BSE again

LFTB was negative publicity for MEAT, not just ground beef

- Took 400-500 million pounds out of lean beef supply

- At 3:1 conversion and 75% abandonment, put 900 million pounds of 50s back on the market



Not hard to see the impact!



And along comes LFTB – and now BSE again

LFTB was negative publicity for MEAT, not just ground beef

- Took 400-500 million pounds out of lean beef supply

- At 3:1 conversion and 75% abandonment, put 900 million pounds of 50s back on the market

My opinion: Demand impacts would have died earlier had Secretary of Ag and governors no “helped”



Higher freezer stocks: Beef +14%, yr-on-yr . . .

. . . Pork +6.7%, Chicken - 17%, ALL +1.9%



Record-high retail prices – good but . . .

. . if demand is soft, what is a good response?



WORLD DEMAND



World economy is much shakier than in ’11 . .

. . U.S. customers are recovering/expanding



Another view of world growth prospects . . .



Dollar Index futures have gained 6-7%



Customers’ currencies are mixed vs. ‘11



$US somewhat stronger vs. competitors



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

. . . Any growth in 2012 will be a victory



Pork exports +27%, led by China/HK at +141%

. . . Canada +38%, Mexico +20%, Japan +9%



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



U.S. beef has diversified its export markets . .

. . . Total shipments were down 6.2% thru Feb



Broiler exports were RECORD LARGE in ’11 . . .

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

. . . And will remain roughly level thru ‘13



PRODUCTION COSTS



First major cost paradigm shift since ‘73-’74



Ethanol now uses more corn than feed/res.



Grains for feed – Lower 6 of last 7 years



Add in DDGS – still 6 of 7 but decline is less

How can we grow output? Drive down prices?



Historical perspective for acreages



Corn stocks to use ratio near historic lows

- 40 -



Higher S/U ratio but HIGHER price = Demand



And wheat is NOT keeping up with corn . . .

. . . More feeding is likely a long-term trend



Current cost estimates – Mid-$80s for ‘12



Fed cattle costs near $140 by Q3-Q4



Higher costs drove HUGE broiler losses . . .



CHICKEN



Huge reduction of the broiler brdng. flock



AGGRESSIVE broiler cuts since mid-summer. .

2011 cuts offset ALL of

2010 increases – down

3.5% for the year

DOWN 5.3% 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 6.2% YTD 2012

But production is down

only 5.6% YTD

Significant but smaller

than other numbers



Reason: A shift to heavy (8-9 lb.) birds . . .

. . . Will continue – more breast meat



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

. . . traction from cutbacks has been slow



CATTLE & BEEF



Beef and cattle

Assumptions:

- Worst of LFTB is behind us

- BSE will have short-term consequences

Higher feedlot inventories will continue to provide LOWER steer-heifer numbers

Though lower than expected and desired, the Choice cutout was still $188 last wk.

Lower supplies through 2014 – will still push beef prices up as demand rebounds



Drought is still the driver for beef industry

State Beef Cows

(Thousand)

TX 5025

OK 2036

KS 1478

FL 926

CO 727

AL 659

GA 502

MS 495

NM 488

LA 461

NC 351

SC 184

AZ 180

Total 13512

Share 43.8%



Lowest U.S. beef cow inventory since 1963



Beef: Four smallest calf crops since 1950

-0.7 Percent

2010 = 35.7 Million Head

-0.5 Percent


-1 Percent




COF was +2.6% on Mar 1 – 21 months up . . .

. . . How to reconcile with LOWER slaughter?



Str/Hfr slghtr down yr/yr in 38 of last 40 wks.

. . .and is down 5.6% YTD – HORRIBLE margins



No turn-around in sight for availability. . .

. . . Per-cap down 2-3% in ‘12 and 3%+ in ‘13



Choice cutout was headed for $200-plus . . .

. . . But was “slimed” – again above $185



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



Record-high calf prices have barely blinked



BIG, BIG incentives to grow the cow herd!



Heifers retained were 1.4% lower than in ‘11



Higher cattle/beef will last through 2014!



HOGS & PORK



March H&P report – close to expectations. . .

Category 2011 2012

12 as Pct

of '11

Pre-

Report

Actual -

Estimate

Inventories on March 11

All hogs and pigs 63684 64872 101.9 101.7 0.2

Kept for breeding 5788 5820 100.6 100.3 0.3

Kept for market 57896 59052 102.0 101.8 0.2

Under 50 lbs. 18863 19332 102.5 101.5 1.0

50-119 lbs. 16060 16456 102.5 101.9 0.6

120-179 lbs. 12361 12569 101.7 101.9 -0.2

180 lbs. and over 10612 10695 100.8 102.1 -1.3

Farrowings2

Dec-Feb sows farrowed 2843 2877 101.2 100.7 0.5

Mar-May Intentions 2917 2890 99.1 100.2 -1.1

Jun-Aug Intentions 2927 2880 98.4 100.3 -1.9

Dec-Feb Pig Crop1 27866 28681 102.9 102.4 0.5

Dec-Feb pigs saved per litter 9.8 9.97 101.7 101.7 0.0

*Thousand head **Thousand litters

USDA Quarterly Hogs and Pigs ReportMarch 30, 2012



Litter size growth 2.0% over past 4 years. . .

. . . How high can litter size go?



YTD slaughter within 0.1% of expected. . .

. . . Expect Q2 & Q3 ‘12 supplies up 2– 2.5%



Weights remain high but will decline . . .

. . .‘12 increases: weather, margins, cutbacks



YTD pork production is +0.9% from 2011



Cutout value has softened since March 1. . .

. . . Normal rally? -- now only about $6



Hog prices have held steadier . . .



‘12 profits reached $19/hd in mid-Feb . . .

. . . Were <$1 last week – has been $8-10



Key issues for ‘12 . . .

U.S. demand – LFTB-BSE, U.S. economy, consumer income levels

Exports – World economy, exchange rates, trade policy, disease status

Feed prices – moisture situation, 2012 acreage and yields, SBM costs

Supplies – Inventories, potential profits, productivity, herd health, weights, constraints



Risks to the outlook

Export disruption – not even a major one would have a big impact

More LFTB-type, libelous crap

Poor growing weather and below-trend crop yields

For cattle: Worsening of drought

For hogs: Any problem with a packing plant in Q4 of 2012 or 2013, BH growth > 1% in 2012



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Meat & Poultry Situation & Outlook … · Food spending is rising again Grocery store sales +3.7%,...

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