Meyer - Pork Industry Outlook - Vita Plus€¦ · From information, knowledge Paragon Economics,...

From information, knowledge

Paragon Economics, Inc.

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

Vita Plus Swine Summit – March 2010

Pork Industry Situation and Outlook



DEMAND



Have we found the saturation point for meat?

U S RED MEAT & POULTRY CONSUMPTIONPer Capita, Retail Weight, Annual

0

50

100

150

200

1986 1989 1992 1995 1998 2001 2004 2007 2010

Pounds

Turkey

TotalChicken

Pork

Beef



’09 meat demand was a mixed bag . . .

U.S. CONSUMER DEMAND INDEXES

60

70

80

90

100

110

120

130

140

150

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Index, '85=100

BroilersChoice BeefPork

Source: University of Missouri

January-December '09:Beef: Down 2.7%Pork: Up 3.1%

Broilers: Down 3.2%



Livestock Marketing Information CenterData Source: Bureau of Economic Analysis

QTRLY GROSS DOMESTIC PRODUCT (GDP)Real Dollar (2005) Change from Previous Quarter

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

1994 1996 1998 2000 2002 2004 2006 2008

Percent Change

E-E-0101/29/10

The economy IS recovering . . .




TOTAL DISPOSABLE PERSONAL INCOMEQuarterly

6500

7000

7500

8000

8500

9000

9500

10000

10500

11000

11500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Thou. Dollars

CurrentDollars

Real2005Dollars

E-E-0201/29/10

DPI is expected to get back to ’07 level in ‘10




PERSONAL SAVINGS AS A PERCENT OF DISPOSABLE PERSONAL INCOME

Current Dollars, Quarterly

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Percent

02/08/10

But people are saving MUCH MORE!!!



NRA’s December RPI was best in 22 mos. . . .. . . fell 0.3 in January, still shows contraction

National Restaurant Association's Restaurant Performance IndexValues Greater than 100 = Expansion; Values Less than 100 = Contraction



Remarkably strong 2009 exports . . .. . . Can 2010 see a 7-9% increase?

U.S. PORK EXPORTS - MONTHLY

0

50

100

150

200

250

300

350

400

450

500

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Mil. lbs. carc.

U.S. Pork Exports

Exports '04-'07 Trend

December '09:+16.5% vs. 2008+20.2% vs. 2007

For all of 2009:+6.2% from '04 to '07 Trend



Exports off to a slow start in 2010

U S PORK EXPORTSCarcass Weight, Monthly

200220240260280300320340360380400

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Mil. Pounds

Avg.2004-08

2009

2010



$US is a key factor in exports . . . . . . EU situation (Portugal) isn’t helping at all!



CHICKEN



Broiler hatchery flock is up 1% from ‘08 . . . . . . but down 6.3% from Dec ‘07

BROILER HATCHERY FLOCK

30,000

35,000

40,000

45,000

50,000

55,000

60,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Thousand Hens

Smallest flock since Sept '97 at 52.345

million



Egg sets are 0.8% higher YTD . . .. . . After -2.8% in ’08 and -4.4% in ‘09

WEEKLY BROILER EGG SETS

180,000

185,000

190,000

195,000

200,000

205,000

210,000

215,000

220,000

J F M A M J J A S O N D

Thousand

2010

2009

Average '04-'08

y

YTD 2009: -5.9%



’10 YTD broiler slaughter: UP 2.3% vs. ’09 . . . . . .-2% from ’08 but still 2.6% higher than ‘07

U.S. FI BROILER SLAUGHTER, WEEKLY

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000


Thous. Hd.

2010

2008

2009

Avg. '03-'07

2009: -3.3%



Broiler production is up 3.3% YTD

FI BROILER PRODUCTION, WEEKLY

600.00

650.00

700.00

750.00

800.00

850.00

900.00

950.00

1000.00


Mil. lbs. RTC

2010

2009

Avg. '04-'08YTD 2010: +3.3%



Record exports in ’09 . . .

U S BROILER EXPORTSAs a Percentage of Broiler Production, RTC, Annual

0

5

10

15

20

1986 1989 1992 1995 1998 2001 2004 2007 2010

Percent

. . . But a decline is forecast in ‘10



And ’10 is off to a lousy start – Russia!

U S BROILER EXPORTSRTC Weight, Monthly

350

400

450

500

550

600

650


Mil. Pounds

Avg.2004-08

2009

2010



But wholesale broiler prices are up sharply

BROILER PRICES12-City Composite, Weekly

68

73

78

83

88

93

JAN

APR

JUL

OCT

Cents Per Pound

Avg.2004-08

2009

2010

. . . And will rise more -- beef and pork!



CATTLE AND BEEF



COF: March 1 down 3.2% from ‘09. . . . . . And expect more of this all year

CATTLE ON FEEDUS Total, Monthly

9.5

10.0

10.5

11.0

11.5

12.0


Mil. Head

Avg.2004-2008

2009

2010



HUGE losses since ’07 but profits in January

CHOICE STEER PRICE vs BREAKEVENCattle Feeding, S. Plains, Monthly

60

65

70

75

8085

90

95

100

105

110

2002 2003 2004 2005 2006 2007 2008 2009 2010

$ Per Cwt

SteerPrice

Breakeven

ProjectedBreakeven



Losses in ’08 & ’09 have reduced cow herd

COW-CALF RETURNS AND CATTLE INVENTORY

U.S., Annual

-100

-50

0

50

100

150

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

$ Per Cow

90

95

100

105

110

115

Mil. Head

Cow-CalfReturns

CattleInventoryJan 1



Jan ’10: Smallest beef cow herd since 1963

JULY 1 COW INVENTORYU.S., Annual

20

25

30

35

40

45

50

55

1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

Mil. Head

Beef Cows

Dairy Cows



2009: Smallest calf crop since 1950

CALF CROPU.S., Annual

30

35

40

45

50

55

1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009

Mil. Head



Cattle slaughter as much as 6% higher . . . . . . But YTD now stands at +1.9%

U.S. FI CATTLE SLAUGHTER, WEEKLY

450

500

550

600

650

700

750


Thous. hd.

2009

2010

Average, '04-'08



Str/Hfr surge has pulled weights down 2% . .. . . Over 20 lbs/head less carcass beef

FI CATTLE CARCASS WEIGHTS

720

730

740

750

760

770

780

790

800

810

820


Pounds

200920082010Avg. '0s-'06



Choice cutout at $150 – first time since 4/09

BOXED BEEF CUTOUT VALUEChoice 600-900 Lbs. Carcass, Weekly

130

135

140

145

150

155

160

JAN APR JUL OCT

$ Per Cwt.

Avg.2004-08

2009

2010



Lower weights have helped rally prices . . .

CHOICE STEER PRICE, 5-MKT. AVG.

70

75

80

85

90

95

100

105

110


$/cwt carcass

Avg '04-'082009

2010

. . . To their highest level since Sept 2008



The problem for beef is still MIDDLE meats

WHOLESALE BEEF RIBEYE PRICESBoneless, Light, Weekly

400

450

500

550

600

650

700

750

JAN

APR

JUL

OCT

$ Per Cwt.

Avg.2004-08

2009

2010

WHOLESALE BEEF LOIN STRIP PRICESBoneless 0x1, Weekly

350

400

450

500

550

600

650

700

JAN

APR

JUL

OCT

$ Per Cwt.

Avg.2004-08

2009

2010

WHOLESALE BEEF FULL TENDER PRICESMusl-On, 5 Pounds and Up, Weekly

550

650

750

850

950

1050

1150JA

N

APR

JUL

OCT

$ Per Cwt.

Avg.2004-08

2009

2010



Lower value (mainly retail) cuts are strongerWHOLESALE BEEF CHUCK PRICES

Boneless 2 Piece, Weekly

120

130

140

150

160

170

180

JAN

APR

JUL

OCT

$ Per Cwt.

Avg.2004-08

2009

2010

WHOLESALE BEEF BOTTOM ROUND PRICES18-33 Pounds, Weekly

125

135

145

155

165

175

185

JAN

APR

JUL

OCT

$ Per Cwt.

Avg.2004-08

2009

2010

WHOLESALE BONELESS BEEF PRICESFresh, 90% Lean, Weekly

120

125

130

135

140

145

150

155

160

165

JAN

APR

JUL

OCT

$ Per Cwt.

Avg.2004-08

2009

2010

WHOLESALE BONELESS BEEF PRICESFresh, 50% Lean, Weekly

35

45

55

65

75

85

95JA

N

APR

JUL

OCT

$ Per Cwt.

Avg.2004-08

2009

2010



PORK AND HOGS



COSTS ARE STILL THE ISSUE!



Even a record corn crop has been difficult . . .

U S ANNUAL CORN PRODUCTIONCrop Year

2

4

6

8

10

12

14

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Bil. Bushels

. . . Delayed harvest, quality issues



Corn usage for ethanol up to 4.3 bil. bu. . . .. . . +17% vs. ’09; +300 mil. bu. more in ‘11

U.S. CORN PRODUCTION & USAGE BY CATEGORY

0

1000

2000

3000

4000

5000

6000

7000

1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Usage - Mil. bu.

EthanolFSI-Non EthanolFeed & ResidualExports

USDA Forecast, Feb. 2010



RFS2 announcement from EPA

No change in the corn ethanol number –still 12 billion gallons in 2010Main Issue: Corn is now a more certain part of the Renewable Fuel Standard- Recalculation of GHG reduction to 21% vs.

2005 gasoline baseline- Smaller impact of indirect land use change

(ILUC) due to new U.S. yields and using 120 countries instead of 40

- Suspicion of scientific gerrymandering but . .



Ethanol margins have turned negative again



Cash corn: Lower than ’08 but still pricey . . . . . Still near midpoint of new trading range

CASH CORN PRICE, OMAHA, WEEKLY

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

$/bu.

Source: USDA, Agricultural Marketing Service



Feed costs at lowest levels since 2007

FEED COST INDEX -- CORN-SOY COST, 16% CR. PROTEIN DIET

50

100

150

200

250

300

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

$/Ton

ActualPredicted July 1, 2008Predicted June 11, 2009Predicted September 28, 2009Predicted March 22, 2010



Production costs are creeping higher . . .. . . +25% from historical levels through 2010

ACTUAL & PREDICTED HOG PRODUCTION COSTS*

4045

50

55

60

65

7075

80

85

90

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

$/cwt carcass

Actual Costs per ISU

Predicted/Forecast Costs - Carcass

*Based on relationsip between ISU Estimated Costs & Returns data and historic Omaha corn and Decatur soybean meal prices

3/22/10

Average Cost, 1999-2006: $52.76/cwt

Average Cost thru Dec '10= $65.88/cwt carcass



Summer LH Futures are all near $82 now

Showing some “topping” signs?



Historical perspective of implied cash prices

U.S. HOG PRICES, WEEKLY

30

40

50

60

70

80

90

100

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

$/cwt carc.

Wtd. Avg. Net Price, U.S Wtd. Avg. Base Price, U.S.Pork Cutout Value, 51-52% Lean CME LH FuturesFutures-Implied WCB 51-52% Hog Price

3/22/10

$78.80 Average LH Futures thru Dec '10 =



Can LOCK IN OVER $13.50/HEAD FOR 2010 . . . . . . Losses in Jan, Nov and Dec ONLY!

ACTUAL & PREDICTED HOG PRODUCTION COSTS* AND PRICES

102030405060708090

100

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

$/cwt carcassActual Costs per ISUPredicted/Forecast Costs - CarcassCash Hog PriceFutures-Implied IA-MN Price

*Based on relationsip between ISU Estimated Costs & Returns data and historic Omaha corn and Decatur soybean meal prices

3/22/10

Forecast PROFITS,Feb '10 thru Dec '10

$13.72/head



Frozen stocks among lowest since ’04, so . . .. . . 13% less meat and poultry 2/28 vs. yr. ago

MEAT IN COLD STORAGEMillion Lbs., Product Weight

0

200

400

600

800

1000

1200

00 01 02 03 04 05 06 07 08 09 100

400

800

1200

1600

2000

2400

Beef Pork Chicken Turkey Total Meat

Beef, Pork, Chicken Total Meat and Turkey



Dec report: Supplies will be lower . . .

Category 2008 20092009 as Pct

of 2008Pre-Report Estimates

Actual - Estimate

Inventories on December 11

All hogs and pigs 67,148 65,807 98.0 97.6 0.4Kept for breeding 6,062 5,850 96.5 96.6 -0.1Kept for market 61,087 59,957 98.2 97.7 0.5

Under 50 lbs. 19,428 19,085 98.2 98.1 0.150-119 lbs. 17,396 17,062 98.1 97.9 0.2120-179 lbs. 12,731 12,529 98.4 97.7 0.7180 lbs. and over 11,533 11,282 97.8 97.7 0.1

Farrowings2

Sep-Nov sows farrowed 3,028 2,974 98.2 96.9 1.3 Dec-Feb Intentions 3,011 2,954 98.1 96.8 1.3 Mar-May Intentions 3,018 2,935 97.2 97.0 0.2Sep-Nov Pig Crop1 28,771 28,833 100.2 98.8 1.4Sep-Nov pigs saved per litter 9.50 9.70 102.1 101.9 0.21Thousand head 2Thousand litters

USDA Quarterly Hogs and Pigs ReportDecember 30, 2009

. . . But not by a lot



U.S. herd reduction sped up a bit in Dec . . .. . . Jan 1 Canadian herd down only 4.3%???

SWINE BREEDING HERDS -- US & Canada

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Pct Chnge, Yr-YrCanadaU.S.Can-Am

Canada January 2010 -- Down 4.3%

U.S. December 2009 -- Down 3.5%

y



Can BH: At odds with farrowings & pig cropU.S. & CANADIAN FARROWINGS

-10%

-5%

0%

5%

10%

15%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Pct. Change

Canadian Farrowings

U.S Farrowings

Total Can-Am

U.S. & CANADIAN PIG CROPS

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Pct Chnge

Can Pig Crop

U.S. Pig Crop

Total Pig Crop

Both are at -7.8% for Oct-Dec

•Sows being held for buyout?

•A miscount by Stats Canada?



U.S. sow slaughter plunged to 53k/wk. . . .. . . weather, profits – but has rebounded

U.S. SOW SLAUGHTER

40

45

50

55

60

65

70

75


Thousand Hd.

2009

2010

Avg. '04-'08



Economics Works!!!!!

NATIONAL, 500# & UP SOWS, NEG'D BASE

10152025303540455055606570


$/cwt liveAvg. '04-'0820092010

. . . Record sow prices = more sows!



Dec H&P: ’10 slaughter only -1.5% from ‘09 . . . . . . Dec-Feb: -3.9% vs. yr. ago & -2% vs report

FI HOG SLAUGHTER, WEEKLY

1600

1700

1800

1900

2000

2100

2200

2300

2400

2500

2600


Thous. Head

Actual 09Pred '09Actual 10Pred '10

Based on USDA Hogs & Pigs Report, December '09



Weights reflect performance challenges . .. . . Now running only 1# lower than last year

FI CARCASS WEIGHTS, HOGS

192

194

196

198

200

202

204

206

208


Pounds

200820092010Avg '04-'08



YTD ’10 production is -4.3% vs. ‘09 . . .. . . But was virtually even with ‘09 last week

FI PORK PRODUCTION, WEEKLY

280

320

360

400

440

480

520


Mil. lbs. carc.

2009

2008

2010

Avg '04-'08

YTD 2010: -4.3%



Lower supplies have driven cutout value . . .. . . Will that remain? Can demand carry it?

51-52% LEAN, PORK CUTOUT VALUE

40

50

60

70

80

90

100


$/cwt carcass

20082009Avg. '04-'082010



Hog prices have followed cutout value . . . . . . Highest since Oct 2008 last week!

NATIONAL WTD. AVG. NET PRICEALL PURCHASE METHODS

40

45

50

55

60

65

70

75

80

85

90


$/cwt carcass

200820092010Avg '04-'08



Supply forecasts w/ revisions from LMIC

Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge

2008 Year 116.452 6.7%

2009 Q1 28.488 -3.8% 28.488 -3.8% 28.488 -3.8% 28.488 -3.8%

Q2 27.063 -3.1% 27.063 -3.1% 27.063 -3.1% 27.063 -3.1%Q3 28.419 -1.0% 28.419 -1.0% 28.419 -1.0% 28.419 -1.0%

Q4 29.613 -1.8% 29.613 -1.0% 29.613 -2.0% 29.613 -2.4%

Year 113.583 -2.5% 113.583 -2.5% 113.583 -2.5% 113.583 -2.5%

2010 Q1 27.775 -2.5% 28.203 -1.0% 27.754 -2.6% 28.422 -0.2%

Q2 26.520 -2.0% 27.776 -2.5% 26.742 -1.2% 26.706 -1.3%

Q3 27.850 -2.0% 28.061 -1.5% 28.123 -1.0% 27.784 -2.2%

Q4 28.900 -2.4% 27.776 -2.5% 29.281 -1.1% 28.916 -2.4%

Year 111.045 -2.2% 111.815 -1.6% 111.900 -1.5% 111.828 -1.5%Green figures are actual data from USDA. 3/2/10

December 2009 Commercial Slaughter ForecastsMizzou LMIC MeyerISU



Price forecasts – Look at futures!

Missouri ISU LMIC Meyer CME

51-52% Lean, Live1

Ia-S. Mn. Live Price1

National Wtd Avg. Base Price

National Net Neg'd Price, Wtd. Avg.

CME Lean Hog Futures

3/9/102009 Q1 56.15 56.80 58.11 57.22 $58.14**

Q2 57.67 58.48 59.45 58.18 $59.03**Q3 53.84 58.93 54.01 52.39 $54.18**Q4 53.95* 53.85* 56.61* 55.54* $56.60**Year 55.95* 57.04* 57.05* 55.83* $56.98**

2010 Q1 59 - 63 62 - 66 56 - 59 58 - 62 69.28**Q2 63 - 67 70 - 74 61 - 64 68 - 72 77.74Q3 66 - 70 69 - 73 65 - 68 66 - 70 79.80Q4 61 - 62 64 - 68 63 - 67 60 - 64 70.25Year 62 - 66 66 - 70 61 - 65 63 - 67 74.27

1Converted to carcass using a yield of 75% *Partial USDA data **Average of CME Lean Hog Index

December 2009 Hogs & Pigs Price Forecasts



Today’s Hogs and Pigs Report

Expect some revisions of Dec 1 market inventories – especially the mid-weight categoriesAverage Trade Estimates – vs. year ago- Breeding Herd -- 97.4%- Market Herd – 99.1%- All Hogs and Pigs – 98.9%

My estimates – BH @ 98%, MH @ 99%



If 98% is right, BH has grown since Dec 1

U.S. BREEDING HERD, QUARTERLY

5000

5500

6000

6500

7000

7500

8000

8500

9000

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Thous. Hd.

March 2010 @ 98% of 2009: 5.872 mil. head22,000 MORE than on December 1

X



Take-aways

Chicken supplies are growing but the pace is slow – and prices are risingBeef supplies are falling and prices are risingPork supplies are lower (but will likely steady the rest of ’10) and prices are risingSEE THE PATTERN? – Driven by costsWholesale prices of all species are rising –How will consumer react?



All wholesale values are higher and risingBROILER PRICES

12-City Composite, Weekly

68

73

78

83

88

93

JAN

APR

JUL

OCT

Cents Per Pound

Avg.2004-08

2009

2010

TURKEY PRICESEastern Hens, 8-16 Pounds, Weekly

65

70

75

80

85

90

95

JAN

APR

JUL

OCT

Cents Per Pound

Avg.2004-08

2009

2010

BOXED BEEF CUTOUT VALUEChoice 600-900 Lbs. Carcass, Weekly

130

135

140

145

150

155

160

JAN APR JUL OCT

$ Per Cwt.

Avg.2004-08

2009

2010

HOG CUTOUT VALUEWeekly

50

55

60

65

70

75

80

85JA

N

APR

JUL

OCT

$ Per Cwt.

Avg.2004-08

2009

2010



When demand turns around . . .

TOTAL MEAT AND POULTRY PRODUCTION, WEEKLY

1,300

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

00 01 02 03 04 05 06 07 08 09 10

Million lbs.

. . . supply situation could be explosive



Retail prices will all set records in ’10 or ‘11

RETAIL MEAT PRICES, USDA

0

50

100

150

200

250

300

350

400

450

500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Cents/lb.All-Fresh BeefChoice BeefPorkComposite BroilerTurkey

ha



QUESTIONS & DISCUSSION?

Meyer - Pork Industry Outlook - Vita Plus€¦ · From information, knowledge Paragon Economics,...

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