VitaPlus Swine Summit – March 2012 · 4/3/2012 1 From information, knowledge Paragon Economics,...
Transcript of VitaPlus Swine Summit – March 2012 · 4/3/2012 1 From information, knowledge Paragon Economics,...
4/3/2012
1
From information, knowledge
Paragon Economics, Inc.
Steve R. Meyer, Ph.D.Paragon Economics, Inc.
VitaPlus Swine Summit – March 2012
Meat Sector Economic Outlook
From information, knowledge
Paragon Economics, Inc.
Key issues for ‘12 . . .
Exports – World economy, exchange rates, trade policy, disease status U.S. demand – has softened recently, U.S.
economy, prices of competitor goods Feed prices – S. American crops, moisture
situation, 2012 acreage/yields Supplies – Potential profits, constraints,
productivity, herd health, weights Packing capacity vs. hog numbers – 2013?
4/3/2012
2
From information, knowledge
Paragon Economics, Inc.
MACRO-ECONOMIC FACTORS
From information, knowledge
Paragon Economics, Inc.
Status of economies worldwide – January ‘11
4/3/2012
3
From information, knowledge
Paragon Economics, Inc.
Same graphic -- January 2012
From information, knowledge
Paragon Economics, Inc.
World growth expected – except for EU
4/3/2012
4
From information, knowledge
Paragon Economics, Inc.
U.S. GDP: Improving again– but still slow
From information, knowledge
Paragon Economics, Inc.
Job gains have rebounded from last summer
4/3/2012
5
From information, knowledge
Paragon Economics, Inc.
Consumer sentiment: Highest since June . . . . . . Improving employment/unemployment
From information, knowledge
Paragon Economics, Inc.
Real PDI, though, is stagnant vs. year-ago
4/3/2012
6
From information, knowledge
Paragon Economics, Inc.
Big question: How will $4 gas play out?
From information, knowledge
Paragon Economics, Inc.
Where will oil prices peak?
4/3/2012
7
From information, knowledge
Paragon Economics, Inc.
MEAT & POULTRY DEMAND
From information, knowledge
Paragon Economics, Inc.
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
4/3/2012
8
From information, knowledge
Paragon Economics, Inc.
RPI improved thru Dec – before falling in Jan
From information, knowledge
Paragon Economics, Inc.
Domestic meat demand improved in ’11 . . . . . ‘12 thru January is mixed – soft since then?
4/3/2012
9
From information, knowledge
Paragon Economics, Inc.
Monthly yr/yr indexes for January -- mixed
From information, knowledge
Paragon Economics, Inc.
PC consumption fell sharply in 2011 . . .
. . . But demand is strong! How so?
4/3/2012
10
From information, knowledge
Paragon Economics, Inc.
Record-high – or nearly so – prices . . .
. . . Lower Q supplied/demanded, not lower D
From information, knowledge
Paragon Economics, Inc.
Dollar Index futures have gained 6-7%
4/3/2012
11
From information, knowledge
Paragon Economics, Inc.
Pork exports: up 23% in ‘11, RECORD LARGE
U S PORK EXPORTSCarcass Weight, Annual
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1988 1991 1994 1997 2000 2003 2006 2009 2012
Bil. Pounds
From information, knowledge
Paragon Economics, Inc.
Pork exports led by China/HK at +128% . . . .. . . Korea up 106%, Mexico -0.1%, Japan +15%
4/3/2012
12
From information, knowledge
Paragon Economics, Inc.
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
From information, knowledge
Paragon Economics, Inc.
Broiler exports were RECORD LARGE in 2011
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
4/3/2012
13
From information, knowledge
Paragon Economics, Inc.
CROPS AND COSTS
From information, knowledge
Paragon Economics, Inc.
March WASDE – no changes from February . . .. . . Tighter year-end stocks, stocks/use ratio
2009/10
USDA February
USDA March
%Chng vs. '10-
'11
Acres Planted Mil A 86.4 88.2 91.9 91.9 4.2%Acres Harvested Mil A 79.5 81.4 84 84 3.2%Yield Bu/A 164.7 152.8 147.2 147.2 -3.7%
Beginning Stocks Mil Bu. 1673 1708 1128 1128 -34.0%Production Mil Bu. 13092 12447 12358 12358 -0.7%Imports Mil Bu. 8 27 20 20 -25.9%Total Supply Mil Bu. 5961 14182 13506 13506 -4.8%Feed & Residual Mil Bu. 5125 4793 4600 4600 -4.0%Ethanol for fuel Mil Bu. 4591 5021 5000 5000 -0.4%Non-Ethanol FSI Mil Bu. 10183 1395 1405 1405 0.7%Exports Mil Bu. 1980 1835 1700 1700 -7.4%Total Usage Mil Bu. 13066 13053 12705 12705 -2.7%Carryover Mil Bu. 1708 1128 801 801 -29.0%Stocks/Use 13.1% 8.6% 6.3% 6.3% -27.0%Nat. Wtd. Avg. Farm Price $/Bu. 3.55 5.18 5.80 - 6.60 5.90 - 6.50 18.1%
2010/11 Estimate
2011/12
U.S. CORN SUPPLY AND UTILIZATION - MARCH
4/3/2012
14
From information, knowledge
Paragon Economics, Inc.
USDA Plantings: BIG corn, lower SB & wheat
Corn acres > HIGH of expectations Corn acres could still be LOW – March 1
survey, EARLY planting, good conditions SB and wheat < LOW of expectations
2011 Low High Average 2012Corn 91.921 93.700 95.700 94.658 95.864Soybeans 74.976 74.500 76.700 75.429 73.902All Wheat 54.409 56.000 58.300 57.551 55.908
Analysts' Pre-Report Estimates
USDA PROSPECTIVE PLANTINGSMarch 30, 2012
From information, knowledge
Paragon Economics, Inc.
Historical perspective for acreages
4/3/2012
15
From information, knowledge
Paragon Economics, Inc.
Grain Stocks
No big surprises – wheat and corn slightly lower than expected No big revisions, either Probably neutral – especially versus acres
UnitsUSDA,
Mar 1 '11USDA,
Dec1, '11 Low High AverageUSDA,
Mar 1, '12Wheat Bil. Bu. 1.425 1.662 1.181 1.400 1.250 1.201Corn Bil. Bu. 6.523 9.647 5.925 6.300 6.151 6.009Soybeans Bil. Bu. 1.249 2.369 1.228 1.467 1.361 1.372
GRAIN STOCKS, MARCH 1, 2011March 30, 2012 Grain Stocks Report
Analysts' Estimates, Mar 1, '11
From information, knowledge
Paragon Economics, Inc.
Corn stocks to use ratio near historic lows
- 30 -
4/3/2012
16
From information, knowledge
Paragon Economics, Inc.
World corn: Stocks 3rd lowest, S/U record low
From information, knowledge
Paragon Economics, Inc.
Ethanol now uses more corn than feed/res.
4/3/2012
17
From information, knowledge
Paragon Economics, Inc.
Corn went to ethanol due to PROFITS!!!!
Ethanol price = $2.29/galCorn price = $6.17/bu.NG price = $2.28/mmBtu
From information, knowledge
Paragon Economics, Inc.
Grains for feed – Lower 6 of last 7 years
4/3/2012
18
From information, knowledge
Paragon Economics, Inc.
Add in DDGS – still 6 of 7 but decline is less How can we grow output? Drive down prices?
From information, knowledge
Paragon Economics, Inc.
Corn futures now BELOW the 2011 range!
4/3/2012
19
From information, knowledge
Paragon Economics, Inc.
NW Cornbelt is still dry . . .
From information, knowledge
Paragon Economics, Inc.
Higher S/U ratio but HIGHER price = Demand
4/3/2012
20
From information, knowledge
Paragon Economics, Inc.
World soybean stocks/use is in good shape
From information, knowledge
Paragon Economics, Inc.
SBM future have RISEN in past 2 weeks. .
4/3/2012
21
From information, knowledge
Paragon Economics, Inc.
Still have ample wheat stocks
From information, knowledge
Paragon Economics, Inc.
And wheat is NOT keeping up with corn . . . . . . More feeding is likely a long-term trend
4/3/2012
22
From information, knowledge
Paragon Economics, Inc.
Soybeans are fighting – corn and WEATHER!
From information, knowledge
Paragon Economics, Inc.
Beans will also take some cotton acres
4/3/2012
23
From information, knowledge
Paragon Economics, Inc.
Hog costs were record high in ’11 . . .. . . ‘12 costs are down and DECLINING
From information, knowledge
Paragon Economics, Inc.
CHICKEN
4/3/2012
24
From information, knowledge
Paragon Economics, Inc.
High costs drove 15 months of losses
From information, knowledge
Paragon Economics, Inc.
Huge reduction of the broiler brdng. flock
4/3/2012
25
From information, knowledge
Paragon Economics, Inc.
AGGRESSIVE broiler cuts since mid-summer. .
2011 cuts offset ALL of 2010 increases – down
3.5% for the year
DOWN 5.4% YTD 2012
Placements were down 2.6% for 2011
Are -4.0% YTD 2012
From information, knowledge
Paragon Economics, Inc.
AGGRESSIVE broiler cuts since mid-summer. .
Finally hit broiler slaughter in Q4 – Down
7.4%
DOWN 6.4% YTD 2012
But production is down only 5.7% YTD
Significant but smaller than other numbers
4/3/2012
26
From information, knowledge
Paragon Economics, Inc.
Reason: Higher weights – are persisting . . . . . . Continuing breast meat glut, low prices
From information, knowledge
Paragon Economics, Inc.
Broiler cutout FINALLY moved to mid-$90s. . .
. . . traction from cutbacks has been slow
4/3/2012
27
From information, knowledge
Paragon Economics, Inc.
And breast meat has shown signs of life . . .. . . We look for $140-$150 thru summer
From information, knowledge
Paragon Economics, Inc.
Leg quarters will remain strong -- exports
4/3/2012
28
From information, knowledge
Paragon Economics, Inc.
CATTLE AND BEEF
From information, knowledge
Paragon Economics, Inc.
Drought is still the driver for beef industry
State Beef Cows(Thousand)
TX 5025OK 2036KS 1478FL 926CO 727AL 659GA 502MS 495NM 488LA 461NC 351SC 184AZ 180Total 13512Share 43.8%
4/3/2012
29
From information, knowledge
Paragon Economics, Inc.
Lowest U.S. beef cow inventory since 1963
From information, knowledge
Paragon Economics, Inc.
Beef: Four smallest calf crops since 1950
-0.7 Percent2010 = 35.7 Million Head
-0.5 Percent
2011 = 35.5 Million Head
-1 Percent2011 = 35.3 Million Head
4/3/2012
30
From information, knowledge
Paragon Economics, Inc.
COF was +2.6% on Mar 1 – 21 months up . . . . . . How to reconcile with LOWER slaughter?
From information, knowledge
Paragon Economics, Inc.
Slaughter down yr/yr in 21 of last 24 wks.. . .and is down 5% YTD – HORRIBLE margins
4/3/2012
31
From information, knowledge
Paragon Economics, Inc.
FC supplies on Jan 1 were down 4% from ‘11
From information, knowledge
Paragon Economics, Inc.
Heifers retained were 1.4% lower than in ‘11
4/3/2012
32
From information, knowledge
Paragon Economics, Inc.
Add in growing exports and . . . . . . U.S. consumption/availability: -3.8% in ‘12
From information, knowledge
Paragon Economics, Inc.
Choice cutout was headed for $200-plus . . . . . . But has gotten “slimed” – still at $189!
4/3/2012
33
From information, knowledge
Paragon Economics, Inc.
Higher cattle/beef will last through 2014!
From information, knowledge
Paragon Economics, Inc.
HOGS AND PORK
4/3/2012
34
From information, knowledge
Paragon Economics, Inc.
Frozen pork stocks are a concern - +9% vs. ‘11
. . . Chicken DOWN 16%, ALL up 0.4% vs. ‘11
From information, knowledge
Paragon Economics, Inc.
Storage as pct of prod is not out of line . . .
4/3/2012
35
From information, knowledge
Paragon Economics, Inc.
Stocks & exports – positively related . . . . . . but anecdotal evidence of soft exports
From information, knowledge
Paragon Economics, Inc.
Dec H&P Report: Continued slow growth . . .
Category 2010 20112011 as Pct of
Pre-Report
Actual - Estimate
Inventories on December 11
All hogs and pigs 64,925 65,931 101.5 101.3 0.2Kept for breeding 5,778 5,803 100.4 100.8 -0.4Kept for market 59,147 60,128 101.7 101.3 0.4
Under 50 lbs. 18,864 19,271 102.2 101.8 0.450-119 lbs. 16,519 16,895 102.3 101.5 0.8120-179 lbs. 12,233 12,472 102.0 101.0 1.0180 lbs. and over 11,531 11,490 99.6 101.2 -1.6
Farrowings2
Sep-Nov sows farrowed 2,874 2,894 100.7 99.9 0.8 Dec-Feb Intentions 2,843 2,865 100.8 100.6 0.2 Mar-May Intentions 2,917 2,890 99.1 100.8 -1.7Sep-Nov Pig Crop1 28,488 29,014 101.8 101.6 0.2Sep-Nov pigs saved per litter 9.91 10.02 101.1 101.6 -0.5*Thousand head **Thousand litters
USDA Quarterly Hogs and Pigs ReportDecember 23, 2011
4/3/2012
36
From information, knowledge
Paragon Economics, Inc.
March report expectations . . .
From information, knowledge
Paragon Economics, Inc.
Litter size growth 2.0% over past 4 years. . . . . . How high can litter size go?
4/3/2012
37
From information, knowledge
Paragon Economics, Inc.
YTD slaughter 2.3% lower than expected. . . . . . Expect Q2 & Q3 ‘12 supplies up 1.5 – 2.5%
From information, knowledge
Paragon Economics, Inc.
Packer margins have been under pressure . .. . . plunged last week with cutout decline
4/3/2012
38
From information, knowledge
Paragon Economics, Inc.
Negative meat spreads, HIGH by-products
From information, knowledge
Paragon Economics, Inc.
Weights remain large and GROWING. . . . . YTD ‘12 increases due to margins, cutbacks
4/3/2012
39
From information, knowledge
Paragon Economics, Inc.
YTD pork production is +0.7% from 2011
From information, knowledge
Paragon Economics, Inc.
Cutout value began ‘12 near ‘11 level . . .
. . . Normal sideways move – until last week!
4/3/2012
40
From information, knowledge
Paragon Economics, Inc.
Neg’d Net prices -- above $80 from Jan ‘11!
From information, knowledge
Paragon Economics, Inc.
Sows very likely to remain at $60-plus in ‘12
4/3/2012
41
From information, knowledge
Paragon Economics, Inc.
‘12 profits reached $19/hd in mid-Feb . . . . . . But have fallen sharply with LH futures
From information, knowledge
Paragon Economics, Inc.
June LH are UGLY at present – bottom today?
4/3/2012
42
From information, knowledge
Paragon Economics, Inc.
Slaughter forecasts from Dec Hogs & Pigs
Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge
2010 Q1 27.630 -3.1%
Q2 26.074 -3.7%
Q3 26.931 -5.3%
Q4 29.626 0.0%
Year 110.260 -3.0%
2011 Q1** 27.486 -0.5%
Q2 26.113 0.1%
Q3 27.374 1.6%
Q4* 29.892 0.9%
Year 110.862 0.5%
2012 Q1 27.734 0.9% 27.668 0.7% 27.953 1.7%
Q2 26.392 1.1% 26.392 1.1% 26.600 1.9%
Q3* 27.233 -0.5% 27.233 -0.5% 27.240 -0.5%
Q4** 30.699 2.7% 30.851 3.0% 30.310 1.9%
Year 112.058 1.1% 112.144 1.1% 112.103 1.3%Green figures are actual data from USDA. Blue figures are estimated using USDA data 12/28/11
*Quarter has one LESS slaughter day vs. year ago **Quarter has one MORE slaughter day vs. year ago
December 2011 Hogs & Pigs Slaughter ForecastsMizzou ISU LMIC Paragon
From information, knowledge
Paragon Economics, Inc.
Futures are now BELOW Dec price ranges
Missouri ISU LMIC Paragon CME
Producer-Sold Net Price, All
Methods
Ia-Mn Wtd. Avg.
Base Lean Hog1 National Wtd Avg. Base Price
National Net Neg'd Price,
Wtd. Avg.CME Lean Hog
Futures3/29/12
2010 Q1 68.20 71.99 65.91 69.13 69.38**Q2 79.54 85.18 77.04 81.89 81.42**Q3 80.68 82.19 78.21 81.90 81.88**Q4 69.26 68.97 67.3 67.12 68.23**Year 74.42 77.08 82.42 75.01 75.23**
2011 Q1 80.63 78.92 78.38 80.91 81.54**Q2 92.39 89.37 89.49 94.89 93.97**Q3 95.74 92.31 92.71 97.61 97.49**Q4 87.68 85.03 85.03 88.74 88.11**Year 89.12 86.41 86.40 90.54 90.28**
2012 Q1 84 - 88 83 - 88 85 - 89 84.39**Q2 91 - 95 89 - 95 92 - 96 88.15Q3 91 - 95 91 - 97 92 - 96 89.62Q4 79 - 83 82 - 89 81 - 85 80.90Year 86 - 90 86 - 92 87 - 91 85.77
1Prior to Q2-11, ISU forecasts were Ia-Mn Live Price converted using a 75% yield **Average of CME Lean Hog Index
December 2011 Hogs & Pigs Price Forecasts
4/3/2012
43
From information, knowledge
Paragon Economics, Inc.
Monthly price forecasts
From information, knowledge
Paragon Economics, Inc.
Pork outlook
2012 supplies will be 1.5 – 2.5% larger with bulk in Q2 and Q3, Q4 steady w/ ‘11 Weights remain high – and likely growing Prices much like ‘11 – mid ‘$90s in summer Questions:
- Will demand hold? – Competitor prices, economy, $US and exports, consumers
- Is there enough finishing space?- Slaughter capacity, fall ’12– and ‘13?