Market Outlook for 2013 and Beyond - Dr. Steve Meyer, President of Paragon Economics, from the 2013 Minnesota Pork Congress, January 16-17, Minneapolis, MN, USA.
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Dr. Steve Meyer - Market Outlook for 2013 and Beyond
1. Minnesota Pork Congress – January 2013
Pork Industry Economic Update
Steve R. Meyer, Ph.D.
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2. Key drivers of pork producer profits -- 2013
Input prices and production costs =>
- Will it rain?
- Where will it rain?
- When will it rain?
- How much will it rain?
- And will it be hot, hot, hot again this year?
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3. Key drivers of pork producer profits -- 2013
Input prices and production costs
How will pork and hog demand hold up?
- U.S. economy and consumer spending
- World economy – exports and exchange
rates
- Prices of competitor goods – especially beef
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4. Key drivers of pork producer profits -- 2013
Input prices and production costs
How will pork and hog demand hold up?
Just how many hogs will we see and how
big will they be?
- December inventories suggest no reductions
- How long will weights stay relatively low
- What will happen with packer margins and
capacity
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5. Late April – concerned about N. Ia-S. Minn . . .
. . . But subsoil moisture was short!
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6. Minn improved while rest of U.S. worsened . .
. . . 8/21: 77% drought, 44% severe or worse
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7. Now – most of ECB is in good shape . . .
. . . IA and MO are better, west is still parched
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8. Largest deviation from trend yield since ‘88
. . . What is the new trend? – 157.5 for ‘13
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9. Same for soybeans – down 10.2% vs. trend
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10. Jan WASDE -- +300 mil. bu. for feed/resid . . .
. . . Tightest ending stocks estimate yet
U.S. CORN SUPPLY AND UTILIZATION - JANUARY
2011/12 2012/13
2010/11 % Chng vs
USDA Jan USDA Dec USDA Jan '11-12
Acres Planted Mil A 88.2 91.9 96.9 97.2 5.8%
Acres Harvested Mil A 81.4 84 87.7 87.4 4.0%
Yield Bu/A 152.8 147.2 122.3 123.4 -16.2%
Beginning Stocks Mil Bu. 1708 1128 988 989 -12.3%
Production Mil Bu. 12447 12360 10725 10780 -12.8%
Imports Mil Bu. 28 29 100 100 244.8%
Total Supply Mil Bu. 14182 13516 11814 11869 -12.2%
Feed & Residual Mil Bu. 4795 4548 4150 4450 -2.2%
Ethanol for fuel Mil Bu. 5019 5011 4500 4500 -10.2%
Non-Ethanol FSI Mil Bu. 1407 1426 1367 1367 -4.1%
Exports Mil Bu. 1834 1543 1150 950 -38.4%
Total Usage Mil Bu. 13055 12527 11167 11267 -10.1%
Carryover Mil Bu. 1128 989 647 602 -39.1%
Stocks/Use 8.6% 7.9% 5.8% 5.3% -32.3%
Nat. Wtd. Avg. Farm Price $/Bu. 5.18 6.22 6.80 - 8.00 6.80 - 8.00 19.0%
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11. All usage estimates are much lower vs ‘11. . .
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12. USDA finally agreed with me . . .
. . . Animal numbers will not allow lower F/R
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13. Implications of the animals themselves
Beef cow slaughter saves little or NO grain
Dairy cow slaughter DOES save grain – up
to 20-25 lbs. per day per cow
All cattle are caught between high grain
and poor pasture/lower hay supply
Sow slaughter saves very little feed for 6
months – and we didn‘t reduce sows!
Chicken and turkey can respond FAST and
have a big impact on feed – esp SBM
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14. Lowest Dec 1 corn stocks since 2004 . . .
. . . And we will use 17% more corn this year
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15. Hogs are the ONLY species to cut weights!
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16. RFS is 13.2 bil. gal. in ’12, 13.8 bil. in 2013 . . .
. . . 13.6 bil. gal. for ‘12-’13 crop yr = 4.86 bil. bu.
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17. Question: How many RINs are out there?
. . . ~2 to 2.5 bil. gallons – will they be used ?
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18. Ethanol margins: Gross margin < FC . . .
. . . Not covering VC – short-term shutdown
Ethanol: $2.17/gal
Corn: $6.50/bu
Natural Gas: $3.29/mmBtu
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19. Ethanol margins over VC are NEGATIVE . . .
. . . Have seen significant cutbacks since July
ESTIMATED ETHANOL MARGINS
1/11/12 1/4/13 1/11/13
Prices Corn $/bu 6.29 7.05 7.16
Ethanol $/gal 2.13 2.13 2.15
DDGS $/ton 188.50 253.25 252.50
Ethanol Value @ 2.8 gal/bu $/bu 5.96 5.96 6.02
DDGS Value @ 17.75#/bu. 1.67 2.25 2.24
Total Value 7.64 8.21 8.26
Gross Margin over corn cost 1.35 1.16 1.10
Return over all variable costs 0.31 0.12 0.06
Ethanol Value @ 2.8 gal/bu $/bu 5.96 5.96 6.02
DDGS Value @ 15.#/bu. 1.41 1.90 1.89
Total Value 7.38 7.86 7.91
Gross Margin over corn cost 1.09 0.81 0.75
Return over all variable costs 0.05 -0.23 -0.29
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20. Ethanol responded – down 9.7% in Q3 & Q4
. . . 34.2M gal/day will use 4.47 bil. bu. in ‘13
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21. Corn is still well ahead of oil price . . .
. . But it will converge – more acres, yield?
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22. Cash corn – cheaper but far from cheap . . .
. . . But a good ‘13 crop = prices <$5/bu.
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23. DDGS has finally come back into pig diets
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24. Jan WASDE – higher yield but HIGHER crush . .
. . . Steady exports reflects S/A crop
U.S. SOYBEAN SUPPLY & UTILIZATION - JANUARY
2011/12 2012/13
2010/11 % Chng vs
USDA Jan USDA Dec USDA Jan '11-12
Acres Planted Mil A 77.4 75.0 77.2 77.2 2.9%
Acres Harvested Mil A 76.6 73.8 75.7 76.1 3.1%
Yield Bu/A 43.5 41.9 39.3 39.6 -5.5%
Beginning Stocks Mil Bu. 151 215.0 169 169 -21.4%
Production Mil Bu. 3329 3094.0 2971 3015 -2.6%
Imports Mil Bu. 14 16.0 20 20 25.0%
Total Supply Mil Bu. 3495 3325.0 3160 3204 -3.6%
Crushings Mil Bu. 1648 1703.0 1570 1605 -5.8%
Exports Mil Bu. 1501 1362.0 1345 1345 -1.2%
Seed Mil Bu. 87 90.0 89 89 -1.1%
Residual Mil Bu. 43 1.0 26 30 2900.0%
Total Usage Mil Bu. 3280 3155.0 3031 3070 -2.7%
Carryover Mil Bu. 215 169.0 130 135 -20.1%
Stocks/Use 6.6% 5.4% 4.3% 4.4% -18%
Nat. Wtd. Avg. Farm Price $/Bu. 11.30 12.50 13.55 - 15.55 13.50 - 15.00 14.0%
Soybean Oil Price Cents/lb. 53.20 51.90 49.00 - 53.00 49.00 - 53.00 -1.7%
Soybean Meal Price $/ton 345.52 393.53 440.00 - 470.00430.00 - 460.00 13.1%
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25. South American crop still looks good
Argentina – some concerns
- Early wetness and now dryer conditions, some
are worried about shallow root systems
- USDS lowered yield but the crop is still
54MMT – 35% larger than last year
Brazil – biggest concern is logistics
- A record crop – larger than ours – of 82.5
MMT, up 24% from ‗12
- Record acres and yields on early harvest are
above average
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26. Where will SBM go? - Depends now on S/A
. . . Support at $396 should be no surprise!
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27. What will it take to recover? Situation 9/29
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28. Jan 12 situation is MUCH better . . .
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29. Lower costs for 2013 but costs have risen. . .
. . . By about $3/cwt in past 2 weeks
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30. Profit outlook has dimmed . . .
. . .futures-implied ’13 profit was -$2, now -$7
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31. Another view – bad but not as bad as ‘09-’10
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32. Critical Issues
Input prices and production costs
Demand – domestic and exports
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33. World economic conditions August 2011 . . .
. . . Improvement except in U.S. and EU
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34. November 2012 – EU Recession BUT
. . . China, Brazil growth improvement
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35. The U.S. economy muddles along . . .
. . . Still slowed by uncertainty
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36. Real PDI change: Revised down, April on . . .
. . . November was encouraging @ +1.8%
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37. November RPI: Up from Oct, still <100 . . .
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38. RPCE was good in November – for everyone!
4.4% higher beef per cap
consumption, higher prices
6% higher chicken prices!
Pork RPCE driven by 4%
increase in per cap cons.
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39. ALL indexes are now positive for 12 mos . . .
. . . If it lasts, first time that’s ever happened
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40. Per cap cons <200# for first time since ‘90
. . . But this is a SUPPLY issue
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41. Prices are increasing as supplies tighten . . .
. . New records for beef in Nov, chicken in Oct
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42. Further proof: Record high expenditures
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43. Broiler flock near smallest since 1996 . . .
. . . But was +2% in Dec and is same as yr ago
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44. The Dec increase was unusual – expansion?
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45. Sets and placements: Very close to ‘11 levels
And were up 1.6% vs.
‘12 in first week of ‘13
And up 1.2% vs. ‘12
during first week of ‘13
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46. Weights were a big driver in spite of feed . . .
. . . And were up 2.4% at 4.35 the first wk of ‘13
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47. Broiler cutout begins 2013 strong . . .
. . . Will it be as stable as last year?
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48. Chicken summary
Companies appear to be moving back to
expansion – profitable!
Breeder flock grew in December – unusual –
but is still small relative to history
Egg sets, placements – close to 2011 levels
and have started ‗13 higher
Did not expect growth – and it will not be
huge if it comes – lower U.S. per cap supply
Record-high prices -- again
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49. 54% of pastures are poor/very poor. . .
. . . West, Cornbelt, North Plains are BAD
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50. Smallest U.S. beef cow herd since 1946
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51. Smallest U.S. calf crop since 1949 . . .
. . . And not the higher rate of decline!
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52. Tight supplies of cattle outside feedlots . . .
. . . Down 1.7%, 2.7% and 3.3% last 3 years
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53. Nov placements were 5.6% LOWER than ’11 . .
. . . After -10, -11 ,-19 and -13% prior 4 months
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54. Dec 1 COF was down 6% from 2011 . . .
. . . There were 700k head fewer on feed
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55. Beef cow slaughter: -12.4% vs. ’11 . . .
. . . And still showed liquidation in December
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56. No turn-around in sight for availability. . .
. . . Per-cap down 2-3% in ‘12 and 3%+ in ‘13
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57. When will Choice cutout finally break $200. .
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58. Beef summary . ..
Weights remain high – Zilmax & Optiflexx?
Lower cattle numbers – partially offset by
higher weights – but lower beef supplies
Cow slaughter remains high relative to the
herd – pasture conditions – Rain?
Longer term: Tighter and tighter per cap
supplies, higher prices – thru 2015?
Will beef cease to be a habit for anyone
below the middle class?
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59. Pork exports are still up 5.6% YTD vs. 2011 . . .
. . Oct was down 7.6% from ‘11
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60. China/HK was 59% below yr. ago in Oct but . .
. . . +2% YTD; Mexico is +15%, Canada +17%
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61. Exchange rates
Real is the big mover among competitors
Peso and won have improved but are still
weaker than one year ago
Strong renmimbi but rapidly falling yen
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62. USDA: World slaughter +0.09% in 2013
. . . NO big reductions – even in the EU????
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63. Take out China, US and EU 27 . . .
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64. Demand summary
Demand indexes are now positive for ‗12
– can they stay that way?
Exports are expected to grow; another
record in‘13; Exchange rates will be key
Higher beef and chicken (??) prices will be
positive for pork demand
My biggest concern: Consumer income
and expenditures
- 77% of output is still sold here at home!
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65. Critical Issues
Input prices and production costs
Demand—domestic and exports
Hog Supplies
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66. Dec H&P report – more hogs than expected . .
USDA QUARTERLY HOGS & PIGS REPORT
December 28, 2012
'12 as Pre-
Actual -
2011 2012 Pct of Report
Est
Category '11 Est's
Inventories on Dec 1*
All hogs and pigs 66,361 66,348 100.0 99.1 0.9
Kept for breeding 5,803 5,817 100.2 99.3 0.9
Kept for market 60,558 60,531 100.0 99.1 0.9
Under 50 lbs. 19,524 19,448 99.6 98.4 1.2
50-119 lbs. 16,643 16,643 100.0 99.0 1.0
120-179 lbs. 12,473 12,479 100.0 99.6 0.4
180 lbs. and over 11,918 11,961 100.4 100.5 -0.1
Farrowings**
Sep-Nov sows farrowed 2,929 2,900 99.0 97.9 1.1
Dec-Feb Intentions 2,864 2,865 100.0 98.4 1.6
Mar-May Intentions 2,982 2,925 98.1 98.8 -0.7
Sep-Nov Pig Crop1* 29,365 29,443 100.3 99.0 1.3
Sep-Nov Pigs Saved/ litter 10.02 10.15 101.3 100.8 0.5
*Thousand head **Thousand litters
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67. Litter size growth back to 1.3% in Q3. . .
. . . Trend has slowed a bit but still strong
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68. ‘13 slaughter will be slightly larger than ’12 . .
. . But the pattern will be different
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69. Weights matched 5-yr avg in Q4 . . .
. . . still 2+ lbs. lower, likely stay there thru Q2
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70. YTD pork production was up 1.8% yr/yr . . .
. . . And will be higher than ‘12 thru April
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71. Lower cutout value through Thanksgiving . . .
. . . Usually the seasonal low – Hold $80?
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72. National Net hogs rallied from Sept swoon . . .
. . . We still expect Q4 average of $78-$82
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73. December slaughter forecasts
December 2012 Hogs & Pigs -- Commercial Slaughter Forecasts
Mizzou ISU LMIC Paragon
Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge
2011 Q1** 27.483 -0.5%
Q2 26.110 0.1%
Q3 27.379 1.6%
Q4* 29.888 0.9%
Year 110.862 0.5%
2012 Q1 28.104 2.3% 28.104 2.3% 28.104 2.3% 28.104 2.3%
Q2 26.659 2.1% 26.659 2.1% 26.659 2.1% 26.659 2.1%
Q3* 27.963 2.1% 27.963 1.2% 27.963 2.1% 27.963 2.1%
Q4** 30.400 1.7% 30.400 1.7% 30.400 1.7% 30.400 1.7%
Year 113.126 2.0% 113.126 2.0% 113.126 2.0% 113.126 2.0%
2013 Q1* 27.762 -1.2% 27.739 -1.3% 27.704 -1.4% 28.292 0.7%
Q2 26.811 0.6% 26.899 0.9% 26.242 -1.6% 26.892 0.9%
Q3** 28.437 1.7% 28.299 1.2% 27.869 -0.3% 28.298 1.2%
Q4 30.349 -0.2% 30.613 0.7% 30.207 -0.6% 29.860 -1.8%
Year 113.359 0.2% 113.549 0.4% 112.022 -1.0% 113.342 0.2%
Green figures are actual data from USDA. Blue figures are estimated using USDA data 1/1/13
*Quarter has one LESS slaughter day vs. year ago **Quarter has one MORE slaughter day vs. year ago
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74. Price forecasts
December 2012 Hogs & Pigs - Price Forecasts
Mizzou ISU LMIC Paragon CME
Producer-Sold National Net
Ia-Mn Wtd. Avg. National Wtd CME Lean Hog
Net Price, All Neg'd Price,
Base Lean Hog Avg. Base Price Futures
Methods Wtd. Avg.
2011 Q1 80.54 78.92 79.74 80.91 81.54**
Q2 92.36 89.37 89.53 94.89 93.97**
Q3 95.59 92.31 92.25 97.61 97.49**
Q4 87.39 85.94 85.17 87.92 88.11**
Year 88.97 86.64 86.67 90.33 90.28**
2012 Q1 86.56 84.27 84.11 86.11 86.44**
Q2 87.76 83.67 85.31 86.67 86.64**
Q3 87.69 85.05 84.74 84.97 86.64**
Q4 82.90 82 - 83 80.60 81.61 82.13**
Year 86.20 84 - 85 83.69 84.84 85.46**
2013 Q1 82 - 86 85 - 87 83 - 87 84 - 88 85.25
Q2 89 - 93 89 - 92 86 - 91 88 - 92 93.07
Q3 88 - 92 90 - 93 89 - 94 90 - 94 94.45
Q4 80 - 84 84 - 86 81 - 86 83 - 87 84.31
Year 85 - 89 87 - 89 85 - 90 87 - 90 89.27
Green figures are actual data from USDA. Blue figures are estimated using USDA data **CME Lean Hog Index 1/16/13
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75. The larger Dec sow herd was not a surprise. .
. . . Slaughter: Low enough to suggest growth
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76. Gilt slaughter percent suggest even more. . .
. . Lower than 5-yr avg all but 3 wks since Sept
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77. My model says finances are weak . . .
. . . But lenders believe status is not this bad!
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78. Why are YOU holding on?
Futures, esp. summer 2013 have offered
near breakevens for the year -- survive
Financial position is better than my ―cash‖
model suggests – risk management since
2008, lower costs than my model
―This is what I do‖ – no alternatives?
Betting on rain – and the bets are HUGE
- I don‘t see how many can survive a dry ‗13
- ―Massive‖ liquidation may finally come to pass
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79. Long-term issues
Costs, costs, costs = Prices, prices, prices
- Consumer incomes and spending
- How much less meat/poultry/dairy consumed?
Animal welfare – Chronic challenges
- Stalls – not logical, making some headway
- Castration, tail docking,
- Ultimately: Indoor production
Risk management skills
Policy – farm bill, antibiotics
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