Meat/Poultry Economic Update & Outlook - Dr. Steve Meyer, Paragon Economics, Inc., from the 2014 Missouri Pork Expo , February 11 - 12, 2014, Columbia, MO, USA.
More presentations at http://www.swinecast.com/2014-missouri-pork-expo
Dr. Steve Meyer - Meat/Poultry Economic Update & Outlook
1. Missouri Pork Producers – Feb 2014
Meat/Poultry Economic Update &
Outlook
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
Paragon Economics, Inc.
From information, knowledge
2. October‟s government shutdown – Impact?
No disruptions of animal or product flows –
Inspectors were deemed “essential”
No apparent “gouging” but a few price
shenanigans
- Most markets remained stable
- Packers did not pressure prices – MUCH
- Margins were tight by the end – lower prices
Big backlog of data – as much detail as we
will see is now available
Paragon Economics, Inc.
6/20/2013
2
From information, knowledge
3. Demonstrated the importance of USDA data
Many relied on Urner Barry‟s Yellow Sheet
- Poultry and eggs have always used YS prices
- Good coverage for beef and pork as well
CattleFax probably signed up a lot of new
members – fed cattle markets were okay
Hogs and Feeder Cattle were the voids
- NPPC‟s effort for voluntary hog price
reporting by packers
» Good but too late
» Antitrust challenges
Paragon Economics, Inc.
6/20/2013
3
From information, knowledge
4. Now what?
Another shutdown avoided – for now
CME Group has to have a better plan
- Dodged a potential bullet with Oct LH close
- Feeder cattle is cash settled, too - - MUCH
trickier due to dispersion of data
- Need “auditable” data if from a private source
Buyers & sellers should be investigating
alternatives just in case
NPPC hog system is functional – what legal
criteria must be met?
Paragon Economics, Inc.
6/20/2013
4
From information, knowledge
5. Smithfield and Tyson announcements
Smithfield announced that it is “asking” its
contract growers to adopt group sow
housing by 2022
- “You don‟t have to but contract extensions are
less likely” = “change or else”
- “Sliding scale” incentives to adopt faster
- NOT A SURPRISE
» Company-owned farms began switching in ‟07
» 54% now in group systems
» Productivity has been maintained
Paragon Economics, Inc.
6/20/2013
5
From information, knowledge
6. Tyson announcement is MUCH bigger deal
Because it‟s TYSON
- #2 packer (77k/day), #12 producer (52k sows)
- Successor to IBP which never backed down
from a fight over priniciple
- Historically a staunch defender of producers
Sow housing PLUS key items required for
contract growers, “recommended” for all
- Stop using blunt force euthanization
- Pain mitigation for castration, tail docking
- Video monitoring in all barns
Paragon Economics, Inc.
6/20/2013
6
From information, knowledge
7. Key Factors for 2014
Costs
Paragon Economics, Inc.
6/20/2013
7
From information, knowledge
8. „14 production costs – down ~$15/cwt carc.
. . . ~$30/hd. better profits w/o price change!
Paragon Economics, Inc.
6/20/2013
8
From information, knowledge
9. USDA Jan WASDE – LOWER corn yield, crop . . .
. . . Record crop, higher F/R, steady ethanol
U.S. CORN SUPPLY AND UTILIZATION -- FEBRUARY
Units
Acres Planted
Acres Harvested
Yield
Beginning Stocks
Production
Imports
Total Supply
Feed & Residual
Ethanol for fuel
Non-Ethanol FSI
Exports
Total Usage
Carryover
Stocks/Use
Nat. Wtd. Avg. Farm Price
Mil A
Mil A
Bu/A
Mil Bu.
Mil Bu.
Mil Bu.
Mil Bu.
Mil Bu.
Mil Bu.
Mil Bu.
Mil Bu.
Mil Bu.
Mil Bu.
Pct.
$/Bu.
2011/12
91.9
84.0
147.2
1128
12360
29
13517
4557
5000
1428
1543
12528
989
7.9%
6.22
2012/13
97.2
87.4
123.4
989
10780
162
11932
4335
4648
1396
731
11111
821
7.4%
6.89
USDA
January
95.4
87.7
158.8
821
13925
35
14781
5300
5000
1400
1450
13150
1631
12.4%
4.10 - 4.70
2013/14
USDA
% Chng
February
vs '12-13
95.4
-1.9%
87.7
0.3%
158.8
28.7%
821 -17.0%
13925
29.2%
35 -78.4%
14781
23.9%
5300
22.3%
5000
7.6%
1400
0.3%
1600 118.9%
13300
19.7%
1481
80.4%
11.1%
50.7%
4.20 - 4.80
-36.1%
Source: USDA World Supply and Demand Estimates
Paragon Economics, Inc.
From information, knowledge
10. Better yields and record highs in the east
Paragon Economics, Inc.
6/20/2013
10
From information, knowledge
11. Big increases for all corn uses – exc ethanol
. . . Feed ingredient supply back near pre‟08
Paragon Economics, Inc.
6/20/2013
11
From information, knowledge
12. RFS is clearly not realistic due to gas usage
. . . 13 bil. gal. of corn ethanol
X
Paragon Economics, Inc.
From information, knowledge
13. Note the prod & cons trend change in „04 . . .
. . . But not much change in stocks level
Paragon Economics, Inc.
6/20/2013
13
From information, knowledge
14. World stocks are higher but S/U still tight . . .
. . . Due to persistently larger usage levels!
Paragon Economics, Inc.
6/20/2013
14
From information, knowledge
15. U.S. biofuels policy fueled growth . . .
. . . and new, ongoing corn competition
Paragon Economics, Inc.
6/20/2013
15
From information, knowledge
16. Have we seen the bottom for corn?
. . . Likely, especially with Feb WASDE changes
Paragon Economics, Inc.
From information, knowledge
17. Corn is cheap versus about everything!
Paragon Economics, Inc.
From information, knowledge
18. World soybean situation is quite different . . .
. . . Record high output, consumption, stocks
World output +6.2% in „13-‟14
Consumption +4.4%
Ending stocks +20%, S/U tied for 3rd high
Paragon Economics, Inc.
From information, knowledge
19. But SB prices are still near $13 . . .
. . . Primarily due to China‟s appetite & means
Paragon Economics, Inc.
From information, knowledge
20. Jan WASDE: Larger SB yield, crop . . .
. . . Steady – and TIGHT – stocks, higher meal
U.S. SOYBEAN SUPPLY & UTILIZATION - FEBRUARY
Units
Acres Planted
Mil A
Acres Harvested
Mil A
Yield
Bu/A
Beginning Stocks
Mil Bu.
Production
Mil Bu.
Imports
Mil Bu.
Total Supply
Mil Bu.
Crushings
Mil Bu.
Exports
Mil Bu.
Seed
Mil Bu.
Residual
Mil Bu.
Total Usage
Mil Bu.
Carryover
Mil Bu.
Stocks/Use
Pct.
Nat. Wtd. Avg. Farm Price $/Bu.
Soybean Oil Price
Cents/lb.
Soybean Meal Price
$/ton
2011/12
75.0
73.8
41.9
215
3094
16
3325
1703
1365
90
-2
3155
169
5.4%
12.50
51.90
393.53
2012/13
77.2
76.2
39.8
169.0
3034.0
36.0
3239.0
1689.0
1320.0
89.0
1.0
3099.0
141.0
4.5%
14.40
47.13
468.11
USDA
January
76.5
75.9
43.3
141
3289
25
3454
1700
1495
87
22
3304
150
4.5%
11.75 - 13.25
35.50 - 39.50
375 - 415
2013/14
USDA
% Chng
February
vs '12-13
76.5
-0.9%
75.9
-0.4%
43.3
8.8%
141
-16.6%
3289
8.4%
30
-16.7%
3459
6.8%
1700
0.7%
1510
14.4%
87
-2.2%
12 1100.0%
3309
6.8%
150
6.4%
4.5%
0%
11.95 - 13.45
-15.3%
34.50 - 37.50
-23.6%
425 - 465
-4.9%
Source: USDA World Supply and Demand Estimates
Paragon Economics, Inc.
From information, knowledge
21. And MEAL has carried the value!
Mar SBM
Futures
Mar SB
Oil
Futures
Paragon Economics, Inc.
From information, knowledge
22. Are “high” costs behind us?
Depends on your definition of “high”
“Normal” 2014 crops will give us corn at
$3.50 and beans at $9.00 – maybe less
for both
Reason: Yields (and acres) have finally
caught up with ethanol usage
$90-plus hog costs will be rare – only
when we have a severe drought
Key issue: Veg oil prices
Paragon Economics, Inc.
6/20/2013
22
From information, knowledge
23. Key Factors for 2014
Costs
Demand
Paragon Economics, Inc.
6/20/2013
23
From information, knowledge
24. The macro-economy – Improving
Good things:
- GDP growth, improving housing market, low
interest rates, job growth (+175k Sept, +200k
Oct, +203k Nov but only +74k in Dec)
- Wealth effect has been positive – Record
equity values prior to recent “correction”
Question marks:
- U fell to 6.7% in Dec – due to -347k “seekers”
- U-6 is 13.1% -- improving but still high
- Personal disposable income – better, but ????
Paragon Economics, Inc.
6/20/2013
24
From information, knowledge
25. 2013 RPDI growth averaged 0.1%/month . . .
. . . And December was abysmal at -3.4%, yr/yr
Paragon Economics, Inc.
6/20/2013
25
From information, knowledge
26. Per cap consumption is flat thru „14 . . .
. . . Chicken, pork will grow, beef will decline
Paragon Economics, Inc.
6/20/2013
26
From information, knowledge
27. Retail prices are at or near record highs . . .
. . . Would not be if demand was, in fact, soft
Paragon Economics, Inc.
6/20/2013
27
From information, knowledge
28. Meat/Poultry demand has been good in‟13
Paragon Economics, Inc.
6/20/2013
28
From information, knowledge
29. Beef, chicken & pork are up, turkey lower
Paragon Economics, Inc.
6/20/2013
29
From information, knowledge
30. Pork exports: BIG 2013 issue & remain soft . .
. . . USDA (and I) expect some growth in „14 (?)
Paragon Economics, Inc.
6/20/2013
30
From information, knowledge
31. Decexports – +33.3% for Mexico, +17% Others
YTD: Canada -1.6%, Mexico +9%, Others +12%
Paragon Economics, Inc.
6/20/2013
31
From information, knowledge
32. Key Factors for 2014
Costs
Demand
Competitors
Paragon Economics, Inc.
6/20/2013
32
From information, knowledge
33. Chicken is now in a full growth mode
Industry started positioning for growth
last winter – delayed by backfilling Mexico
AI losses
Paragon Economics, Inc.
6/20/2013
33
From information, knowledge
34. Breeder flock grew modestly thru July . . .
. . . Up 4.6% to 4.8%, yr/yr, Aug-Nov; +3.3% Dec
Paragon Economics, Inc.
6/20/2013
34
From information, knowledge
35. Chicken is now in a full growth mode
Industry started positioning for growth
last winter – delayed by backfilling Mexico
AI losses
Profitable at present and going forward –
but can‟t stand prosperity
Egg sets have been +2-3%, placements
up only fractionally vs. ‟13 since Jan1
I expect 3-5% more broiler supply in 2014
Chicken will be very competitively priced
Paragon Economics, Inc.
6/20/2013
35
From information, knowledge
36. Beef – Now in full expansion mode, too
Range/pasture conditions are good
enough to support cow herd expansion
Paragon Economics, Inc.
6/20/2013
36
From information, knowledge
37. Replacement cow prices are record high . . .
. . . and even higher???
Paragon Economics, Inc.
6/20/2013
37
From information, knowledge
38. Cow-calf operations should get best of it!
Paragon Economics, Inc.
6/20/2013
38
From information, knowledge
39. Feedlot breakevens are still VERY high . . .
. . . Due to record-high calf, feeder prices
Paragon Economics, Inc.
6/20/2013
39
From information, knowledge
40. Beef – Now in full expansion mode, too
Range/pasture conditions are good
enough to support cow herd expansion
Heifer retention is tightening an alreadytight feeder and fed cattle supply
Paragon Economics, Inc.
6/20/2013
40
From information, knowledge
41. Jan Cattle report: Slow expansion . . .
JANUARY 1, 2014 -- U S CATTLE INVENTORY
Pre-Report Estimates*
Pct of Yr
Average
Ago
2013
2014
All Cattle & Calves
89,300
87,730
98.2
98.6
98.0 - 99.1
Cows & Heifers That Have Calved
Beef Cows
Dairy Cows
38,515
29,297
9,218
38,251
29,042
9,209
99.3
99.1
99.9
98.9
98.5
99.9
98.7 - 99.3
98.3 - 99.1
99.8 - 100.0
Heifers 500 Pounds & Over
Beef Cow Replacements
Dairy Cow Replacements
Other Heifers
19,134
5,381
4,551
9,203
18,751
5,471
4,539
8,741
98.0
101.7
99.7
95.0
99.0
103.1
100.3
95.9
97.9 - 99.6
102.4 - 103.5
98.9 - 101.1
93.2 - 97.1
Steers 500 Pounds & Over
15,813
15,415
97.5
98.4
97.3 - 99.6
2,056
2,035
99.0
99.0
98.4 - 99.7
Heifers, Steers & Bulls Under 500 Pounds
13,782
13,278
96.3
97.9
97.0 - 99.1
January 1 Cattle On Feed, All Feedlots
13,364
12,695
95.0
95.0
99.0
97.9
Bulls 500 Pounds & Over
Rev 2012
2013
34,279 33,930
Calf Crop
Range
97.7 - 98.1
Source: USDA National Agricultural Statistics Service, Urner Barry
Paragon Economics, Inc.
6/20/2013
41
From information, knowledge
42. Beef – Now in full expansion mode, too
Range/pasture conditions are good
enough to support cow herd expansion
Heifer retention is tightening an alreadytight feeder and fed cattle supply
Per capita beef availability in 2014 will be
down 3-5% -- RECORD HIGH prices again
Paragon Economics, Inc.
6/20/2013
42
From information, knowledge
43. RECORD-HIGH cutout values – in JANUARY!
Weekly averages hit $238 and $236 the
week of January 24
Value is being carried by END meats
Tighter supplies are still to come!
Paragon Economics, Inc.
6/20/2013
43
From information, knowledge
44. Beef – Now in full expansion mode, too
Range/pasture conditions are good
enough to support cow herd expansion
Heifer retention is tightening an alreadytight feeder and fed cattle supply
Per capita beef availability in 2014 will be
down 3-5% -- RECORD HIGH prices again
LONG reaction period – I don‟t expect
more beef, yr/yr, until 2016
AN OPPORTUNITY FOR PORK & CHICKEN!
Paragon Economics, Inc.
6/20/2013
44
From information, knowledge
45. Key Factors for 2014
Costs
Demand
Competitors
Hog Numbers
Paragon Economics, Inc.
6/20/2013
45
From information, knowledge
46. Imports from Canada are -11% for 2013 . . .
. . . FP -11.7%, MH -14%, S&B -1.1%
Paragon Economics, Inc.
6/20/2013
46
From information, knowledge
47. Sow slaughter was -6.5% yr/yr Q3 & Q4 . . .
. . . And was down 2.9% for the year
Paragon Economics, Inc.
6/20/2013
47
From information, knowledge
48. And gilt slaughter has been below average
Paragon Economics, Inc.
6/20/2013
48
From information, knowledge
49. Dec Hogs and Pigs – BH was a surprise . . .
. . . Other numbers were not – picked up PEDv?
USDA QUARTERLY HOGS & PIGS REPORT
December 27, 2013
Category
2012
2013
'13 as
PreActual Pct of Report
Est
'12
Est's
Inventories on December 1
All hogs and pigs
66,374
65,940
99.3
99.9
-0.6
Kept for breeding
5,819
5,757
98.9
101.0
-2.1
Kept for marketing
60,555
60,183
99.4
99.8
-0.4
Under 50 lbs.
19,299
19,049
98.7
99.7
-1.0
50-119 lbs.
16,752
16,669
99.5
99.7
-0.2
120-179 lbs.
12,634
12,626
99.9
99.9
0.0
180 lbs. and over
11,871
11,838
99.7
100.1
-0.4
Farrowings
Sep-Nov sows farrowed
2,888
2,882
99.8
100.4
-0.6
Dec-Feb Intentions
2,788
2,825 101.3 100.9
0.4
Mar-May Intentions
2,816
2,855 101.4 101.2
0.2
Sep-Nov Pig Crop
29,319
29,298
99.9
101.2
-1.3
Sep-Nov pigs saved per litter
10.15
10.16 100.1 100.8
-0.7
*Thousand head ** Thousand Litters
Source: WSJ (formerly DowJones)
Paragon Economics, Inc.
6/20/2013
49
From information, knowledge
50. Sep-Nov litter size does show PEDv signs. . .
. . . Closest to year-ago level since Q3 2003!
Paragon Economics, Inc.
6/20/2013
50
From information, knowledge
51. What about PEDv? -- 1/26 was a new record . .
. . . Big jump in IL, IN went from 9 to 25 in 1 wk.!
Paragon Economics, Inc.
6/20/2013
51
From information, knowledge
52. PEDv – Must remember timing
First case was April 15 – in spite of
conspiracy/neglect/incompetency theories
Sow/boar and suckling pig cases began to
grow sharply in June – DECEMBER slghtr
Rules of thumb: 2.3, 2.5, 2.7 pigs/sow
Anecdotal figure at present ~ 1.7M sows
and growing
1.9M x 2.5 = 4.75M pigs lost in 8 months
7.1M in 12 months = ~6% of „14 pig crop
Paragon Economics, Inc.
6/20/2013
52
From information, knowledge
53. Is Oklahoma a harbinger for other states?
Paragon Economics, Inc.
6/20/2013
53
From information, knowledge
54. Immediate impact: RECORD HIGH pig prices
Paragon Economics, Inc.
6/20/2013
54
From information, knowledge
55. Sept H&P: Growth in Q4, sizable growth in „14
. . . But from 9/1: -4.4% vs. „12, -3.0% vs. pred?
Paragon Economics, Inc.
6/20/2013
55
From information, knowledge
56. Hogs & Pigs indicates tight supplies Q1-Q2
. . . Higher numbers in Q3-Q4 – farrowings?
Paragon Economics, Inc.
6/20/2013
56
From information, knowledge
57. Making up for some losses with weights . . .
+2.7% since shutdown, nearly +3% in „14 . . .
Paragon Economics, Inc.
6/20/2013
57
From information, knowledge
58. Cutout has improved but hogs are lagging . . .
. . . “Near last year” may become a refrain
Expect MUCH higher prices in March-April
Summer highs at $105-$110
Paragon Economics, Inc.
6/20/2013
58
From information, knowledge
59. „14 forecast profits are now best since „87. . .
. . . For those who have avoided PEDv -- All?
Paragon Economics, Inc.
6/20/2013
59
From information, knowledge
60. Slaughter forecasts per Dec Hogs & Pigs
December 2013 Hogs & Pigs -- Commercial Slaughter Forecasts
Mizzou
Mil. Hd
2013 Q1
Q2
Q3
Q4
Year
2014 Q1
Q2
Q3
Q4
Year
% Chnge
27.874
-1.1%
29.730
0.8%
112.050
-1.0%
27.580
Paragon
0.4%
27.668
LMIC
-0.8%
26.778
ISU
Mil. Hd
% Chnge
Mil. Hd
% Chnge
Mil. Hd
% Chnge
-1.1%
27.428
-1.6%
27.829
-0.2%
27.800
-0.3%
26.479
-1.1%
26.494
-1.1%
26.579
-0.7%
26.355
-1.6%
27.685
0.1%
27.923
0.9%
27.990
1.2%
27.088
-2.1%
30.027
1.0%
30.476
2.5%
30.496
2.6%
29.320
-1.4%
111.744
-0.3%
112.321
0.2%
112.894
0.8%
110.563
-1.3%
Green figures are actual data from USDA.
.
Blue figures are estimated using USDA data
1/13/14
Paragon Economics, Inc.
6/20/2013
60
From information, knowledge
61. Price forecasts per Dec Hogs & Pigs
December 2013 Hogs & Pigs -- Price Forecasts
Mizzou
Producer-Sold
Net Price, All
Methods
2013 Q1
83.53
Q2
91.80
Q3
97.90
Q4
84.99
Year
89.56
2014 Q1
84 - 88
Q2
94 - 98
Q3
92 - 96
Q4
77 - 81
Year
86 - 90
Green figures are actual data from USDA.
ISU
Ia-Mn Wtd.
Avg. Base
Lean Hog
80.83
88.06
94.34
82.57
86.45
85 - 90
95 - 100
91 - 96
80 - 85
88 - 93
LMIC
Paragon
National Net
National Wtd
Neg'd Price,
Avg. Base Price
Wtd. Avg.
81.08
82.73
89.32
90.83
95.25
98.00
82.98
85.26
87.16
89.21
85 - 87
83 - 86
91 - 95
95 - 99
92 - 97
96 - 100
81 - 87
82 - 86
87 - 92
89 - 93
Blue figures are estimated using USDA data
**CME Lean Hog Index
CME
CME Lean Hog
Futures
83.34**
90.66**
98.98**
83.93**
89.23**
86.28
100.88
104.10
85.86
94.28
2/10/14
Paragon Economics, Inc.
6/20/2013
61
From information, knowledge
62. Key Factors for 2014
Costs
Demand
Competitors
Hog Numbers
Strategic Issue for Pork -- Capacity
Paragon Economics, Inc.
6/20/2013
62
From information, knowledge
63. I‟m still concerned about packing capacity
. . . 2014 is okay – 2015 and beyond????
Paragon Economics, Inc.
6/20/2013
63
From information, knowledge
64. Closing thoughts . . .
Lower feed costs will drive
expansion, especially for pork and chicken
Demand is good, macro conditions are
improving – positive prefs for meat?
Beef supplies will be tight thru 2015 – high
prices and opportunities for competitors
Chicken will be MUCH more competitive
Hog supplies will be lower due to PEDv --profitable but less price advantage
Paragon Economics, Inc.
6/20/2013
64
From information, knowledge