Market Outlook - Dr. Steve Meyer, livestock and agricultural economist, Paragon Economics, Inc. , from the 2012 Minnesota Pork Congress, January 18-19, Minneapolis, MN, USA.

1. Minnesota Pork Congress – January, 2012
Meat Sector Outlook
Steve R. Meyer, Ph.D.
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2. Key issues for „12 pork producer profits
 Exports – Exchange rates, trade
policy, disease status
 U.S. demand – U.S. economy, prices of
competitor goods
 Feed prices – S. American crops, moisture
situation, 2012 acreage/yields
 Hog/pork supplies -- Productivity (farrow-
ings, litter size), herd health, weights
 Packing capacity re. hog numbers this fall
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3. CROPS and COSTS
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4. „12 corn yield 5.8% below 1960-2010 trend . . .
. . . And 8.2% below “biotech” trend
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5. Today‟s report
ANALYST'S ESTIMATES
CORN & SOYBEAN YIELD & PRODUCTION, 2011
January 12, 2012 Crop Production/WASDE Reports
Analysts' Estimates, '11
USDA '11 USDA '11
Units USDA '10 Dec Low High Average Dec
Corn Yield Bu/Acre 152.8 146.7 145.0 147.5 146.2 147.2
Crop Bil. Bu. 12.447 12.310 12.165 12.375 12.265 12.358
Soybeans Yield Bu/Acre 43.5 41.3 41.0 42.7 41.4 41.5
Crop Bil. Bu. 3.329 3.046 3.010 3.200 3.048 3.056
GRAIN STOCKS, DECEMBER 1, 2011
January 12, 2012 Grain Stocks Report
Analysts' Estimates, Dec. 1, '11
USDA, USDA, USDA,
Units Dec 1 '10 Sept 1, '11 Low High Average Dec1, '11
Wheat Bil. Bu. 1.933 2.150 1.590 1.904 1.695 1.656
Corn Bil. Bu. 10.057 1.128 9.200 9.700 9.391 9.641
Soybeans Bil. Bu. 2.278 0.215 2.227 2.577 2.324 2.366
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6. Result: Continually shrinking corn crop . . .
. . higher stocks, but still 2nd lowest S/U ratio
U.S. CORN SUPPLY AND UTILIZATION - DECEMBER
2009/10 2010/11 2011/12
Estimate %Chng vs.
USDA Oct USDA Nov '10-'11
Acres Planted Mil A 86.4 88.2 91.9 91.9 4.2%
Acres Harvested Mil A 79.5 81.4 83.9 84 3.2%
Yield Bu/A 164.7 152.8 146.7 147.2 -3.7%
Beginning Stocks Mil Bu. 1673 1708 1128 1128 -34.0%
Production Mil Bu. 13092 12447 12310 12358 -0.7%
Imports Mil Bu. 8 27 15 15 -44.4%
Total Supply Mil Bu. 5961 14182 13453 13501 -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 1600 1650 -10.1%
Total Usage Mil Bu. 13066 13053 12605 12655 -3.0%
Carryover Mil Bu. 1708 1128 848 846 -25.0%
Stocks/Use 13.1% 8.6% 6.7% 6.7% -22.6%
Nat. Wtd. Avg. Farm Price $/Bu. 3.55 5.18 5.90 - 6.90 5.70 - 6.70 27.6%
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7. Corn went to ethanol due to PROFITS!!!!
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8. Ethanol now uses more corn than feed/res.
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9. World corn stocks: Forecast is 3rd lowest
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10. Corn at bottom of “range” – lower in Q3 & Q4
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11. 2011 drought grew into the Cornbelt
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12. Conditions have improved – but . . .
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13. World soybean stocks/use is in good shape
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14. U.S. soybean crop has held up better
U.S. SOYBEAN SUPPLY & UTILIZATION - JANUARY
2009/10 2010/11 2011/12
USDA USDA % Chng vs
December Januayr '10-11
Acres Planted Mil A 77.5 77.4 75.0 75.0 -3.1%
Acres Harvested Mil A 76.4 76.6 73.7 73.6 -3.9%
Yield Bu/A 44.0 43.5 41.3 41.5 -4.6%
Beginning Stocks Mil Bu. 138 151 215 215 42.4%
Production Mil Bu. 3359 3329 3046 3056 -8.2%
Imports Mil Bu. 15 14 15 15 7.1%
Total Supply Mil Bu. 3512 3495 3275 3286 -6.0%
Crushings Mil Bu. 1752 1648 1625 1615 -2.0%
Exports Mil Bu. 1499 1501 1300 1275 -15.1%
Seed Mil Bu. 90 87 88 88 1.1%
Residual Mil Bu. 20 43 32 32 -25.6%
Total Usage Mil Bu. 3361 3280 3045 3011 -8.2%
Carryover Mil Bu. 151 215 230 275 27.9%
Stocks/Use 4.5% 6.6% 7.6% 9.1% 39.3%
Nat. Wtd. Avg. Farm Price $/Bu. 9.59 11.3010.70 - 12.7010.95 - 12.45 3.5%
Soybean Oil Price Cents/lb. 35.95 53.20 53.00-57.00 50.50-54.50 -1.3%
Soybean Meal Price $/ton 311.27 345.52 355-385 280-310 -15.7%
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15. Weekly SBM cash and futures prices
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16. Still have ample wheat stocks
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17. And wheat is NOT keeping up with corn . . .
. . . More feeding is likely a long-term trend
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18. DDGS may be pricing OUT of hog diets . . .
. . . Cattle feed demand, exports
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19. Hog costs were record high in ‟11 . . .
. . . Have risen from $81.12 for ‟12 since Dec
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20. MEAT & POULTRY
DEMAND
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21. GDP growth: Improving again– but still slow
QTRLY GROSS DOMESTIC PRODUCT (GDP)
Real Dollar (2005) Change from Previous Quarter
Percent Change
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
1996 1998 2000 2002 2004 2006 2008 2010
Livestock Marketing Information Center 12/29/11
Data Source: Bureau of Economic Analysis, Compiled & Analysis by LMIC
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22. REAL disposable income FELL in 2011
TOTAL DISPOSABLE PERSONAL INCOME
Quarterly
Bil. Dollars
12000
11500
11000
10500 Current
Dollars
10000
9500
9000 2005
8500 Dollars
8000
7500
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Livestock Marketing Information Center 12/29/11
Data Source: Bureau of Economic Analysis
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23. Per cap Disposable Income = Mid-2006 . . .
. . . And 4.3% below the peak in 2008
PER CAPITA DISPOSABLE
PERSONAL INCOME
Dollars Quarterly
40000
38000
36000 Current
Dollar
34000
32000
2005
30000
Dollar
28000
26000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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24. Savings rate is falling – Necessity?
PERSONAL SAVINGS AS A PERCENT OF
DISPOSABLE PERSONAL INCOME
Percent
Current Dollars, Quarterly
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Livestock Marketing Information Center 12/29/11
Data Source: Bureau of Economic Analysis
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25. Consumer sentiment: Highest since June . . .
. . . Improving employment/unemployment
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26. Domestic meat demand improved in ‟11 . . .
. . For all species, last data point is Dec-Nov
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27. Yr/yr monthly data – have softened recently
November
monthly index
vs. ‘10:
Pork: -1.7%
Chicken: -8.7%
Beef: +1.3%
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28. RPI improving – highest since April . . .
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29. What will be the impact of record prices?
. . . NOT lower demand but lower Q demanded
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30. Dollar Index futures have gained ~10%
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31. Competitors: All have gained since mid „10
. . . Some recent “flight to safety” – Over?
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32. Customers: Same situation . . .
. . . Impact of peso and won weakening?
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33. Pork exports will be record large in 2011
. . . And, most likely, again in 2012
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34. Pork exports – EXCELLENT (+23%) thru Nov. . .
. . . China & Korea up >100%, Mexico -0.5%
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35. CHICKEN
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36. Broiler losses – Large and continuing!
. .. 2010 expansion plus higher grain prices
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37. AGGRESSIVE broiler cuts since mid-summer. .
2011 cuts offset ALL of
2010 increases
DOWN 6% YTD 2012
Placements are now
-4.2% since June 1 and
3.5% since Jan 1
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38. Reason: Higher weights – are persisting . . .
. . . Continuing breast meat glut, low prices
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39. Broiler cutout FINALLY broke thru $90 . . .
. . . traction from cutbacks has been slow
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40. And some improvement in breast meat!
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41. CATTLE/BEEF
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42. Lowest U.S. beef cow inventory since 1963
2011 = 30.9 Million Head
-1.6 Percent
2011 = 9.1 Million Head
+0.7 Percent
Livestock Marketing Information Center C-N-02
Data Source: USDA/NASS 07/23/10
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43. Beef: Four smallest calf crops since 1950
2011 = 35.5 Million Head
-0.5 Percent
2010 = 35.7 Million Head
-0.7 Percent
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44. Drought is the driver for beef industry now
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%
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45. COF was +4% on Dec 1 – 18 months up . . .
. . . Not indicative of lower fed supplies -- YET
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46. Slaughter lower than ‟10 in 11 of last 13 wks.
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47. Beef cow slaughter +11.3% since June 1 . . .
. . . Mainly TX & OK, some growth elsewhere
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48. Add in growing exports and . . .
. . . U.S. consumption/availability: -3.8% in „12
U S BEEF CONSUMPTION
Per Capita, Retail Weight, Annual
Pounds
75
70
65
60
55
50
1987 1990 1993 1996 1999 2002 2005 2008 2011
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49. New record high for Choice cutout @ $196.64
. . . My $200 prediction appears safe???
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50. HOGS AND PORK
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51. Dec H&P Report: Continued slow growth . . .
USDA Quarterly Hogs and Pigs Report
December 23, 2011
2011 as Pre- Actual -
Category 2010 2011 Pct of Report Estimate
Inventories on December 11
All hogs and pigs 64,925 65,931 101.5 101.3 0.2
Kept for breeding 5,778 5,803 100.4 100.8 -0.4
Kept for market 59,147 60,128 101.7 101.3 0.4
Under 50 lbs. 18,864 19,271 102.2 101.8 0.4
50-119 lbs. 16,519 16,895 102.3 101.5 0.8
120-179 lbs. 12,233 12,472 102.0 101.0 1.0
180 lbs. and over 11,531 11,490 99.6 101.2 -1.6
Farrowings 2
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 -1.7
Sep-Nov Pig Crop1 28,488 29,014 101.8 101.6 0.2
Sep-Nov pigs saved per litter 9.91 10.02 101.1 101.6 -0.5
*Thousand head **Thousand litters
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52. Doing more and more with same herd!
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53. Litter size growth 2.0% over past 4 years. . .
. . . How high can litter size go?
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54. Q4 ‟11 was -2 to 3% from ‟10 . . .
. . . With Q2 and Q3 „12 supplies up 1.5 – 2.5%
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55. Weights remain large and GROWING. . .
. . . Genetics, fixed costs, matrixes
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56. Cutout value begins „12 near „11 level . . .
. . . Match yr ago: Exports, domestic demand
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57. Neg‟d Net prices stayed above $80 from Jan!
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58. Sows very likely to remain at $60-plus in „12
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59. „12 profits have increased $10/hd since Dec
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60. Slaughter forecasts are mixed – slghtr days
December 2011 Hogs & Pigs Slaughter Forecasts
Mizzou ISU LMIC Paragon
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% 27.486 -0.5% 27.486 -0.5%
Q2 26.113 0.1% 26.113 0.1% 26.113 0.1%
Q3 27.374 1.6% 27.374 1.6% 27.374 1.6%
Q4* 29.879 0.9% 29.960 1.1% 29.740 0.4%
Year 110.852 0.5% 110.933 0.6% 110.713 0.4%
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
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61. Price forecasts
December 2011 Hogs & Pigs Price Forecasts
Missouri ISU LMIC Paragon CME
Producer-Sold Ia-Mn Wtd. National Net
Net Price, All Avg. Base National Wtd Neg'd Price, CME Lean Hog
Methods Lean Hog 1 Avg. Base Price Wtd. Avg. Futures
1/1/12
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**
2010 Q1 84 - 88 83 - 88 85 - 89 86.70
Q2 91 - 95 89 - 95 92 - 96 93.63
Q3 91 - 95 91 - 97 92 - 96 94.72
Q4 79 - 83 82 - 89 81 - 85 84.13
Year 86 - 90 86 - 92 87 - 91 89.80
1
Prior to Q2-11, ISU forecasts were Ia-Mn Live Price converted using a 75% yield **Average of CME Lean Hog Index
*Partial USDA data
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62. Monthly price forecasts
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63. Pork outlook
 2012 supplies will be 1.5 – 2.5% larger
with bulk in Q2 and Q3, Q4 steady w/ „11
 Weights will remain high
 Prices much like „11 – mid „$90s in summer
 Questions:
- Will demand hold? – Competitor prices,
economy, $US, consumers
- Is there enough finishing space for added
pigs?
- Slaughter capacity, fall „12? Paragon Economics, Inc.
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64. Risks
 The U.S. economy
 World economy
 $US vs. other currencies
 2012 corn and soybean crops
 Oil prices – corn is hitched to it
 RFS waiver/reduction plan
 Export disruption
- OIE disease – unlikely but HUGE impact
- Another “swine flu” type scare
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