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Riding the Roller Coaster: Economic Outlook - Steve Meyer, livestock and agricultural economist, Paragon Economics, Inc., from the 2012 Iowa Pork Congress, January 24 - 26, Des Moines, IA, USA.
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From information, knowledge
Paragon Economics, Inc.
Steve R. Meyer, Ph.D.Paragon Economics, Inc.
Iowa Pork Congress – 2012
Meat Sector Outlook
From information, knowledge
Paragon Economics, Inc.
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
From information, knowledge
Paragon Economics, Inc.
CROPS and COSTS
From information, knowledge
Paragon Economics, Inc.
„12 corn yield 5.8% below 1960-2010 trend . . .
. . . And 8.2% below “biotech” trend
From information, knowledge
Paragon Economics, Inc.
Result: Continually shrinking corn crop . . .
. . higher stocks, but still 2nd lowest S/U ratio
2009/10
USDA
December
USDA
January
%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 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%
U.S. CORN SUPPLY AND UTILIZATION - JANUARY2010/11
Estimate
2011/12
From information, knowledge
Paragon Economics, Inc.
January Grain Stocks reports
Units
USDA,
Dec 1 '10
USDA,
Sept 1, '11 Low High Average
USDA,
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
Analysts' Estimates, Dec. 1, '11
GRAIN STOCKS, DECEMBER 1, 2011January 12, 2012 Grain Stocks Report
From information, knowledge
Paragon Economics, Inc.
Ethanol now uses more corn than feed/res.
From information, knowledge
Paragon Economics, Inc.
Corn went to ethanol due to PROFITS!!!!
From information, knowledge
Paragon Economics, Inc.
World corn stocks: Forecast is 3rd lowest
From information, knowledge
Paragon Economics, Inc.
Corn at bottom of “range” – lower in Q3 & Q4
From information, knowledge
Paragon Economics, Inc.
2011 drought grew into the Cornbelt
From information, knowledge
Paragon Economics, Inc.
Conditions have improved – but . . .
From information, knowledge
Paragon Economics, Inc.
U.S. soybean crop has held up better
2009/10 2010/11
USDA
December
USDA
January
% Chng vs
'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%
U.S. SOYBEAN SUPPLY & UTILIZATION - JANUARY2011/12
From information, knowledge
Paragon Economics, Inc.
World soybean stocks/use is in good shape
From information, knowledge
Paragon Economics, Inc.
Weekly SBM cash and futures prices
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
From information, knowledge
Paragon Economics, Inc.
DDGS may be pricing OUT of hog diets . . .
. . . Cattle feed demand, exports
From information, knowledge
Paragon Economics, Inc.
Hog costs were record high in ‟11 . . .
. . . Have risen from $81.12 for ‟12 since Dec
From information, knowledge
Paragon Economics, Inc.
MEAT & POULTRY
DEMAND
From information, knowledge
Paragon Economics, Inc.
QTRLY GROSS DOMESTIC PRODUCT (GDP)Real Dollar (2005) Change from Previous Quarter
-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
Percent Change
12/29/11Livestock Marketing Information Center
Data Source: Bureau of Economic Analysis, Compiled & Analysis by LMIC
GDP growth: Improving again– but still slow
From information, knowledge
Paragon Economics, Inc.
PER CAPITA DISPOSABLE
PERSONAL INCOMEQuarterly
26000
28000
30000
32000
34000
36000
38000
40000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Dollars
CurrentDollar
2005Dollar
Per cap Disposable Income = Mid-2006 . . .
. . . And 4.3% below the peak in 2008
From information, knowledge
Paragon Economics, Inc.
Consumer sentiment: Highest since June . . .
. . . Improving employment/unemployment
From information, knowledge
Paragon Economics, Inc.
Domestic meat demand improved in ‟11 . . .
. . For all species, last data point is Dec-Nov
From information, knowledge
Paragon Economics, Inc.
Yr/yr monthly data – have softened recentlyNovember
monthly index
vs. ‘10:
Pork: -1.7%
Chicken: -8.7%
Beef: +1.3%
From information, knowledge
Paragon Economics, Inc.
RPI improving – highest since April . . .
From information, knowledge
Paragon Economics, Inc.
PC consumption fell sharply in 2011 . . .
. . . But demand is strong! How so?
From information, knowledge
Paragon Economics, Inc.
What will be the impact of record prices?
. . . NOT lower demand but lower Q demanded
From information, knowledge
Paragon Economics, Inc.
Dollar Index futures have gained ~10%
From information, knowledge
Paragon Economics, Inc.
Competitors: All have gained since mid „10
. . . Some recent “flight to safety” – Over?
From information, knowledge
Paragon Economics, Inc.
Customers: Same situation . . .
. . . Impact of peso and won weakening?
From information, knowledge
Paragon Economics, Inc.
Pork exports will be record large in 2011
. . . Again in 2012???
From information, knowledge
Paragon Economics, Inc.
Pork exports – EXCELLENT (+23%) thru Nov. . .
. . . China & Korea up >100%, Mexico -0.5%
From information, knowledge
Paragon Economics, Inc.
Total frozen meat/poultry down 7.6% vs. „11 . .
. . . Led by chicken (-22%); pork +1% yr/yr
From information, knowledge
Paragon Economics, Inc.
CHICKEN
From information, knowledge
Paragon Economics, Inc.
Broiler losses – Large and continuing!
. .. 2010 expansion plus higher grain prices
From information, knowledge
Paragon Economics, Inc.
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
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 broke thru $90 . . .
. . . traction from cutbacks has been slow
From information, knowledge
Paragon Economics, Inc.
And some improvement in breast meat!
From information, knowledge
Paragon Economics, Inc.
CATTLE/BEEF
From information, knowledge
Paragon Economics, Inc.
C-N-02
07/23/10
Livestock Marketing Information Center
Data Source: USDA/NASS
Lowest U.S. beef cow inventory since 1963
-1.6 Percent
2011 = 30.9 Million Head
+0.7 Percent
2011 = 9.1 Million Head
From information, knowledge
Paragon Economics, Inc.
Beef: Four smallest calf crops since 1950
-0.7 Percent
2010 = 35.7 Million Head
-0.5 Percent
2011 = 35.5 Million Head
From information, knowledge
Paragon Economics, Inc.
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%
From information, knowledge
Paragon Economics, Inc.
Beef cow slaughter +11.3% since June 1 . . .
. . . Mainly TX & OK, some growth elsewhere
From information, knowledge
Paragon Economics, Inc.
Jan 1 COF – about as expected
2011 2012 ActualEsti-
mate*
Differ-
ence
On Feed, January 1 11,514 11,861 103.0 103.3 -0.3
Placed on Feed in December 1,789 1,683 94.1 94.2 -0.1
Fed Cattle Marketed, December 1,830 1,796 98.1 97.0 1.1
USDA Cattle on Feed Report Summary ---January 2012Thous. Hd. 2012 as Pct. of 2011
From information, knowledge
Paragon Economics, Inc.
COF was +3% on Jan 1 – 19 months up . . .
. . . But getting closer each month
From information, knowledge
Paragon Economics, Inc.
Jan 1 COF – about as expected
2011 2012 ActualEsti-
mate*
Differ-
ence
On Feed, January 1 11,514 11,861 103.0 103.3 -0.3
Placed on Feed in December 1,789 1,683 94.1 94.2 -0.1
Fed Cattle Marketed, December 1,830 1,796 98.1 97.0 1.1
USDA Cattle on Feed Report Summary ---January 2012Thous. Hd. 2012 as Pct. of 2011
From information, knowledge
Paragon Economics, Inc.
COF was +3% on Jan 1 – 19 months up . . .
. . . But getting closer each month
From information, knowledge
Paragon Economics, Inc.
Slaughter lower than ‟10 in 11 of last 14 wks.
From information, knowledge
Paragon Economics, Inc.
Add in growing exports and . . .
. . . U.S. consumption/availability: -3.8% in „12
U S BEEF CONSUMPTIONPer Capita, Retail Weight, Annual
50
55
60
65
70
75
1987 1990 1993 1996 1999 2002 2005 2008 2011
Pounds
From information, knowledge
Paragon Economics, Inc.
New record high for Choice cutout @ $196.64
. . . My $200 prediction appears safe???
From information, knowledge
Paragon Economics, Inc.
HOGS AND PORK
From information, knowledge
Paragon Economics, Inc.
Dec H&P Report: Continued slow growth . . .
Category 2010 2011
2011 as
Pct of
Pre-
Report
Actual -
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
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 -1.7
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
USDA Quarterly Hogs and Pigs ReportDecember 23, 2011
From information, knowledge
Paragon Economics, Inc.
Litter size growth 2.0% over past 4 years. . .
. . . How high can litter size go?
From information, knowledge
Paragon Economics, Inc.
Doing more and more with same herd!
From information, knowledge
Paragon Economics, Inc.
Q4 ‟11 was -2 to 3% from ‟10 . . .
. . . With Q2 and Q3 „12 supplies up 1.5 – 2.5%
From information, knowledge
Paragon Economics, Inc.
Weights remain large and GROWING. . .
. . . Genetics, fixed costs, matrixes
From information, knowledge
Paragon Economics, Inc.
Cutout value begins „12 near „11 level . . .
. . . Match yr ago: Exports, domestic demand
From information, knowledge
Paragon Economics, Inc.
Neg‟d Net prices stayed above $80 from Jan!
From information, knowledge
Paragon Economics, Inc.
Sows very likely to remain at $60-plus in „12
From information, knowledge
Paragon Economics, Inc.
„12 profits have increased $10/hd since Dec
From information, knowledge
Paragon Economics, Inc.
Price forecasts
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
Futures
1/18/12
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 89.801Prior to Q2-11, ISU forecasts were Ia-Mn Live Price converted using a 75% yield **Average of CME Lean Hog Index
*Partial USDA data
December 2011 Hogs & Pigs Price Forecasts
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 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?
From information, knowledge
Paragon Economics, Inc.
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