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Dr. Thomas E. Elam
PresidentFarmEcon LLC
February 10, 20111
$5.50-7.00 corn, $325-425 soybean meal Slow recession recovery Higher costs and improving economy
working against each other on production But working together to drive wholesale
protein prices higher Likely: 2011 total meat production falls
slightly, much stronger overall pricing
2
$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00
$0$50
$100$150$200$250$300$350$400$450
1/20
007/
2000
1/20
017/
2001
1/20
027/
2002
1/20
037/
2003
1/20
047/
2004
1/20
057/
2005
1/20
067/
2006
1/20
077/
2007
1/20
087/
2008
1/20
097/
2009
1/20
107/
2010
1/20
11
Corn
, $/B
ushe
l, Ce
ntra
l IL
Soyb
ean
Mea
l, $/
Ton,
Cen
tral
IL
Soybean meal, Central Ill. Corn, Central Ill.3
July, 2011 Futures
Crop issues in major producing areas Reduced U.S. and global grain stocks Income/demand recovery Support from subsidized ethanol demand
• Increased ethanol production driven by policy• Historically high crude oil prices, leading to:• High ethanol prices• Both increase value/price of corn• Corn pulls other feeds up
Drops in 2010 corn/soy yield/production
4
0
10
20
30
40
50
60
0
2
4
6
8
10
121/
2000
7/20
001/
2001
7/20
011/
2002
7/20
021/
2003
7/20
031/
2004
7/20
041/
2005
7/20
051/
2006
7/20
061/
2007
7/20
071/
2008
7/20
081/
2009
7/20
091/
2010
7/20
10
Hog
and
Ste
er/H
eife
r Co
rn P
rice
Ratio
s
Broi
ler/
Milk
/Tur
key F
eed
Ratio
s
Broiler-feed Milk-feed Turkey-feed Hog-corn Steer and heifer-corn5
6
Profit/Loss for primary production only, does not include value added operations past RTC, carcass or raw milk
Species Units ProductionProfit/Loss per
UnitTotal Profit/Loss,
$ MillionFed Cattle Million Head 26.2 $30.42 $797Market Hogs Million Head 107 $11.55 $1,236Broilers Billion RTC Pounds 34 $0.030 $1,020Turkeys Billion RTC Pounds 5.6 $0.036 $203Dairy Million Cows 9.1 -$1,128.46 -$10,269
Total -$7,013
7
Sources:Fed Cattle: Iowa State fed yearling budgetMarket Hogs: Iowa State farrow-finish budgetBroilers: Informa Economics broiler margin modelTurkeys: Informa Economics turkey margin modelDairy: Penn State milk margin model2011 Forecast: FarmEcon LLC
Species Units 2007 2008 20092010,
Dec. Est. 2011, Jan.
Fcst.Fed Cattle $/Head, All Costs -$25.51 -$119.94 -$91.81 $30.42 -$50.00Market Hogs $/Head, All Costs $2.30 -$23.64 -$26.04 $11.55 -$5.00Broilers ¢ Per RTC Pound, All Costs 9.17¢ -5.17¢ 2.77¢ 3.00¢ 2.00¢Turkeys ¢ Per RTC Pound, All Costs 5.50¢ -6.13¢ -5.25¢ 3.63¢ 0.00¢Dairy $/Head/Day over Feed Cost -$7 $2.51 $0.87 -$4.23 -$3.09 -$3.00
Beef/pork production will decline Milk production likely flat, at best Broiler and turkey production likely
to grow slightly, at best Wholesale/retail prices for all likely
to increase
8
0
50
100
150
200
250
300
Poun
ds/C
apita
Turkey
Broiler
Pork
Beef
9
High feed costs, resulting in… Production declines Higher exports - 2011 growth is
forecast 1%/year population increase
10
11
12
Improved pricing and low stocks imply modest 2011 turkey industry production growth. However, growth will be muted by record-high feed costs, and the need to recover those costs in wholesale pricing.
Cold storage stocks at record low level 2010 profitability was good until year-end Q1 2011: production up 2-3% Q2: production +1% to +2% Q3/Q4: production +1% to -3% Exports expected to grow slightly Lower competing red meat supply, higher
red meat pricing Broiler pricing not as strong as red meats Feed costs remain the major wild card
13
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
000 P
ounds
Whole Birds Other Turkey14
Record low November & December Stocks
15Based on FarmEcon LLC model of 70% cut-up and 30% whole bird marketing mix. Prices are USDA/AMS. Does not include value-added products.
0¢
20¢
40¢
60¢
80¢
100¢
120¢
140¢
Ce
nts
/Po
un
d, R
TC
Ba
sis
Weighted Product Price Feed Cost Weighted Product Price - Feed Costs
17
4,6004,7004,8004,9005,000
5,1005,2005,3005,400
Mill
ion
Poun
ds
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
est
2011
f
18
$0
$1
$2
$3
$4
$5
$Bill
ion
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
est
2011
f
19
15.0
15.5
16.0
16.5
17.0
17.5
18.0
Pounds
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010est
2011f
Profitable
Unprofitable
20
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
5,500,000
6,000,000
6,500,000
6-Ja
n
27-J
an
17-F
eb
10-M
ar
31-M
ar
21-A
pr
12-M
ay
2-Ju
n
23-J
un
14-J
ul
4-Au
g
25-A
ug
15-S
ep
6-O
ct
27-O
ct
17-N
ov
8-D
ec
29-D
ec
2008
2009
2010
2011
21
2007 2008 2009 2010 est 2011 fcstPct.
Change
Beginning Stocks 218 261 397 262 189 -28%Production 5,914 6,216 5,626 5,525 5,650 2%Total Supply 6,132 6,477 6,023 5,787 5,839 1%Exports 554 676 534 545 560 3%U.S. Consumption 5,318 5,404 5,226 5,053 5,029 0% Per Capita (Lbs.) 17.6 17.7 17.0 16.3 16.1 -1%Total Use 5,871 6,080 5,760 5,598 5,589 0%Ending Stocks 261 397 262 189 250 32%
USDA Hen Price, $/lb. $0.821 $0.876 $0.794 $0.920 $0.940 2%USDA Tom Price, $/lb. $0.820 $0.873 $0.794 $0.918 $0.930 1%USDA Breast Meat, $/lb $2.306 $1.699 $1.370 $2.100 $2.050 -2%USDA Thigh Meat, $/lb $0.957 $1.013 $0.940 $1.230 $1.200 -2%USDA MDT, $/lb $0.246 $0.255 $0.330 $0.270 $0.300 11%
Margin over Feed, ¢/lb 51.4¢ 31.6¢ 30.1¢ 53.0¢ 42.0¢ -21%
22
40.0
50.0
60.0
70.0
80.0
90.0
100.0
110.0
120.0
Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
UB
Hen
s, 1
2 Lb
s. a
nd U
p
2009
2010
2011
Source: Informa, 2009-2010: PL10-03TM Turkey Letter. 2011: PW10-47 Poultry Weekly
23
40
90
140
190
240
290
Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
UB
Tom
Bre
astm
eat,
Cent
s/Lb
.
2009
2010
2011
Source: Informa, 2009-2010: PL10-03TM Turkey Letter. 2011: PW10-47 Poultry Weekly
24
World food prices rose to a record in December (2010) on higher sugar, grain and oilseed costs, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt.
25As reported by Bloomberg News, 1/5/2011
Grains – increasing ethanol production Oilseeds – increasing biodiesel
production Sugar – increasing ethanol production
And, all mandated by high income countries government policies
26
New research published December 27 Underlying pre-2006 corn price relative
to stocks and use has not changed Ethanol production and price have
become very important Price analysis has become more complex Significant risk of higher feed costs
27
28
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
4% 6% 8% 10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
Seas
on A
vera
ge F
arm
Pric
e, C
orn,
$/B
ushe
l
Stocks/Use Ratio, Total Feedgrains
2006
20072008
2009
2010 (USDA 12/2010 Fcst.)
Year crops were produced
Note increases in both average price and volatility!
29
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
#2 Ye
llow
Cor
n, C
entr
al IL
, $/B
u.
1/1/05-8/31/06Avg. $1.99, St. Dev. $0.17, Range $0.81
9/1/06-8/31/07Avg. $3.32, St. Dev.$0.48, Range $2.03
9/1/07-1/31/11Avg. $4.14, St. Dev. $0.98, Range $4.39
30
Regression for Season Average Corn Price, Feedgrain Crops of 1990-2005
Variable Coefficient Standard Error t Stat Intercept 4.281 0.329 13.024 Stocks/Use Ratio -21.284 4.358 -4.884 Stocks/Use Ratio2 49.766 13.889 3.583
Regression for Season Average Corn Price, Feedgrain Crops of 1990-2009
Variable Coefficient Standard Error t Stat
Intercept 4.218 0.543 7.763 Stocks/Use Ratio -20.623 7.208 -2.861 Stocks/Use Ratio2 48.087 22.972 2.093 Ethanol Production, Over 4 Billion Gallons 0.199 0.0274 7.271 Ethanol Price, Omaha Blender, over $2/Gallon 1.778 0.589 3.018
•Ethanol production and price are pushing up corn prices above 1990-2005 “normal”•Equation 2 forecasts 2010 crop price of $5.40 vs. $5.30 January USDA forecast•Absent ethanol price/production effects the corn price is about $3.10/bushel
31* September 1 Crop Year, 2011 as of 2/4/2011
2005/ 2006
2006/ 2007
2007/ 2008
2008/ 2009
2009/ 2010
2010/ 2011 FarmEcon
fcst.
2011/ 2012 FarmEcon Projected
Area Planted (Mill. Ac.) 96.4 92.5 109.0 101.8 100.1 99.6 106.0Area Harvested (Mill. Ac.) 85.9 80.1 98.3 91.0 89.6 90.0 95.5
Yield (Tons/Ac) 3.47 3.50 3.56 3.58 3.90 3.67 3.75Beg. Stocks (Mill. Tons) 58.8 54.8 36.2 45.1 47.0 48.0 23.6Production (Mill. Tons) 298.5 279.9 349.7 325.7 349.0 330.0 358.1Imports (Mill. Tons) 1.9 2.4 3.3 3.0 2.2 2.1 2.5Total Supply (Mill. Tons) 359.2 337.1 389.2 373.7 398.2 380.1 384.3Feedgrains Feed Use (Mill. Tons) 163.1 148.0 157.8 140.9 137.6 136.5 133.0 SBM Feed Use (Mill. Tons) 30.1 31.2 30.1 27.9 27.8 27.5 27.2 DDGS Feed Use (Mill. Tons) 12.1 15.8 21.1 25.7 29.3 30.2 31.3 Grains+DDGS+SBM feed use 205.3 195.0 209.0 194.5 194.7 194.2 191.6FSI Use (Mill. Tons) 81.6 94.4 116.5 134.8 157.8 166.4 169.5 Fuel Ethanol Refinery Use (Mill. Tons) 40.7 53.8 76.9 94.2 116.0 124.5 129.5 Est. DDGS Prod. (Mill. Tons) 13.4 17.7 25.4 31.1 38.3 41.1 42.7 Est. Corn Used by Ethanol (Mill. Tons) 27.3 36.0 51.5 63.1 77.8 83.4 86.8 DDGS Exports (Mill. Tons) 1.3 1.9 4.3 5.4 9.0 10.9 11.4 Other FSI Use (Mill. Tons) 40.9 40.6 39.6 40.6 41.8 41.9 40.0Exports (Mill. Tons) 59.8 58.3 69.9 50.9 54.8 53.6 53.5Total Use (Mill. Tons) 304.5 300.9 344.1 326.6 350.2 356.5 356.0Ending Stocks (Mill. Tons) 54.8 36.2 45.1 47.0 48.0 23.6 28.3% Feedgrains Used for Fuel Ethanol 14% 19% 22% 29% 33% 38% 36%Ending Stocks-to-Use Ratio 18% 12% 13% 14% 14% 7% 8%U.S. Average Farm Corn Price, $/Ton $79 $120 $165 $160 $140 $213 $201
32
Commodity 1990 20101990-2010
Change
Corn 66,953 81,263 14,310
Barley 7,529 2,466 (5,063)
Sorghum 9,089 4,658 (4,431)
Oats 5,948 1,263 (4,685)
Net Change, Feedgrains 131
Rapeseed 77 1,421 1,344
Soybeans 56,513 76,823 20,310
Oilseed, Sunflowerseed 1,851 1,873 22
Wheat 69,103 47,637 (21,466)
Net Change, Oilseeds and Wheat 210
Rye 376 264 (111)
Rice 2,822 3,623 801
Total 220,260 221,290 1,030
163.1 148.0 157.8 140.9 137.6 136.5
30.1 31.2 30.1 27.9 27.8 27.7
12.1 15.8 21.1 25.7 29.3 30.2
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005/ 2006 2006/ 2007 2007/ 2008 2008/ 2009 2009/ 2010 2010/2011 FarmEcon
fcst.
Mill
ion
Met
ric To
ns
Feedgrain Feed Use Soymeal Feed Use DDGS Feed Use
33
Cash corn prices remain at $5.50-$7.00, meal at $325-425, through March/April (basis Illinois cash markets)
2011 crops and demand drive feed costs after that
Ethanol production will grow due to RFS• More DDGS production, and• DDGS becomes #2 feed ingredient• Ethanol use mandate = increased corn demand• Energy prices are also critical to outlook• High volatility in all feed ingredient prices likely
34
Higher feed costs will drive protein prices higher in 2011-2012
$5+ corn and $300+ soybean meal=normal for 2011/2012
Feed cost volatility an ongoing issue Increasing RFS, weather, and limited
acreage are on a collision course Another 2008 spike in the next 3-5
years Driving higher poultry share of the diet
35
36Source: USDA/ERS
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Chicken
Pork
Beef
Turkey
Questions?Comments?
37