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DISCUSSION GUIDE FOR 1990 LIVESTOCK OUIT.OOK
prepared by
Scott H. Irwin
Associate Professor and Extension Economist Department of Agricultural Economics and Rural Sociology
The Ohio State University
November, 1989
ESQ 1628
SIIDE 1: U.S. INVENfORY OP AU. CATI'LE AND CALVES, JANUARY 1
A. Long-term decline in cattle numbers has been dramatic.
1. 1975: 132 million head.
2. 1989: 99.5 million head.
8. January 1, 1990 survey is expected to show an inventory of 100.5 million head,
or up 1%.
C. January 1, 1991 survey is expected to show an inventory of or 102.5 million
head, or up 2%.
D. Modest growth rate is due to two factors.
1. Cow-calf producers memory of large losses experienced in the early
and mid-1980s.
2. The Tax Reform Act of 1986 reduced the incentives to expand
through the elimination of the investment tax credit and the capital
gains exclusion.
SUDE 2: U.S. COW-CALF PRODUCTION RETURNS
A. The incentive for an expansion of the size of the cattle herd is indicated by the
profits to cow-calf production.
1. Four consecutive years of profits over 1986-1989.
2. Longest period of profits since the late 1960s and early 1970s.
3. Average profits:
a. 1981-1985: $-13/cwt.
2
b. 1986-1989: $+44/cwt.
8. Cow-calf producers are expected to earn substantial profits in 1990.
1. Supported by strong feeder cattle prices and good forage and pasture
conditions.
SUDE 3: U.S. COW SIAUGHTER. IN 1989
A. Evidence that beef producers are beginning to rebuild the cattle herd can be seen
in cow slaughter numbers.
8. Over January-May 1989 cow slaughter was up an average of 4% compared to year
earlier levels.
C. Over June-September 1989 cow slaughter was down an average of 7% compared
to year earlier levels.
SUDE 4: BEEF PRODUCITON FORECASTS
A. Continued decline in beef production is forecast for 1990.
8. One uncertainty is whether cattle feeders will continue to feed cattle to heavy
weights.
C. Slaughter weights of cattle have been about 1.5% above year ago levels since the
summer.
3
SUDE 5: FED CATil..E PRICES
A. Pattern of fed cattle prices in 1989 similar to that in 1988.
8. Despite drop in beef production prices are expected to only increase marginally in
1990.
1. Increase in fed cattle weights.
2. Large supplies of poultry.
C. Price forecasts:
1. 1989IV: $73-75/cwt.
2. 1990I: $74-78/cwt.
3. 1990II: $74-78/cwt.
4. 1990III: $70-74/cwt.
SUDE 6: U.S. FEEDER CATil..E SUPPLIES, JULY 1
A. After declining sharply for most of the 198.0s feeder cattle supplies were up on
July 1, 1989.
8. Increase was not large, only up 0.8%.
C. Only 1988 supply was smaller in the 1980s.
SUDE 7: FEEDER CATil..E PRICES
A. Feeder cattle prices in the first five months of 1989 were about the same level as
in 1988.
4
B. Over June-September prices were $4 to 8/cwt. higher than in 1988.
D. Prices have fallen modestly since mid-summer as fed cattle prices dropped.
E. Feeder cattle prices are expected to increase in response to recent rise in fed cattle
prices.
F. Fundamentals are strong for feeder cattle prices in 1990.
1. High fed cattle prices.
2. Moderate feed costs.
G. Prices in the first half of 1990 are expected to range in the upper eighties to the
low nineties.
SUDE 8: U.S. INVENTORY OF All. HOGS AND PIGS, 10 Sf ATES, DEC 1
A. There has been no discernable long-term trend in hog numbers over the last thirty
years.
B. Some analysts have suggested there is a ten-year cycle in hog numbers.
1. Lows in 1965, 1975, and 1986.
2. Highs in 1970, 1979.
C. Several reasons to view this conclusion cautiously.
1. Two repetitions of a cycle has little statistical reliablity.
2. Structure of hog industry has changed dramatically.
3. Efficiency of hog production has improved sharply.
SUDE 9: NUMBER OF U.S. HOG FARMS
A. Number of hog farms has dropped sharply in the 1980s.
1. 1980: 675,000 farms.
2. 1988: 334,000 farms.
B. Continued declines are expected given cost advantage of larger operations.
SUDE 10: U.S. HOG FARMS wrm INVENTORIES OF 500 OR MORE HOGS AND
PIGS
5
A. While the total number of hog farms has fallen, the number of large operations
has grown.
B. Define large operations as those with 500+ inventories.
1. 1977: 3.4% of all hog farms
35.3% of all hog inventories.
2. 1988: 9.0% of all hog farms
59 .6% of all hog inventories.
C. As share of production by large operations has increased, share of smaller
operations has declined sharply.
SUDE 11: EFFICIENCY OF THE HOG BREEDING HERD
A. Efficiency of the hog breeding herd has increased rapidly in the 1980s.
B. Cycling efficiency measures how fast the breeding herd is re-bred and farrowed.
6
1. Estimated by the ratio of sows farrowed over the December-
M a y
period to the December 1 breeding herd.
2. Expressed in index form with 1963 equal to 100.
3. No change in cycling efficiency between 1963 and 1980.
4. Increased by 19% between 1980 and 1988.
C. Pigs per litter efficiency is estimated by the pigs per litter over the December-May
period.
1. Expressed in index form with 1963 equal to 100.
2. No change in pigs per litter efficiency between 1963 and 197.
3. Increased 8% between 1977 and 1988.
D. Efficiency of the hog breeding herd has increased by 28% since the late 1970s due
to the increases in cycling and pigs per litter efficiency.
E. Increases in efficiency are probably related to the structural changes that have
taken place in the hog industry.
F. Larger operations are more efficient due to better technology and more intensive
management practices.
SIJDE 12: HOG-CORN RATIO
A. Indicator of hog production profits is the hog-com ratio.
B. Traditional break-even ratio is 20:1.
C. Have been at or above 20:1 since.
SUDE 13: HOG-CORN RATIO AND PRODUCI10N RESPONSE FIVE QUARTERS
IATER, 1980: I - 1988: II
A. Relationship between profits and hog production is shown on slide.
7
8. Each square represents the combination of the hog-com ratio for a quarter and hog
production five quarters later.
1. Five quarter lead reflects the average time required for producers to
respond and the biological lags in production.
8. Indication of economically rational response.
1. If hog-com ratio is less than 20:1, then production should be
decreasing five quarters later, and squares on chart should be in the
southeast quadrant.
2. If hog-com ratio is greater than 20:1, then production should be
increasing five quarters later, and squares on chart should be in the
northwest quadrant.
C. Actual data conform to closely model of rational response.
D. Average response summarized by curved line.
E. Since hog-com ratio is currently around 20:1, not expecting large production to
increases in 1990.
8
SUDE 14: PORK PRODUCTION FORECASf
A. Pork production forecasts based on inventory and pig-crops reported in September
Hogs and Pigs Report.
B. One caution is that producers may increased production more than expected due
to recent higher prices.
SUDE 15: HOG PRICES
A. Hog prices
1. ·January-September 1988: $44.95/cwt.
2. January-September 1989: $42.90/cwt.
B. Spring price decline was larger than expected, with prices as low as $35/cwt.
C. Prices in October have moved contra-seasonally:
1. October 1988: $38.95/cwt.
2. October 1989: $46.50/cwt.
D. Price strength is apparently due to positive demand developments.
1. Decreasing marketing margins.
2. Strong domestic and export demand for loins.
3. Pork belly sales to Poland.
E. Price forecasts:
1. 1989IV: $44-46/cwt.
2. 19901: $43-46/cwt.
9
3. 1990II $42-45/cwt.
4. 1990III $44-48/cwt.
5. 1990IV $40-48/cwt.
SIJDE 16: BROILER. PRODUCTION AND PRICFS
A. Broiler production has risen rapidly in the 1980s.
1. 1980III: 2,810 million pounds.
2. 19891II: 4,405 million pounds.
3. 56.8% increase.
B. Production has risen at an increasing rate in 1989 (on a year-over-year basis).
1. 19891: +3.2%.
2. 1989II: +7.2%.
3. 19891II: +9.1%.
C. Despite the increases in production, broiler prices have trended up.
1. 1980I-III average: 45.8 cents/pound.
2. 19891-III average: 62.1 cents/pound.
D. Strong evidence of the positive demand shifts that have supported broiler prices.
E. Note that broiler prices have fallen recently to the low 50s, which raises the
question of whether the market has finally become saturated with chicken.
F. Broiler production is expected to increase 6 to 8% in 1990.
10
SIJDE 17: TURKEY PRODUCTION AND PRICES
A. The trend in turkey production, contrary to that of broilers, was flat in the first
half of the 1980s.
8. Turkey production has increased sharply in the second half of the decade.
1. 1985III: 898 million pounds.
2. 1989III: 1,180 million pounds.
3. 31.4% increase.
C. Turkey prices have not held up as well as broiler prices in the face of the increase
in production.
1. Prices dropped from a peak of 90 cents/pound in 1985 to a low
about 45 cents in 1988.
D. Turkey production is expected to increase 8 to 12% in 1990.
SIJDE 18: U.S. MILK PRODUCTION
A. For the first five months of 1989 milk production increased approximately as
expected.
8. Unexpectedly, milk production began falling in June 1989, and has been below
year earlier levels since.
1. June: -1.2%.
2. July: -2.1 %.
3. August: -1.4%.
11
4. September: -2.1 %.
SUDE 19: NUMBER OF MILK COWS
A. The major source of the production decline was not a drop in milk cow numbers.
B. The reduction in cow numbers has followed the expected trend.
SLIDE 20: MILK PRODUCilON PER COW
A. Milk production per cow is the major source of the drop in milk production.
B. While production per cow was weak over the first six months of 1989, it was not
out of the range of most analysts expectations.
C. Since July, production per cow has been down significantly.
D. This has been only the second time since WWII that milk production per cow has
dropped for a sustained period of time.
E. The drop in milk production per cow can be traced to two factors.
1. Forage availability problems as a result of last year's drought.
2. Poor forage quality in the Northeastern part of the U.S. due to
extremely wet conditions.
SUDE 21: MINNESOTA-WISCONSIN MILK PRICE AND CCC SUPPORT MILK
12
SUPPORT PRICE, 3.5% BF
A. Milk prices have been driven to record levels by the combination of reduced
production and strong demand.
1. MW price was a record $13.10/cwt. in September 1989.
B. Demand has been strong due to a very tight non-fat dry powder export market and
a robust domestic cheese market.
C. New record prices are expected in October and November 1989.
SIJDE 22: MILK-FEED PRICE RATIO
A. An indicator of milk production profits is the milk-feed price ratio.
B. The traditional break-even ratio is 1.4.
C. The milk-feed price ratio has been above 1.4 since August 1989.
D. Recent increases in milk prices have likely pushed the ratio above 1.6.
E. This indicates that milk producers are receiving signals to expand production.
F. Milk production is expected to increase 2% in 1990, with the bulk of the increase
occurring in the second half of the year.
G. Milk prices in 1990 are expected to average $11 to 12/ cwt.
,, as Q)
:c c 0 ·-
U.S. Inventory of All Cattle and Calves, January 1
135
127
119
~ 111
103
95 r , , , • • • • • • • • • • • ·------ -E I E I I I I I I I I I I I I • • • - • • •
1970 1974 1978 1982 Year
1986 1990
• 1990: Projected
1991: Forecast
"C as G> :c .... G> Cl.
125
100
75
50
fl) 25 .... as --0 c 0
-25
U.S. Cow - Calf Production Returns (Receipts Minus Cash Expenses)
- a a a a a a a a a a a a a a a a a a a 50 • • G G « G • G C G G G S • • G G « • •
1972 1974 1976 1978 1980 1982 1984 1986 1988 1990
•1989: Projected
* 19 9 0: Forecast
.
O> a)
O> T-
c ·-L. G) ....,
.£:. C> ::J as -en :c 0
(..)
• en •
:::>
0 II)
I 0 T"'"
I
J9!1J83 J89 A WOJ,:1 aBue40 CJ6
II) T"'"
I
Q ::s c(
c ::s .., ~ as ~
.... a. c(
.... as ~
.a G>
LL
c as ..,
(JJ ...-(JJ t-a '?fl (.) '?fl '?fl '?fl (1) CW) CW) ~
CW)
I.-
0 I I I I
LL
c 0 ·-...-(.) I.-
:J "' -c > <1)
0 - - - >--I.-
c.. Ol 0
'+-(X) Ol
<1) Ol Ol <1) ,_ ..... Ill
• .... ~ 0 ...... ~
Fed Cattle Prices Choice, 1 O O O - 1 1 O O Lbs., Omaha
80 ..----------------------------------------------.
75
70
65
60
55 ..... __ .... __ _. ____ .... ______ __. ____ .._ __ ...... __ ............. __ ..... __ _. __ __.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1987 ~ 1988 e 1989
UJ (I) ·--c. c. :::s en (I) -+J +J
a3 (..)
L.. (I) -c (I) (I)
IJ...
• en •
::>
......
~ -:l ..., 1-!I
0 • I
J9!1JB3 JBQ A WOJ.:1 a6ue40 %
co I
It)
co O> ,....
.... ~ 0
........ -
Feeder Cattle Prices Medium Frame, 6 O O - 7 O O Lbs., Kansas City
90------------------------------------------,
85
80
75
70
65 ._ ______ _.. __ ...... ...._ ______ _.. __ ............ __ .._ __ ...... __ _. ____ ._ __ ...
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1987 ~ 1988 e 1989
"' a 0 :I: -
"' 'lo- c
55
50
U.S. Inventory of All Hogs and Pigs 1 O States, December 1
0 .2 45 --I.. ·-G> ~ .c-E ::s z
40
35 • G « G G « « « « « « « « « « « « « « « G « G « - « G « « « < ,,, ii I Ii Iii I I I I I I I I I I I I I I I CG I I Iii i
1959 1962 1965 196819711974197719801983 1986 1989
•1989: Projected
Number of U.S. Hog Farms
800 .........................................................................................................................
700 ....................................................................................
600
-"' 500 ,, c as
"' 400 :J 0
.t::. I- 300 -
200
100
0 1977 1979 1981 1983 1985 1987
"' .! 70 ... 0 .... i 60 > c -... 50 0
"' 40 E ... as lL 30 --< 'l-o .... c (I) 0
20
10
U.S. Hog Farms With Inventories of 5 0 O or More Hogs and Pigs
... (I)
~VC<<<<<~r<<<<<<~
0 (((((((<y £"''''''Z ™rm <!GGGGGG"'l!GGGGGGGK
- - £ £ £ £ £ £ Zv'2""Zr'2'"G4'£"2""N£1UU((Od'
1977 I D. 1979
~ Number of 500+ Farms
1981 1983 1985
- Inventory of 500+ Farms
1987
-0 0 ,...
II
(W)
co O> ,... -)( Q) "O c -
. .
Efficiency of the Hog Breeding Herd ·
120..---------------------------------------------~
115
110 • -~
105 ~ 1"\. I\ ... , ~- .. •. \ •. """' ~· ........ - -
100
95
90
8 5 . . . . . . . . . . . . . . . . . . . . . . . . . .
1963 1966 1969 1972 1975 1978 1981 1984 1987
Cycling Efficiency
• •• • • Pigs/Litter Efficiency
Hog-Corn Ratio
40 ..... ---------------------------------------------.
35
Break-Even Ratio 30
0 ·-a; 25 a:
2 0 ...-------i
15
1 0 I I T I T I T I T I T I T I T I T I T I T I T I T I T I T • T • T • T • T • T •
1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3
19aol 19a 1I19a2I19a3I19a4I19a5I19a6I19a1I19aa I 19a9 Quarter/Year
0 ·-.. as a: c .... 0 0 I CD 0 :c
Hog-Corn Ratio and Production Response Five Quarters Later, 1980: I - 1988: II
so---------------------...... ~--------------------.
40. • D 0
I I 0
cP 30
20
10
o._ ________ ...... ________ _.. ____________________ ~
-20 -10 0 10 20
96 Change in Hog Production 5 Qtrs. Later
C/J +-' C/J ca ~ 0 ~ ~ ~ (1) (\I ,.. CV)
,.. Ii.- + 0 + + + LL
c 0 ·-+-' 0 Ii.-
:J ~ -c > (1)
0 - - - > -Ii.-
0.. 0) 0
~ co 0) 0) 0) L.
0 ,.. ,.. 0..
Hog Prices Barrows and Gilts, 7 Market Average
55.-------------------------------------------.... 60
55 • .... ~ 50
........
* 45
40
35 ..... ____________ ..._ __ .... ______ ..... ____ ..._ ______ ..... ____ .._ __ ..
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1987 ~ 1988 e 1989
Broiler Production and Prices
Production (left scale)
Price (right scale)
4500 I rl 10 •
l ' I\ 4 1 o o t ,I\ ~ : \i 6 4
I I I ' 11 It I I
(IJ ~ I I I I I I "C I\\ I I I I I "C I I I I C
§ 3 7 00 I \ I \ I \' 5 8 g 0 I \ I ft
Q. I \ w. I \ \ I ....._
; \ \ I (IJ
C t a : \ \ I ,..-
~ 3300 I\ ~· \ I 52 i :: I \ \ I (.) ~ I ' ' ~ \ I 11111111:; • • ,...,,.. I \ I \ '- I
., \ I \ I
2 9 00 If A I \'"'"" ! .. \ l i 46 \ I ,,
I" . .., . I 2500 i ' I ' I ' I ' I ' I ' I ' I ' I ' I ' I ' I ' I ' I ' I ' I ' I ' I ' p 40
1 3 11 3 11 3 11 3 11 3 11 3 11 3 11 3 11 3 11 3 80 81 82 83 84 85 86 87 88 89
Quarter/Year
"' ,, c :J 0 Q.
c 0 ·--·-~
Turkey Production and Prices
Production (left scale)
Price {right scale)
1200 I 90
1035
870
705
540
• " I l
I \ I \ I \ 1' I \1 I\
\ I \ \ II \ I \ ; ~
I I
'I
I II ~ II 11 I I •• II !\ I I I I I\ I I I I I \ I I I I I I I I I I .... \ I I I I I
,, ~ nl l : I I I I I i""'-1 I I I I I - \ I I I
• I \ I I I \I I I " II
II •
,. "'\ I \ y 1, I \ I\ I l I \ I l I I l I I \1
I ' - I I I I I
\~'\ " : \/ l I
l I \ I l I ,, 'i
81
72
63
54
375 I IT IT IT IT IT IT IT IT IT IT IT IT IT IT IT IT IT IT I F 45
1 3 11 3 11 3 11 3 11 3 11 3 11 3 11 3 11 3 11 3 80 81 82 83 84 85 86 87 88 89
Quarter/Year
,, c :J 0 Q. ......
"' .... c G> (.)
. .
1 1 5 o o Million Pounds
11000
10500
10000
9500
U.S. Milk Production (2 1 States)
9000 ...._ ____________ ..... ____ ..._ __ ..... ____ ...._ __ ...... ____ ...._ __ _. ____ .... __ .....
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1987 ~ 1988 e 1989
Number of Milk Cows (2 1 States}
8900 ...... ---------------------------------------------
8800
~ 8700 c as
"' :J 0 ~ 8600
8500
8400 I I I I I I I I I I I I
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1987 ~ 1988 e 1989
"' "'C c :J 0 0.
Milk Production Per Cow (2 1 States}
1350 -----------------------------------------------......
1290
1230
1170
1110
1050 ._ __ ...._ __ _.. __ .... ____ ._ ______ _.. __ ..... ..._ __ ._ __ ..... __ _. __ .....
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1987 ~ 1988 e 1989
. ... :. 0 ....... ..
.. . ..
Minnesota-Wisconsin Milk Price and . CCC Milk Support Price, 3 .5 % BF
13.50 ---------------------------------------------........
12.80
12.10
11.40
10.70
11111111
M-W Price
Support Price
II' ~II\
~ • -.11
.-111-. ~ : . "' -lllllllllllllllfi -.1111111
1 0.00 . . . . . . • • • . • • . . . • • • • • • • • • • • • • • • • • • • • •
JFMAMJJASONDIJFMAMJJASONDIJFMAMJJASOND 1987 1988 1989
Month/Year
0 +:; as a:
Milk-Feed Price Ratio
2.00 ....----------------------......
1.80
1.60
1.40 I •
I 1.20 Break-Even Ratio
1.00 ......, _____________________ ...
80 I 81 I 82 I 83 I s4 I 85 I 86 I 87 I 88 I 89 Month/Year
. . .
