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Turkey Industry Outlook for 2011-2012. Dr. Thomas E. Elam President FarmEcon LLC September 21, 2010. Headline issues for 2011/12. Recession has officially ended, but it does not feel like a recovery Feed costs – large crops, but huge demand Inventories of frozen meats under control - PowerPoint PPT Presentation
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Turkey Industry Outlook for 2011-2012
Dr. Thomas E. ElamPresidentFarmEcon LLCSeptember 21, 2010
1
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Headline issues for 2011/12
Recession has officially ended, but it does not feel like a recoveryFeed costs – large crops, but huge demandInventories of frozen meats under controlProtein and dairy supplies reduced enough to restore profitability
Improved pricing may lead to overexpansionBut likely not until 2012
3
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Globally: More Spending = More MeatOn average +10% Spending = +9% more meat
Sources: Consumer Spending: World Bank; United Nations. Meat Production: UN/FAO
$1 trillion increase in spending = 9 mmt more meat produced
R2 = 0.9988
-
5
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20
25
30
35
1961
1964
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1973
1976
1979
1982
1985
1988
1991
1994
1997
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2003
2006
Con
sum
er S
pend
ing,
Tril
l. $2
000
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50
100
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200
250
300
350
Mill
ion
Ton
s T
otal
Mea
t
Global Consumer Expenditures (constant 2000 US$Trillion) Global Total Meat Production, Million Tons
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Headline (U1) unemployment rate
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Actual (U6) unemployment rate
U1 + marginally attached + discouraged potential workersDoes not include those who have totally given up looking for work 7
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Labor force participation rate, %
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Labor force (employed and unemployed) divided by the civilian population 16 years of age and over.
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Private sector employment
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Government sector employment
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Total government sector employment has not grown since 2008 either.The 2000 and 2010 blips are temporary U.S. Census workers.
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Issues for long term income recoveryWork = consumer income = spending = MEAT DEMANDWeak 2010/2011 protein demand increase2010 protein price strength almost totally due to supply reductions If meat supplies increase in the face of low income growth, prices will decline
Why are these statistics important?
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Money finally ran out for pig and cattle operatorsThus, sow reductions and fewer fed cattleTurkey producers made large cutsEven 2009 broiler production droppedWholesale meat prices pushed higher to cover $4+ corn and $300+ soybean meal
Protein supply headlines
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Informa model broiler margins
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Informa model turkey margins
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Farrow-Finish returns, IA State budget
1/1/
2000
1/1/
2001
1/1/
2002
1/1/
2003
1/1/
2004
1/1/
2005
1/1/
2006
1/1/
2007
1/1/
2008
1/1/
2009
1/1/
2010
$(60)
$(40)
$(20)
$-
$20
$40
$60
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
1/1/
2000
8/1/
2000
3/1/
2001
10/1
/200
1
5/1/
2002
12/1
/200
2
7/1/
2003
2/1/
2004
9/1/
2004
4/1/
2005
11/1
/200
5
6/1/
2006
1/1/
2007
8/1/
2007
3/1/
2008
10/1
/200
8
5/1/
2009
12/1
/200
9-300
-200
-100
0
100
200
300
400
500
$/H
ead P
rofit/
Loss
Yearling steer returns, IA State budget
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
2003 2004 2005 2006 2007 2008 2009 2010f2011f80,000
82,000
84,000
86,000
88,000
90,000
92,000
94,000
Million P
ounds
2003-2011 total meat production:2.5 million pounds have gone away
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
TURKEY OUTLOOK2010/12
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Turkey and parts prices
Overproduction in 2008 and early 2009 killed pricing across the parts spectrumFrozen stocks got “out of control”Reduced 2009/2010 production has restored demand/supply balancePrices now high enough to cover costsHave prices increased enough to encourage 2011/2012 overproduction?
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
60
65
70
75
80
85
90
95
100
105
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Cent
s/Po
und
2007
2008
2009
2010a
2010f
Frozen toms, 16-22 pounds, UB
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
60
110
160
210
260
310
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Cent
s/Po
und
2007
2008
2009
2010a
2010f
Fresh tom breast meat, UB
24
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
60
70
80
90
100
110
120
130
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Cent
s/Po
und
2007
2008
2009
2010a
2010f
Fresh thigh meat, UB
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FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
0
10
20
30
40
50
60
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Cent
s/Po
und
2007
2008
2009
2010a
2010f
MDT, UB
26
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Turkey cold storage 2007-2010
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
000
Pou
nds
Whole Birds Other Turkey
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident2009 turkey exports drop with global recession
Mexico and China remain leading destinations
Source: U.S. Census Exports
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100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2005 2006 2007 2008 2009
000
Poun
ds R
TC W
eigh
t
All Other
South Africa
Cuba
Panama
Taiwan
Canada
Dominican Republic
Russia
Hong Kong
China
Mexico
30
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Large drops in 2009-2010 consumption needed to improve pricing
40¢
50¢
60¢
70¢
80¢
90¢
100¢
16.0 16.5 17.0 17.5 18.0U.S. Turkey Consumption, Pounds per Person
Wtd
. Ave
rage
: W
hol
e B
ird
s (3
0%)
&
Cu
tou
t (7
0%)
20002001
2002
2003
2004
2005
2006
2007
2008
Drop in production/consumption needed torecoup higher costs
2009
2010f2011f
32
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
18,000
19,000
20,000
21,000
22,000
23,000
24,000
25,000
26,000
27,000
28,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Poul
ts P
lace
d, (0
00) 2008
2009
2010
Poult placements, USDA, monthly,show production restraint in 2010
Placements through July, 2010 33
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
Wee
kly
Poul
ts D
estr
oyed
2008
2009
2010
The story behind higher placements…lower poults destroyed
Source: Urner Barry Weekly Hatch Report 34
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
2010/11 Turkey Forecast Summary(Production, Use and Stocks in Million Pounds)
2007 2008 2009 2010fcst 2011 fcstPct.
Change
Beginning Stocks 218 261 397 262 230 -12%Production 5,914 6,216 5,626 5,550 5,600 1%Total Supply 6,132 6,477 6,023 5,812 5,830 0%Exports 554 676 534 500 550 10%U.S. Consumption 5,318 5,404 5,226 5,082 5,030 -1% Per Capita (Lbs.) 17.6 17.7 17.0 16.3 16.1 -1%Total Use 5,871 6,080 5,760 5,582 5,580 0%Ending Stocks 261 397 262 230 250 9%
USDA Hen Price, $/lb. $0.821 $0.876 $0.794 $0.880 $0.850 -3%USDA Tom Price, $/lb. $0.820 $0.873 $0.794 $0.880 $0.850 -3%USDA Breast Meat, $/lb $2.306 $1.699 $1.370 $1.700 $1.650 -3%USDA Thigh Meat, $/lb $0.957 $1.013 $0.940 $1.050 $1.000 -5%USDA MDT, $/lb $0.246 $0.255 $0.330 $0.350 $0.300 -14%
Margin over Feed, ¢ 51.4¢ 31.6¢ 30.1¢ 50.0¢ 45.0¢ -10%35
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Turkey Feed Cost Outlook – 2010/11
Includes transportation basis for corn, soybean meal, MBM and grease.Based on 2.6:1 FCR, 65% corn, 22.5% SBM, 5% meat and bone meal, 5.5% grease diet
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Item 2005 2006 2007 2008 2009 2010f 2011fCorn Price, Central Ill. ($/Bu.) + $0.60 $2.50 $3.01 $4.11 $5.50 $4.15 $4.50 $4.60Soybean Meal Price ($/ton , 47%) +$25 $216 $202 $261 $362 $376 $335 $325Meat and Bone Meal, Diluth/Ton +$20 $197 $188 $256 $358 $361 $335 $320Grease, Diluth/Ton +$20 $340 $306 $477 $590 $457 $600 $580Turkey feed costs (¢/lb, Live) 21.0¢ 22.0¢ 28.7¢ 37.0¢ 32.0¢ 33.1¢ 33.5¢Turkey feed costs (¢/lb, RTC) 26.6¢ 27.9¢ 36.3¢ 46.9¢ 40.5¢ 41.8¢ 42.4¢
Lowest Turkey feed cost (¢/lb, RTC) 25.0¢ 25.7¢ 33.8¢ 34.8¢ 37.5¢ na naHighest Turkey feed cost (¢/lb, RTC) 28.5¢ 33.9¢ 41.4¢ 56.8¢ 46.3¢ na naTurkey feed cost (¢/lb, RTC) Range 3.4¢ 8.3¢ 7.6¢ 21.9¢ 8.8¢ na na
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
2010/12 Turkey Outlook SummaryDemand will continue to be a major challenge
Economy expanding, but not a typical recovery rateCompeting meat supplies shrinking in 2010, but not 2011/12Chicken supplies in particular are headed up
Feed cost outlook has deteriorated in recent weeks, will remain on higher plateau2011/12 turkey prices likely to declineExcellent 2010 margins will fade, but not turn to losses in 20112012 could be a more difficult year 38
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Feed Cost Outlook2010/2011
39
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Long term perspective…Corn at parity with gasoline and energy value.
0
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400
0
100
200
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Re
gu
lar
Ga
solin
e, N
Y, C
en
ts/G
al.
Co
rn, C
en
tra
l IL
, Ce
nts
/Bu
.
Corn, Central Illinois New York Harbor Conventional Gasoline
Corn price driven by feed value
Corn price driven by RFS, feed value, ethanol tax credit, corn production
Katrina
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Weather and acreage still play a major roleNo increase in major crop acres since 1989Export and feed demand also still importantPrices elasticities – in decreasing rank
Ethanol is near 0Food and seed use near 0Exports – very low response to priceFeed use – all that’s left to adjust
But ethanol is not everything…
43
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
No more acres found since 1990
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50,000
100,000
150,000
200,000
250,000
300,000
1980 1985 1990 1995 2000 2005 2010
Har
vest
ed A
cres
, 000
Corn Soybeans Wheat Sorghum Barley Oats Sunflowerseed45
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Corn/Meal Price Outlook – 2010/2012
Cash corn prices remain at $4.25-$5.00, meal at $300-375, through Sept-Oct (basis Illinois cash markets)Actual crop size and demand drive pricesEthanol production will grow due to RFS
Ethanol use mandate = ethanol price mandateVolatile energy prices are critical to outlookMore volatility in feed ingredients likely
In 2012 look for more corn acres, less soybean
48
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Corn feeding, including DDGS
01,0002,0003,0004,0005,0006,0007,0008,000
2005/2006 2006/20072007/2008 2008/2009 2009/2010 FarmEcon
fcst.
2010/2011 FarmEcon
fcst.
Milli
on B
ushe
ls, C
orn
Equi
vale
nt
Corn Feed Use DDGS Feeding, Corn Equivalent
49
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
Feed costs at new, higher, plateauFeed costs also likely to be more volatile than at any time in modern historyConstrained total protein production growthCustomer value creation still the name of the game!
Strategic issues:
51
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
What basics created your business?Quality productsSafe productsProduction system controlCompetitive pricing vs. other proteinsInnovation in production and processingBeing close to the customer and consumerAccess to world marketsExcellent animal husbandry and disease preventionEnvironmental stewardshipAnd more…
FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident
U.S. Meat Protein Shares Reflect Long Term Competitive Strength of Poultry
Sources: 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
53