Pork Industry Economic Outlook

Transcription

1 IPPA Board of Directors January 2015 Pork Industry Economic Outlook Steve R. Meyer, Ph.D.

2 Key Issues Fundamental shift in grain/oilseed S & D World and domestic economic growth Big change in U.S. consumers Expansion everywhere - Chicken: Belated but big - Hogs: Overcoming PEDv - Cattle: A Loooooong Time Coming Risks are NUMEROUS 2/2/2015 2

3 The corn supply situation is vastly improved Record high world output & consumption Projected Y/E stocks the highest in 15 yrs. MAJOR increase in non-u.s. production and especially in S. America 2/2/2015 3

4 World SB prod, cons, stocks are record high... & S/U is 2 nd highest ever Beans still strong due to China now takes over 60% of world soybean trade And still growing! 2/2/2015 4

5 Wheat same story on prod & cons but... World S/U ratio remains below 30 not a flush situation but good vs. 00s Ukraine situation creates risk U.S. conditions look good

6 Jan WASDE Yield reduction was a surprise.... But the market shrugged off crop reduction U.S. CORN SUPPLY AND UTILIZATION - JANUARY Units 2012/ /14 USDA Nov 2014/15 USDA Dec % Chng vs '13-14 Acres Planted Mil A % Acres Harvested Mil A % Yield Bu/A % Beginning Stocks Mil Bu % Production Mil Bu % Imports Mil Bu % Total Supply Mil Bu % Feed & Residual Mil Bu % Ethanol for fuel Mil Bu % Non-Ethanol FSI Mil Bu % Exports Mil Bu % Total Usage Mil Bu % Carryover Mil Bu % Stocks/Use Pct. 7.4% 9.2% 14.6% 13.8% 50.8% Nat. Wtd. Avg. Farm Price $/Bu % Source: USDA World Supply and Demand Estimates 2/2/2015 6

7 USDA price: Consistent with recent demand... But will that demand hold with $50 oil?

8 Larger crops, flat ethanol usage Feed/resid + DDGS back to levels

9 HUGE ethanol profits in 13 and But lower margins now ethanol price

10 Jan SBs: Lower prod and carryout expected.... USDA left y/e stocks at 410 mil. 4X as large U.S. SOYBEAN SUPPLY & UTILIZATION - JANUARY Units 2012/ /14 USDA December 2014/15 USDA January % Chng vs '13-14 Acres Planted Mil A % Acres Harvested Mil A % Yield Bu/A % Beginning Stocks Mil Bu % Production Mil Bu % Imports Mil Bu % Total Supply Mil Bu % Crushings Mil Bu % Exports Mil Bu % Seed Mil Bu % Residual Mil Bu N/A Total Usage Mil Bu % Carryover Mil Bu % Stocks/Use Pct. 4.5% 2.6% 11.2% 11.2% 323% Nat. Wtd. Avg. Farm Price $/Bu % Soybean Oil Price Cents/lb % Soybean Meal Price $/ton % Source: USDA World Supply and Demand Estimates 2/2/

11 Implications of current and future costs Lower feed ingredient costs will fuel expansion across the board but timing will differ per species FUNDAMENTAL and LONG-TERM change in grain prices - We have now caught up with ethanol usage - Growing oil/gas output will limit ethanol future growth - Yields continue to grow Only cost hikes will come with drought 2/2/

12 Costs ~20% lower than 2013 peak and ~8% lower than 14 will they be < $70?

13 Euro zone is still the drag on world economy... China may be slower but Asia is still good Source: Moody's Economy.com

14 GDP is growing and the rate is improving......q3 +5% qtr/qtr was best since 03! 2/2/

15 RPDI growth has been MUCH better in November was +2.2%, average of 1.6% YTD 2/2/

16 Consumers outlooks are improving, too both indexes highest since /2/

17 RPI was down slightly in Nov after Oct gain months of >100 which demarks growth 2/2/

18 Consumers outlooks are improving, too both indexes highest since /2/

19 RPI was down slightly in Nov after Oct gain months of >100 which demarks growth 2/2/

20 And now cheap oil and sub-$2 gas??? Weekly Crude Oil Futures Monthly RBOB Gasoline Futures

21 But the big factor is preferences protein is in, carbs are out BIG CHANGE! 2/2/ Research: Low-carb Diet Better Than Low-Fat Diet The Big Fat Surprise by Nina Teicholz Lost Weight on Bacon and Cream vox.com, Greg Ferenstein

22 The evidence of strong demand is PRICES..... New beef records in Nov, lower pork 2/2/

23 Meat/Poultry RPCE: Yr/yr higher since January... And HUGE positive months in Aug - Nov 2/2/

24 The big demand strength is for red meat... 2/2/

25 Major trend changes for red meat RPCEs Pork s $13.74 in Nov highest since Dec 90! Pork RPCE is now ahead of 2004 levels driven by Atkins diet, beef is gaining Can this be sustained?

26 Volume has been lower yr/yr since June But VALUE is still up 11%, VM value is up 15% 2/2/

27 Displaced EU pork is a big driver at present... ~40k MT of pork had to find a home!

28 The U.S. dollar is becoming an issue... 2/2/

29 Broiler industry entered 14 with an old flock... But increased the flock by ~2% in 2 nd half

30 Broilers: BIG production challenges in 14

31 Challenges limited growth except for wts!

32 Expectations for chicken... GROWTH!!! - Companies are solving problems and have a HUGE incentive - Reports of aggressive expansion adding growout barns The 3-4% growth I expected this year will come in 2015 Lower chicken prices will still be profitable Chicken will be very competitive at both retail and foodservice 2/2/

33 The key for beef growth is WEATHER!

34 Beef: Unprecedented cow/calf profits!!!! 2/2/

35 But cattle numbers are low across the board 2/2/

36 Placements are coming from a TIGHT supply... Feeder supply is down 3% vs. 12 record low Livestock Marketing Information Center Data Source: USDA-NASS 2/2/

37 Beef consumption/supply will be -4.7% yr/yr & down another 2% in 2015 and 1% in 2016! Livestock Marketing Information Center Data Source: USDA-NASS 2/2/

38 Cattle and beef summary... Growth but characteristically slow - Biology, producer age, capital cost - Growth means tighter near term supply HIGH prices through 2015 and 2016 will provide opportunities for competitors Recent selloff is a futures/technicals issue not supported by product or cattle! Long-term impacts of VERY HIGH prices on beef consumers? 2/2/

39 Pigs all PEDv, all the time it seems... New high wk. of 1/17 at 118 vs. 215 last year Many of these accessions are monitoring 2/2/

40 KEY DEVELOPMENT: Few sow herd breaks Data from 753 sow farm, 16 of 19 large systems reporting, 2.1 million sows! Nov-Dec: 12 breaks vs. ~85 in 13 2/2/

41 Paragon slaughter comps were close..... Thru August but yr/yr declines have fallen 2/2/ PREDICTED HOG SLAUGHTER CHANGE PER PEDv ACCESSIONS & ACTUAL HOG Month Forecast Yr/Yr Chnge FI Hog Slaughter FI Barr/Gilt Slaughter (000 Hd.) (Pct. Chnge.) (000 Hd.) (Pct. Chnge.) Dec 1.45% % % Jan 1.30% % % Feb -0.78% % % Mar -0.26% % % Apr -2.17% % % May -2.89% % % Jun -4.94% % % Jul -7.46% % % Aug % % % Sep % %* %* Oct -9.13% % % Nov -8.58% %** %** Dec -4.82% %* Jan -3.52% Feb -2.18% *Adjusted for one more work day in Sept & Dec 2014 **Adjustef for one less work day in November 2014

42 PRRS was MUCH quieter in and now

43 Dec Hogs & Pigs report: GROWTH is coming Larger BH, intentions, pig crop USDA QUARTERLY HOGS & PIGS REPORT Est's 1 Inventories on Dec 1 All hogs and pigs , Kept for breeding , Kept for marketing , Under 50 lbs , lbs , lbs , lbs. and over , Farrowings Sep-Nov sows farrowed 2,780 2, Dec-Feb Intentions 2,763 2, Mar-May Intentions 2,810 2, Sep-Nov Pig Crop 28,253 29, Sep-Nov pigs saved per litter *Thousand head ** Thousand Litters December 23, 2014 Category '14 as Pct of '13 Pre- Report 1 Source: Urner Barry Actual minus Est. 2/2/

44 Productivity measure are CRITICAL for 15! Farrowing intentions are, if anything, low relative to Dec 1 breeding herd Normal litter patterns would put Dec-Feb & Mar-May up 6.8% & 4.7% from 14

45 Will these changes happen? Farrowings growth is VERY likely - Overstocking with females to handle PEDv has left most units very full - Question is breeding/farrowing efficiency following PEDv some reports of problems Litter growth of 6.8% and 4.7% is unlikely - There will still be some pre-weaning loss - Re-breaks are occurring not as bad as in but still have losses - We are using 4.5% and 3.1% in our calcs.

46 Large yr/yr increases in summer & fall..... Capacity will be tight but not limiting in Q4

47 Weights will be a critical issue in 15 Hardly any seasonal increase in Q4 Recent yr/yr change is small due to last yr! We expect weights to be flat (Up from 14) thru April and then LOWER thru Sept primarily due to fully stocked finishers 2/2/

48 Combo of lower number & higher weights kept production close to 13 levels

49 14 prices were anything but normal but values/prices stabilized in Q4 Normalcy? My opinion: - This market went too high three times this year - And too low once in August Reason: It was information-starved, groping for the right price Is it still? 2/2/

50 2015 profits have fallen sharply since Oct When futures offered $30/hd 2/2/

51 U.S. sow slaughter in 14 was down 5.0% Gilt share has risen recently retention??? Now replacing aging sows? June & Sept BHs implied sharply higher gilt retention but Q4 data belie that Anecdotal evidence: More expansion! 2/2/

52 Slaughter forecasts from Dec. H&P... December 2014 Hogs & Pigs -- Commercial Slaughter Forecasts Mizzou ISU LMIC Paragon ACTUAL Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge 2013 Q % Q % Q % Q % Year % 2014 Q % % % % % Q % % % % % Q % % % % % Q % % % % % Year* % % % % % 2015 Q % % % % Q % % % % Q % % % % Q % % % % Year % % % % Red figures are analysts' last FORECAST for the given quarter (Q1 done in Dec, Q2 done in Mar, etc.) 12/31/14 Blue figures are estimated using USDA data *Annual total uses actuals to-date plus forecasts for the rest of the year.

53 Price forecasts, December H&P Report LH futures are FAR below forecasts December 2014 Hogs & Pigs -- Price Forecasts Mizzou ISU LMIC Paragon CME Producer-Sold Net Price, All Methods Ia-Mn Producer-Sold Neg'd Base National Wtd Avg. Base Price National Net Neg'd Price, Wtd. Avg. CME Lean Hog Futures 2013 Q ** Q ** Q ** Q ** Year ** 2014 Q ** Q ** Q ** Q ** Year Q Q Q Q Year Blue figures are estimated using USDA data **CME Lean Hog Index 1/27/15

54 Risks Major export disruption with a capital D! PEDv impact on pre-weaning mortality falls to near zero we have 1/3 as large as 14 Demand weakening - Domestic: Newly positive prefs continue? - Exports: World economy How much expansion in pigs and chicken? Hogs: Packing capacity New plant in 17 Diet guidelines & processed meats???