Economic and World Outlook

Transcription

1 Sask Pork Symposium November 2012 Economic and World Outlook Steve R. Meyer, Ph.D.

2 Critical Issues Input prices and production costs

3 An unprecedented situation... A wonderful beginning to the 2012 crop year Early onset of dry, hot conditions Now classified as the worst drought in over 50 (or 80?) years Comes on top of a huge buildup in corn usage since 2006 and low carryouts The market must ration a limited supply among various usages potentially brutal

4 Should have come as no surprise Policies, usage, Mother Nature Nothing is changing at least YET -- to keep it from happening again Result: - ALWAYS hand to mouth on corn and beans - HUGE risks for animal proteins - BIG REWARD for risk management skills more important than husbandry by far!

5 World corn supply tight and tighter!

6 Late April concerned about N. Ia-S. Minn But subsoil moisture was short!

7 Minn improved while rest of U.S. worsened /21: 77% drought, 44% severe or worse

8 Hurricane Isaac helped SE and Ohio Valley But western plains remain VERY dry

9 Sandy further helped ECB but But the Plains and SE have worsened

10 Largest deviation from trend yield since What is the new trend? for 13

11 Same for soybeans down 13.1% vs. trend

12 Nov WASDE: Very close to expected Slightly higher prod, still tight stocks U.S. CORN SUPPLY AND UTILIZATION - NOVEMBER 2011/ / /11 % Chng vs USDA Oct USDA Nov USDA Oct USDA Nov '11-12 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 8.6% 8.2% 7.9% 5.6% 5.8% -26.5% Nat. Wtd. Avg. Farm Price $/Bu %

13 All usage estimates are much lower vs 11...

14 In a nutshell, this boils down to... Who can blink? How quickly can they blink? Who WILL blink? How many times will they blink? What will be the impact of all the blinking?

15 Can we cut feed usage?... Hog, Cattle, Dairy Cows, Turkey, Chicken

16 Implications of the animals themselves Beef cow slaughter saves little or NO grain Dairy cow slaughter DOES save grain up to lbs. per day per cow All cattle are caught between high grain and poor pasture/lower hay supply Sow slaughter saves very little feed for 6 months Chicken and turkey can respond FAST and have a big impact on feed esp SBM

17 Implications (continued) One response variable for cattle and hogs is weights! - Cattle FE is 5.5:1 to 6.0:1 on a DM basis - Hog FE is 3 to 3.5 near market weight - Seasonality is critical for weights ONLY POULTRY AND DAIRY CAN REACT QUICKLY - Beef normally could but pasture limits it now - Pork s ability to reduce feed usage is VERY limited only weights for 6 months

18 Ethanol policy status and terminology! 15% blend is allowed for 2001 & later cars - This is an allowance, not a requirement - Little uptake yet -- logistics? Liability? BTC and Import Tariff expired in Dec 11 still some state subsidies, no federal The current BIG debate is about the RFS - EPA can wave or modify it - Sec of Ag has no direct say and sees nothing wrong with it! - Question: Will waiver make any difference?

19 RFS is 13.2 bil. gal. in 12, 13.8 bil. in bil. gal. for crop yr = 4.8 bil. bu.

20 Question: How many RINs are out there?... ~2 to 2.5 bil. gallons will they be used?

21 Ethanol margins: Gross margin < FC Not covering VC short-term shutdown Ethanol: $2.37/gal Corn: $7.07/bu Natural Gas: $3.49/mmBtu

22 Ethanol margins are TIGHT lower output Will ethanol participate more in rationing? ESTIMATED ETHANOL MARGINS 11/2/11 10/26/12 11/2/12 Prices Corn $/bu Ethanol $/gal DDGS $/ton Ethanol 2.8 gal/bu $/bu DDGS 17.75#/bu Total Value Gross Margin over corn cost Return over all variable costs Ethanol 2.8 gal/bu $/bu DDGS 15.#/bu Total Value Gross Margin over corn cost Return over all variable costs

23 Ethanol has indeed responded down ~10%... If we stay at 34M/day down 4.6% for 12

24 Corn is well ahead of oil price now..... When will this reconcile?

25 Cash corn cheaper but far from cheap But a good 13 crop = prices <$5/bu.

26 World SB situation: Good vs. history but tight

27 November WASDE slight improvements But larger increases in world supplies U.S. SOYBEAN SUPPLY & UTILIZATION - NOVEMBER 2011/ / /11 % Chng vs USDA Oct USDA Nov USDA Oct USDA Nov '11-12 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 % Total Usage Mil Bu % Carryover Mil Bu % Stocks/Use 6.6% 4.6% 5.4% 4.5% 4.6% -13% Nat. Wtd. Avg. Farm Price $/Bu % Soybean Oil Price Cents/lb % Soybean Meal Price $/ton %

28 LARGE increase for Brazilian soybean output

29 Where will SBM go? Depends on Brazil... We have actually reached the $433 gap!

30 Total grains for F/R DOWN 37% since 2004

31 Add in DDGS and you are STILL down 21%

32 What will it take to recover?

33 Situation is much better in just one month

34 And more improvement in the Cornbelt

35 Hog production costs have moderated But are still record high for 2013

36 Futures-implied losses of $38-$45 this fall..... But 2013 keeps creeping upward

37 Another view bad but not as bad as 09-10

38 Critical Issues Input prices and production costs Demand domestic and exports

39 Real PDI growth improved to 1.2% Sept still lags pre-recession level

40 Persistent unemployment, poor sentiment..... Slow & declining consumption growth

41 RPI fell again in September Labor & cap ex are weak, sales are strong

42 Grocery store sales growth is slowing Grocery stores Yr/Yr growth has been less than 3% since March F/S data support the RPI slowed to 5.5% yr/yr growth in September

43 Monthly real per capita expenditures... Lower per cap consumption for beef in September 3% P growth for chicken in September Strong Q for pork in Sept without big price decline

44 Domestic demand indexes are mixed Pork improved & beef softened in Sept.

45 Per cap cons <200# for first time since But this is a SUPPLY issue

46 Prices are increasing as supplies tighten

47 Further proof: Record high expenditures

48 Breeder flock is smallest since now 3.5% lower than one yr ago.

49 Sets and placements: Very close to 11 levels DOWN 2.6% YTD 2012, have been near 2011 levels since July. Oct 16 was lowest level since 2001 Are -2.1% YTD 2012 and will also remain near 2011 levels

50 Broiler cutout has fallen below $100 again..... Seasonal high is in records again in 13

51 Chicken summary Any move toward expansion ended in late summer due to high feed (esp. SBM) prices Breeder flock will very likely shrink a bit more to million by Nov or Dec Egg sets, placements close to 2011 levels (much lower than 10) remainder of 2012? No growth but no big cuts soon, esp. vs Lower per cap availability in 2013 Record-high prices -- again

52 Beef: Situation began with the 2011 drought 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 Share 43.8%

53 55% of pastures are poor/very poor West, Cornbelt, North Plains are BAD

54 Smallest U.S. beef cow herd since 1946

55 Smallest U.S. calf crop since And not the higher rate of decline!

56 Tight supplies of cattle outside feedlots Down 1.7%, 2.7% and 3.3% last 3 years

57 Sept placements were 19% LOWER than After -10 & in July & Aug

58 COF lower, yr/yr for 3 nd time in last 28 mos Structure/sample issues, MORE TO COME

59 Beef cow slaughter: -13.2% yr/yr YTD double-digit below 2011 until October

60 Cuts are coming in the dairy sector %, +13% 1 st 2 wks of Oct, +6.3% YTD

61 No turn-around in sight for availability Per-cap down 2-3% in 12 and 3%+ in 13

62 Choice cutout is back above $ $200?...

63 Beef summary... Lower cattle numbers partially offset by higher weights but lower beef supplies Weights remain high Zilmax & Optiflexx? Short term: more dairy cows will offset fewer beef cows -- SOME; higher grinds Longer term: Tighter and tighter per cap supplies, higher prices thru 2015? Will beef cease to be a habit for anyone below the middle class?

64 Pork exports are still up 7.8% YTD vs Sept was -1.7%; must stay within 20% of 11

65 China/HK was below yr. ago in Sept but % YTD; Mexico is +14%, Canada +17%

66 Exchange rates Real is the big mover among competitors Peso and won have improved but are still weaker than one year ago Strong yen, record high renminbi

67 Demand summary Demand indexes mixed show no clear change in preferences Exports will likely grow exchange rates will be critical Higher beef and chicken prices will be positive for pork demand Biggest concern: Consumer income and expenditures

68 Critical Issues Input prices and production costs Demand domestic and exports Hog Supplies

69 USDA: World slaughter +0.09% in NO big reductions even in the EU????

70 Take out China, US and EU 27...

71 Sept H&P report close to expectations... USDA QUARTERLY HOGS & PIGS REPORT September 28, as Pct Category of '11 Pre- Report Actual - Estimate Inventories on Sept 1 All hogs and pigs Kept for breeding Kept for market Under 50 lbs lbs lbs lbs. and over Farrowings 2 June-Aug sows farrowed Sep-Nov Intentions Dec-Feb Intentions June-Aug Pig Crop June-Aug pigs saved per litter *Thousand head **Thousand litters

72 Litter size growth back to 1% in Q Trend breaker or trend breather?

73 Aug & Sept blew apart the June report..... Last 5 wks k from predicted level?

74 Surge was due to feed saving and MC>MR Weights are higher but -3.5 lbs. yr/yr

75 YTD pork production is +2.4% yr/yr Rest of 12: Unchanged to lower????

76 Result: Heavy pressure on cutout value But rebounded since mid-sept to ~$87

77 National Net hogs has gained over $ We don t expect an average of $78-$82

78 Slaughter forecasts September 2012 Hogs & Pigs - Commercial Slaughter Forecasts Mizzou ISU LMIC Paragon Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge 2011 Q1** % Q % Q % Q4* % Year % 2012 Q % % % % Q % % % % Q3* % % % % Q4** % % % % Year % % % % 2013 Q % % % % Q % % % % Q % % % % Q % % % Year % % % Green figures are actual data from USDA. Blue figures are estimated using USDA data 10/8/12 *Quarter has one LESS slaughter day vs. year ago **Quarter has one MORE slaughter day vs. year ago

79 Price forecasts September 2012 Hogs & Pigs - Price Forecasts Mizzou ISU LMIC Paragon CME Producer-Sold Net Price, All Methods Ia-Mn Wtd. Avg. Base Lean Hog National Wtd Avg. Base Price National Net Neg'd Price, Wtd. Avg. CME Lean Hog Futures 2011 Q ** Q ** Q ** Q ** Year ** 2012 Q ** Q ** Q ** Q Year Q Q Q Q Year **Average of CME Lean Hog Index 11/13/12

80 After another surge in September..... Sow slaughter has plunged the last 4 wks.

81 Gilt slaughter surge in September => cuts But <48% weeks imply GROWTH

82 My model says finances are weak But lenders believe status is not this bad!

83 How many sows will be liquidated?... My 3% by March is LIKELY TOO BIG!!!

84 What do we expect re. liquidation? Sows bred through October will produce pigs to sell in June thru August 2013 futures near $100 = profits of $10-$17/hd. Expected more sows in Nov-Dec but... - Fall 13 losses are now < $8/hd. - Optimism about next year s corn crop - Better financial position = staying power Breeding herd reduction may not reach 1% If so 2012 slaughter will be larger, prices lower

85 The key for Canada still the exchange rate

86 Hog exports have stabilized Would grow SOME with MCOOL reform

87 Long-term issues Costs, costs, costs = Prices, prices, prices - Consumer incomes and spending - How much less meat/poultry/dairy consumed? Animal welfare Chronic challenges - Stalls -- can this be won? What will it cost? - Castration, tail docking, - Ultimately: Indoor production Risk management skills Policy farm bill, antibiotics

88 Questions or Comments?