Cattle and Hog Outlook 2010 and Beyond. John D. Lawrence Extension Livestock Economist Iowa State University

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1 Cattle and Hog Outlook 2010 and Beyond John D. Lawrence Extension Livestock Economist Iowa State University 1

2 Current Situation Total red meat and poultry 2009 at 210# lowest since at 206# lowest since 1991 Spending on food Domestic spending on food down avg. growth of 5.1%/year, Q % Global recession hampering exports 2

3 Poultry production Current Situation 46% of total red meat and poultry Year-to-date 2009 Broiler production -4.4% 7-weeks: Chick placement -1.4% / Egg set -1.8% Forecast for 2010 & 2011 (yr/yr % change) Production Consumption Broilers +1.3 & & +1.0 Turkeys -3.3 & &

4 YTD Beef Supply Summary Steer: Slght -4.3%, wts +1.3% Heifer: Slght -3.2%, wts +1.6% Beef Cow -8.7% Dairy +10.8% Since MCOOL change in live imports CN Feeders -51% or 342,000 head CN Slght S&H -28% or 207,000 head MX Feeders +9% or 68,000 head 4

5 $ Per Pound BEEF PRICE-QUANTITY RELATIONSHIP Annual, Retail Weight, Deflated All Fresh Retail Price

6 $ Per Cwt. 105 SLAUGHTER STEER PRICES 5 Market Weighted Average, Weekly 100 Avg JAN APR JUL OCT Livestock Marketing Information Center 6

7 $ Per Cwt JAN MED. & LRG. #1 STEER CALF PRICES Pounds, South Dakota, Weekly APR JUL OCT $ Per Cwt Avg Feeder cattle prices lower than 2008 and the 5-yr average MED. & LRG. #1 FEEDER STEER PRICES Pounds, South Dakota, Weekly Livestock Marketing Information Center JAN APR JUL OCT 7

8 COMMERCIAL BEEF PRODUCTION Quarterly Bil. Pounds Avg. 2004/ Yr/yr % Prd & Con -2.3 & & JAN-MAR APR-JUN JUL-SEP OCT-DEC & -2.9 Livestock Marketing Information Center 8

9 $ Per Cwt ANNUAL AVERAGE CATTLE PRICES Southern Plains lb Steer Calves lb Feeder Steers Fed Steers C-P-06 10/09/09 Livestock Marketing Information Center 9

10 Cattle Price Forecast Live Sltr. Feeder Steer Price Year Steer Price Southern Plains Quarter 5-Mkt Avg 7-800# 5-600# 2010 I c II III IV Year I II III IV Year Livestock Marketing Information Center

11 $ Per Cow ESTIMATED AVERAGE COW CALF RETURNS Returns Over Cash Cost (Includes Pasture Rent), Annual Livestock Marketing Information Center

12 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 ($/hd) $400 ISU Estimated Returns to Finishing Yearling Steers $300 $200 $100 $- $(100) $(200) $(300) 12

13 Cattle Crush Margin Return over corn and feeder cost considering basis adjusted futures and Live weight 1250 pounds Farms differ, but approximately a $150 Feeder weight 750 pounds margin is needed to breakeven Corn 50 bushels Margins at bottom 13

14 Cattle Summary Demand recovers slowly with the economy Tight supplies, but at time larger than the year before should support prices Herd liquidation continues into Higher cost for cowherds Higher cost of gain pressure calf prices Narrow feeding margins Manage risk through transition 14

15 YTD Pork Supply Summary B&G: Slght -1.8%, wts +1.4% Total Sow Slght -7.9% US Sow Slght -11.9% Since MCOOL change in live imports CN Feeders -24% or 1,673,500 head CN Slght B&G -73% or 1,716,600 head CN Slght Sows 24% or 126,900 head 15

16 2.90 $ Per Pound PORK PRICE-QUANTITY RELATIONSHIP Annual, Retail Weight, Deflated Retail Price

17 COMMERCIAL PORK PRODUCTION Quarterly Bil. Pounds Avg. 2004/ Yr/yr % Prd & Con -0.8 & & JAN-MAR APR-JUN JUL-SEP OCT-DEC & -3.1 Livestock Marketing Information Center 17

18 Hog Price Forecast Prices Year National Wtd Weaned Pig Quarter Avg Base Avg Base 2010 I b II III IV Year I II III IV Year ISU Sep 30 ISM Live Livestock Marketing Information Center 18

19 $50 Estimated Returns to Farrow to Finish Hog Production, $/Head, Iowa State University Extension $40 $30 $20 $10 $- $(10) $(20) $(30) $(40) $(50) Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 19

20 $70 ISU Estimated Cost and Selling Prices, Farrow to Finish ($/cwt Live) Oct 23, 09 Futures prices and historic basis $60 $50 $40 $30 $20 $10 Reported Projected $- Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 Feed Variable Total Hog Price 20

21 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 $400 $300 $200 $100 $- $(100) $(200) $(300) $(400) $(500) Jan-06 May-06 Sep-06 Accumulated Return Relative to Total Cost per Head Marketed Per Month Equity position at end of Dec 2008 equal to Jan 2006 Reported Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Firms financially sound in 2004 and that survived disease problems in still have equity Projected based on Nov, 23 futures Sep-09 Jan-10 May-10 $1,200 $1,000 $800 $600 $400 $200 $- $(200) $(400) $(600) Sep-10 Jan-11 Accumulated Returns Selling one head a month Dec 2008 = Jan 2006 Accumulated Return Relative to Total Cost per Head Marketed Per Month Reported Projected from Nov 23 futures 21

22 $80 $70 $60 $50 $40 $30 $20 $10 $- Reach Dec 2008 equity position by Oct 2010 The Good ISU Estimated Cost and Selling Prices, Farrow to Finish ($/cwt Live) Nov 23, 09 Futures prices and historic basis Jan-06 May-06 Sep-06 Jan-07 May-07 Reported Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Feed Variable Total Hog Price Projected $400 $300 $200 $100 $- $(100) $(200) $(300) $(400) Jan-11 Hog price increase 5% over Nov 23 Futures each month for 6 months and hold at 30% higher Accumulated Return Relative to Total Cost per Head Marketed Per Month Equity position at end of Dec 2008 equal to Jan 2006 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Reported Sep-08 Jan-09 May-09 Sep-09 Jan-10 Projected based on Nov, 23 futures 22 May-10 Sep-10 Jan-11

23 $70 ISU Estimated Cost and Selling Prices, Farrow to Finish ($/cwt Live) Nov 23, 09 Futures prices and historic basis The Ugly $60 $50 $40 $30 $20 $10 $- Jan-06 May-06 Sep-06 Jan-07 May-07 Reported Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Feed Variable Total Hog Price Equity position continues to decline throughout 2010 Projected Sep-10 Jan-11 $400 $300 $200 $100 $- $(100) $(200) $(300) $(400) $(500) Feed price increase 2% over Nov 23 Futures each month for 6 months and hold at 12% higher Accumulated Return Relative to Total Cost per Head Marketed Per Month Equity position at end of Dec 2008 equal to Jan 2006 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Reported Sep-08 Jan-09 May-09 Sep-09 Jan-10 Projected based on Nov, 23 futures 23 May-10 Sep-10 Jan-11

24 ISU Estimated Returns Carcass Break-even for Farrow-Finish Production Estimated Total Cost of Production per Cwt Carcass SBM/Corn Estimate of total cost of production Cash cost estimate, subtract $5/cwt for depreciation 24

25 Wean-Finish Crush Margin The Crush Margin is the return over pig, corn and SBM cost. The Crush Margin is based on the following assumptions. Carcass weight: 200 pounds Corn: 10 bu/hd Pig price: 50% of 5 month out LHF SBM: 150 lbs/hd Farms differ, but approximately a $40 margin is needed to breakeven Margins at bottom 25

26 Pork Summary Breeding herd decreasing slowly, but production efficiency offset some decline Export demand low in 2009, but expected to be stronger in 2010 and beyond Breakeven prices expected in mid-2010 Industry downsizing will idle some facilities Manage margins 26

27 ISU Resources for Difficult Times Pork, dairy and beef program specialists to help assess production efficiency Farm management program specialists to help evaluate management alternatives Iowa Concerns Hotline Farm Financial Associates Center for Agricultural Law and Taxation 27