Grains and Livestock Economic Outlook

Transcription

1 World Pork Expo 2013 Grains and Livestock Economic Outlook Steve R. Meyer, Ph.D.

2 Key issue for profitability... Input prices and production costs Demand - Domestic economic conditions - World economy, competition and demand - Exports and a resolution to challenges - Competitor protein supplies and prices Output levels for 2013 and 14 Prices and margins

3 Key drivers of meat and poultry in 2013: Input prices and production costs - Will it rain? -- YES, at least for now! - Where will it rain? Most places in need! - When will it rain? Early but what about July and August? - How much will it rain? PLENTY for now? - And finally: Will it be hot as Hades AT THE ABSOLUTELY WORST TIME -- again this year? -- Remains to be seen

4 The critical issue for U.S. agriculture is still: Severe drought area is down to 25% High Plains 55%, South 37%, MW 0.5%,

5 Some context: August 2011 severe in SW 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%

6 Further context: Summer On 8/21: 77% drought, 44% severe or worse Bethany Swine Health Services Feb 2013

7 Scary context: April some problems... But LITTLE HINT of what was to come!

8 Output trends all kinked in and flattened in 12 what about 13 & 14?

9 Bottom Line: Massive losses for hogs, cattle

10 Though better than last year in the east Conditions are MUCH worse in the west May 29, 2012 EXTREMELY important for beef supplies through 2015!!! Problems for HRW wheat

11 Critical issues for grains Delayed plantings - How many unplanted corn acres? - How many to soybeans? - Yield impact? - Definitely brings an early frost into play Key information: - June 12 WASDE will USDA change yields? - Grain Stocks and Acreage reports on June 28

12 World situation -- Corn Nearly 80% of projected gain in world stocks is U.S. Will that happen? Most of world stocks are in China accuracy? Meaning?

13 World situation -- Soybeans Record-high projected stocks and 5 th highest S/U ratio ever DEMAND DRIVEN! Does not solve U.S. short-term problem

14 World situation -- Wheat Stocks are forecast to rebound slightly recent U.S. frost damage fully included? S/U ratio better than but ~5% lower than the average

15 South America Brazil - Now a major source of corn but limited corn exports until 2 nd harvest - Ample beans and getting them to ports finally will fill supply gap as U.S. stocks are depleted Argentina - Long-time corn competitor but government is limiting exports - Grain as an inflation hedge?

16 Corn demand ethanol output is growing But from VERY low levels

17 And for good reason Lost their shirts!... $7 corn is no fun for them either!

18 Ethanol margins are good again Should lead to higher corn usage ESTIMATED ETHANOL MARGINS 5/30/12 5/24/13 5/31/13 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

19 2007 RFS A hodge-podge of mandates Starch-based is still the critical one

20 Ethanol output has run ahead of the RFS!

21 But there is a BIG problem looming..... Mathematical REALITY and the BLEND WALL

22 Result: Small increase in ethanol usage RFS is higher than can be blended -- Have completely saturated E10 market E85 has not caught on will it ever? E15 is ALLOWED but not yet accepted and is, in fact, being challenged in court Profitable but blend wall means there is no incentive for new plants KEY ISSUE: Calling corn-based ethanol an advanced biofuel

23 Feed demand should increase in But by USDA s 735 mil. bushels!!! Higher hog numbers - SLOW growth in sow herd - Slower productivity gains More chickens and maybe MANY moore - Breeder flock is +2% so far in Prices have strengthened ready to grow! Turkeys soft demand, lower numbers Lower cattle on feed but these have less impact than they once did DDGS, others

24 2012 drought: Significant yield shortfalls corn yield: Largest deviation vs. trend since 88 Never had three in a row below the trend line 13? Bethany Swine Health Services Feb 2013 SB yield: Only 10% below trend August rains! 13 South American crop has helped satisfy world demand Logistics?

25 Biofuels & drought: Same but different???? represented a PERMANENT (?) shift in costs led to adjustments 2012 is a one-year (???) short crop situation same as and the goal is to survive for a year!

26 March 1 stocks were tightest since crop was 10.1 bil. bu., 12 crop was 10.8

27 Planting: Complete opposite of Latest planted crop EVER

28 Corn emergence EVEN SLOWER vs. history

29 Corn crop condition is okay But look at last year result???

30 2013 yield which trend do you want? USDA s 158 is very close to the 60 trend

31 Yield, yes but what about acres? Planted deviation - no strong relationship Harvested some positive relationship but much variation BIG QUESTION: Is this 93 again???

32 May WASDE Lowered yield from Feb Questions now: Acres? Harvest? Yield? U.S. CORN SUPPLY AND UTILIZATION -- MAY 2011/ /13 USDA May USDA April 2013/14 USDA May % Chng vs '11-12 Acres Planted Mil A NA % Acres Harvested Mil A NA % Yield Bu/A NA % Beginning Stocks Mil Bu NA % Production Mil Bu NA % Imports Mil Bu NA % Total Supply Mil Bu NA % Feed & Residual Mil Bu NA % Ethanol for fuel Mil Bu NA % Non-Ethanol FSI Mil Bu NA % Exports Mil Bu NA % Total Usage Mil Bu NA % Carryover Mil Bu NA % Stocks/Use 7.9% 6.8% NA 15.5% 127.6% Nat. Wtd. Avg. Farm Price $/Bu NA %

33 USDA s current price forecasts is high Relative to historical S/U s of 15+

34 Historical prices vs. stocks/use ratios

35 Soybean planting same story as corn

36 As with planting so with emergence

37 Trend yield is was -2.5 vs. trend

38 Soybean S&U Lower acres, TIGHT supplies! U.S. SOYBEAN SUPPLY & UTILIZATION - MAY 2013/ / /13 % Chng vs USDA April USDA May '11-12 Acres Planted Mil A NA % Acres Harvested Mil A NA % Yield Bu/A NA % Beginning Stocks Mil Bu NA % Production Mil Bu NA % Imports Mil Bu NA % Total Supply Mil Bu NA % Crushings Mil Bu NA % Exports Mil Bu NA % Seed Mil Bu NA % Residual Mil Bu NA % Total Usage Mil Bu NA % Carryover Mil Bu NA % Stocks/Use 5.4% 4.1% NA 8.1% 100% Nat. Wtd. Avg. Farm Price $/Bu NA % Soybean Oil Price Cents/lb NA % Soybean Meal Price $/ton NA %

39 May price frcst is HIGH vs. S/U ratio...

40 We do not expect meal to get cheap

41 Futures prices are ridiculously constant!

42 Summary Corn is AGAIN a weather situation - Late planting creates acreage, yield and frost risk - Good yield near $4, perhaps a bit lower yield upper $5s - $7-plus is possible but not likely Soybeans World supplies are helping - Normal yield will still get us $10-$11 beans - Meal in the $ range is likely

43 Hog cost implications average will be about $94

44 LIVESTOCK & MEAT

45 The macro-economy key issues Short term - Housing market is improving low interest rates, job growth - Wealth effect is positive equity markets - U-rate is falling but will likely stay above 7% Long term - Deficit & spending must be reigned in - Fed is still easing but so is everyone else in the world what happens when it stops?

46 January 2013 World economy is better But EU is still a wreck and now Japan

47 Exchange rates Real moved big in 11-12, stable recently Peso has improved but is still weaker than in 11, ditto for the won Rapidly falling yen due to gov t policy

48 The U.S. economy muddles along Q1 GDP +2.4% - Still slowed by uncertainty

49 Dec Real per capita PDI was false security Jan was -0.4%, April was only +0.3%

50 PC cons did not go below 200# last year What about 13 or 14?

51 Demand Primer Demand is The quantities of a product that consumers are willing and able to buy at alternative prices. - A set of price-quantity pairs - Downward sloping in P-Q space - Consumer is the primary demand all others are derived based on transformation costs Factors: Tastes/preferences, prices of substitutes (+) and complements (-), consumer incomes (ie. budget constraint)

52 Retail prices are at or near record highs Would not be if demand was, in fact, lower

53 Individual species indexes still mixed Chicken, beef and pork: Up for past 12 mos.

54 RPCE figures show monthly changes

55 Further proof: Record high 12 expenditures... And another record expected in 2013

56 The problem is exports April pork down 16%... Beef down 0.2%, chicken up only 1.3%

57 2012 exports were 4% higher than 11 record

58 Russia & China Why is it happening? Not really about ractopamine China: Low hog prices, protection Russia: - Push-back on human rights language - Protecting its domestic industry selfsufficiency goals, vested interests in govt. - Normal fun and games with Russkies Exports to Russia accounted for 1.2% of 12 pork production, China accounted for 3.4% % price impact?

59 Demand summary Demand indexes are slightly higher than in 12 so far with chicken leading Still concerned about consumer incomes in 13 wages, taxes? New pork export records are in BIG doubt - Russia and China over 20% of volume - Weaker yen will hurt Japanese buying power - MCOOL retaliation may not hit until 14 Higher beef and chicken (??) prices will be positive for pork demand

60 CATTLE AND BEEF

61 Very high portion of pastures were poor In October 12 - last crop condition report

62 U.S range/pasture conditions are bad With 32% of beef cows still in P/VP states

63 Dec 1 Hay Stocks Pct change, 12 vs. 11

64 11 drought drove beef cow slaughter

65 11 drought also drove HIGHER placements

66 Beef: Long-term trends PLUS droughts Smallest January 1 U.S. beef cow herd since Smallest calf crop since 1949 is forecast for 13

67 FC supplies grew by 0.7% vs. Jan But are still near record low at mil Mil. Head JANUARY 1 FEEDER CATTLE SUPPLIES Residual, Outside Feedlots, U.S

68 Placements had been lower yr/yr 8 of 9 mos.... Until +6% & +15% in March and April

69 May 1 COF is still 3.4% below last year Lower near-term supplies, closer in fall

70 Record-high weights helped prod levels But we are now back to yr-ago weights

71 No turn-around in sight for availability Per-cap: -3% in 13 and -5.5%+ in 52.6

72 Just as in 12, the sector is poised to grow But will Mother Nature allow it to do so?

73 Choice cutout FINALLY broke $ And likely will stay there through July.

74 Beef summary... Cattle are still big but will run close to 12 Lower cattle numbers thru Q3 and thus lower beef supplies Producers are keeping heifers but have some already moved to lots? Grass!!!! Longer term: Tighter per cap supplies thru 2014 ( 15?) and higher prices Will beef cease to be a habit for anyone below the middle class?

75 CHICKEN

76 Poultry: Reductions in 07 and 11 but Flock has been up 1-2% yr/yr since Jan.

77 Sets, placements & production are growing..... And will grow MORE if feed costs fall Sets were virtually even with 11 levels the entire second half of 2012 now +1.3% Broiler production is now +2.9% YTD vs and more to come!

78 Weights were a big driver for 12 output A mixed bag so far in 13 but still high

79 STRONG chicken prices driven by breasts!

80 HOGS AND PORK

81 U.S. sow herd is near smallest on record And yet Q4 production was record large!

82 Steady and dramatic productivity growth...

83 Weights have helped long-term production..... But feed costs have slowed them!

84 Imports from Canada are -9% YTD Risk issue for 14: MCOOL retaliation

85 12 production costs were record-high will likely be higher -- new crop help?

86 6/2 CME Group futures prices still imply Large losses for 2013 but profits in 14

87 Sow slaughter had been near year-ago March & April were driven by sow prices

88 March H&P Report: The herd is GROWING Category USDA QUARTERLY HOGS & PIGS REPORT March 28, '13 as Pct of '12 Pre- Report Est's Actual - Est Inventories on Dec 1* All hogs and pigs 64,937 65, Kept for breeding 5,820 5, Kept for market 59,117 60, Under 50 lbs. 19,235 19, lbs. 16,409 16, lbs. 12,780 13, lbs. and over 10,693 10, Farrowings** Dec-Feb sows farrowed 2,864 2, Mar-May Intentions 2,982 2, June-Aug Intentions 2,890 2, Dec-Feb Pig Crop1 28,550 29, Dec-Feb pigs saved per litte *Thousand head **Thousand litters

89 13 slaughter will be slightly larger than But pattern will be different summer???

90 March H&P Report slaughter forecasts March 2013 Hogs & Pigs -- Commercial Slaughter Forecasts Mizzou ISU LMIC Paragon Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge 2012 Q % Q % Q3* % Q4** % Year % 2013 Q1* % % % % Q % % % % Q3** % % % % Q % % % % Year % % % % Green figures are actual data from USDA. Blue figures are estimated using USDA data 4/1/13 *Quarter has one LESS slaughter day vs. year ago **Quarter has one MORE slaughter day vs. year ago

91 Disappointing Q1 has given way to..... A better-than-normal seasonal rally

92 Cutout has finally taken hog prices higher Mid-$90s is likely to be the top exports?

93 Price forecasts Lower but low enough? March 2013 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 2012 Q ** Q ** Q ** Q ** Year ** 2013 Q ** Q Q Q Year Q Green figures are actual data from USDA. Blue figures are estimated using USDA data **CME Lean Hog Index 6/2/13

94 MPR for pork and the new cutouts... Plant was +$3.95, Omaha was +$3.35

95 Summary Beef industry is still being impacted by 11 drought and output will be effected through 2014 and into 2015 Chicken slowed in 11 but has begun to grow again and could grow QUICKLY Pork industry has taken a huge equity hit but has maintained pending good 13 crops and a return to normal costs Cornbelt rains have been good need some warm, dry days now

96 Questions or Comments?