WORLD S LEADING ANIMAL PROTEIN PRODUCER Beef Market Update October 3, 2018
Beef market update The US cattle inventory continues to expand but at a slow rate as more females have moved to slaughter Cattle on feed inventories remain record large as placements have stayed above one year ago Slower fed cattle slaughter has kept the inventory of marketready cattle ample Cattle weights have stayed close to one year ago Beef production has been constrained somewhat due to slaughter capacity and labor availability Choice & prime grading has stayed close to last year s level Consumer demand has been excellent and has been the market driver demand has been boosted by a positive economic outlook Beef export demand continues to show double digit growth in 2018 African Swine Fever, trade disputes, and trade agreements have dominate the news 2
Drought monitor & 90 day precip departure from normal 3
7 day precipitation and 6-10 day temperature 4
Retail sales percent change year ago Advanced Retail Sales - Percent Change Year Ago (%) 12.00% 10.00% Food Services and Drinking Places Grocery Stores 10.1% 8.00% 6.00% 4.8% 4.00% 2.00% 0.00% 5
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Real expenditures 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Personal Consumption Expenditure (% Change Y/Y) % y/y Aug-18 PCE 3.0% Retail 3.9% Food service 5.5% -1.0% PCE Food-Retail Food Service - Meals & Beverages -2.0% 6
2018 year-to-date summary Year to date 2017 2018 Difference % 18/17 Cattle Slaughter (k head) 23,678 24,309 631 2.7% Weights (pounds) 811 813 2 0.3% Production (m pounds) 19,195 19,758 563 2.9% Exports (m pounds) 1,572 1,808 236 15.0% Jan-July Imports (m pounds) 1,813 1,822 9 0.5% Jan-July Steer Price ($/cwt) 122.2 117.2 (4.9) -4.0% Comprehensive Cutout ($/cwt) 209.0 211.0 2.0 1.0% 7
2018 year-to-date summary by class Year to date 2017 2018 Difference % 18/17 Cattle Slaughter (k head) 23,678 24,309 631 2.7% Steers & Heifers 18,991 19,309 318 1.7% Cows + Bulls 4,687 5,000 313 6.7% Below lags 2 weeks Steers 12,057 11,908 (148) -1.2% Heifers 5,902 6,359 457 7.7% Percent heifers 32.9% 34.8% 1.9% Dairy Cows 2,117 2,214 98 4.6% Beef Cows 1,923 2,135 212 11.0% Total Cows 4,039 4,349 310 7.7% 8
COLD STORAGE 9
Cold storage stocks by species 1,000,000 Beef, Pork, Chicken & Turkey Stocks (m pounds) 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Pork Beef Chicken Turkey 10
Cold storage stocks by species 3,000,000 Beef, Pork, Chicken & Turkey Stocks (m pounds) 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Pork Beef Chicken Turkey 11
Boneless beef stocks 550 Boneless Beef Stocks (million pounds) 500 Boneless Beef Stocks (million pounds) 500 450 400 450 350 400 300 350 250 300 Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec 200 2018 2017 12-16 Avg End of August boneless beef stocks were 459 million pounds up 5% from one year earlier Boneless beef stocks increased by nearly 15 million pounds in August The five-year average movement in August is -11.6 million pounds 12
Beef cut stocks 55 50 45 40 35 30 25 20 Beef Cut Stocks (million pounds) Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec 80 70 60 50 40 30 20 10 0 Beef Cut Stocks (million pounds) 2018 2017 12-16 Avg Beef cut stocks at the end of August were 45 million pounds up 19% from one year earlier Beef cut stocks increased by nearly 5 million pounds in August well above the average movement of -1.4 million pounds 13
CATTLE ON FEED 14
Cattle on feed Cattle on Feed Sep 1 Sep 1 Head % (1000 head) 2017 2018 Year Ago Yr Ago AZ 244 295 51 120.9% CA 420 525 105 125.0% CO 860 900 40 104.7% ID 240 255 15 106.3% IA 640 680 40 106.3% KS 2,220 2,310 90 104.1% MN 120 125 5 104.2% NE 2,150 2,330 180 108.4% OK 315 320 5 101.6% SD 215 200 (15) 93.0% TX 2,590 2,680 90 103.5% WA 200 210 10 105.0% 11,500 11,000 10,500 10,000 9,500 9,000 Sept 1 - US Total Cattle on Feed Inventory (1000 head) 5.3% -0.5% 3.6% 2.8% -3.0% 2.7% 1.5% -1.1% -7.5% -1.3% 5.9% Other States 290 295 5 101.7% 8,500 US 10,504 11,125 621 105.9% Trade estimate 11,071 567 105.4% IA+MN+SD 975 1,005 30 103.1% IA+MN+NE+SD 3,125 3,335 210 106.7% OK+TX 2,905 3,000 95 103.3% 8,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 12-16 Avg 15
Cattle on feed top 5 states & Far West Cattle on Feed - CO, KS, NE, TX & OK (1000 head) Cattle on Feed - AZ & CA (1000 head) 9,200 850 9,000 8,800 800 8,600 750 8,400 8,200 700 8,000 650 7,800 7,600 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2017 12-16 Ag 600 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 2017 12-16 Ag September 1 cattle on feed in the 5-state area were 8,540k head - up 5.0% or 405k head from year prior Arizona and California cattle on feed were up 156k head or 23.5% from last year s level 16
Cattle on feed share by state groups evolution 35.0% Cattle on Feed - State Group Shares (% of total) 30.0% 25.0% 20.0% 15.0% 10.0% Share of Cattle on Feed Inventory AZ+CA IA+MN+NE+ SD KS OK+TX 5 Area Sep-13 7.8% 29.2% 20.0% 27.8% 77.0% Sep-14 7.0% 31.1% 19.5% 27.8% 77.3% Sep-15 6.9% 31.7% 19.3% 26.9% 76.1% Sep-16 6.8% 29.9% 20.8% 27.7% 77.0% Sep-17 6.3% 29.8% 21.1% 27.7% 77.4% Sep-18 7.4% 30.0% 20.8% 27.0% 76.8% 5.0% 0.0% Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 AZ+CA IA+MN+NE+SD KS OK+TX The most noticeable share increase has been in Arizona and California 17
Cattle on feed >120 days August 1 - Cattle on Feed >120 Days (1000 head) 3,800 3,600 3,607 3,640 3,400 3,200 3,000 2,800 2,862 2,889 3,011 3,045 2,789 3,058 3,270 3,072 3,154 2,600 2,400 2,384 2,200 2,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 12-16 Avg September 1 cattle on feed >120 days were 3,640k head - up 18.5% or 568k head from year prior 18
August cattle placements August Placements (1000 Head) 2,400 2,200 2,000 1,800 2,061 2,109 2,283 2,191 2,007 1,777 1,725 1,879 1,928 2,070 1,804 1,632 1,600 1,400 1,200 1,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 12-16 Avg August placements were 2,070k head up 142k head or 7.4% from one year earlier August placements were up 5.3% from the five-year average 19
Placement evolution Placements - Change from Year Prior (1000 head) 300 250 13.5% 13.9% 10.2% 200 150 100 50 0 2.6% 0.8% 4.4% 7.3% 0.2% 1.3% 7.9% 7.4% -50-100 -150-200 -250-9.3% -8.3% 20
Cattle placements USDA vs Trade 200 Placements - USDA less Trade Average (1000 head) 150 100 50 0 88 117 55 149 69 71 52 9 15 97 4 25 57-50 -52-100 Placements continue to come in above the trade average estimate The last time placement were below the trade average guess was for the July 2017 placement estimate) 21
August placements weights 600 500 400 300 19.4% Placements by Weight Category (1000 head) -2.1% 10.0% 17.5% -11.1% Placements by weight Head % (1000 head) 2017 2018 Year Ago Yr Ago < 600 lbs 360 430 70 19.4% 600-699 lbs 285 335 50 17.5% 700-799 lbs 418 460 42 10.0% 800-899 lbs 485 475 (10) -2.1% 900-999 lbs 270 240 (30) -11.1% >1000 lbs 110 130 20 18.2% Total 1,928 2,070 142 7.4% 200 18.2% Avg Placement Wgh 775 764 (10) 98.7% 100 - < 600 lbs 600-699 lbs 700-799 lbs 800-899 lbs 900-999 lbs >1000 lbs 2018 2017 Placements continue to be skewed toward the lighter weight categories 22
SUPPLY, DEMAND & PRICES 23
FI steer weights 910 FI Steer Dressed Weights (pounds) During week ending September 15, FI steer weights were 896 pounds unchanged from week prior and down one pound from one year ago 900 890 880 870 860 850 840 830 820 2018 2017 12-16 Avg Steer weights were expected to gain 2 to 3 pounds week-on-week 24
US cattle slaughter 680 FI Cattle Slaughter (1000 head) 630 580 530 480 430 2018 2017 12-16 Avg Last week s cattle slaughter was 650k head up 0.4% from one year earlier During the last four weeks, cattle slaughter was up 1.5% from the year prior s level Year to date, cattle slaughter was up 2.7% with the 2017 level 25
US steer & heifer slaughter 550 FI Steer & Heifer Slaughter (1000 head) 530 510 490 470 450 430 410 390 370 2018 2017 12-16 Avg 350 Last week, steer & heifer slaughter was 518k head down 1.0% from one year earlier During the last the four weeks, fed slaughter was up 0.5% from year prior and was up 1.7% year-to-date 26
US cow & bull slaughter 140 FI Cow + Bull Slaughter (1000 head) 130 120 110 100 90 2018 2017 12-16 Avg 80 Last week, cow & bull slaughter was 132k head up 6.2% from one year earlier During the last the four weeks, cow & bull slaughter was up 5.5% from year prior and was up 6.7% year-to-date 27
Cash cattle prices 155 5 Market Cash Steers ($/cwt) 145 135 125 115 105 95 2018 2017 2016 12-16 Avg Last week, the weekly average cash steer price decreased to $110.65 per cwt up $0.04 per cwt from the previous week and up 2.4% from last year s level 28
Comprehensive cutout export volume 1750 Loads Sold - Total Export (loads) 1550 1350 1150 950 750 550 350 150 2018 2017 2016 12-16 Avg Last week, export sales volume decreased from week prior and were down 20.3% from last year s figure During the last four weeks, total export sales volume was down 12.4% from last year s level 29
USDA/FAS Export outstanding sales 35.00 Beef Export Sales (1000 mt) Outstanding sales (mt) as of Sep 20 30.00 25.00 20.00 15.00 10.00 5.00-2017 2018 % YOY CANADA 4,467 7,080 58.5% CHINA 442 315-28.7% HONG KONG 19,616 31,883 62.5% JAPAN 25,540 35,295 38.2% SOUTH KOREA 26,371 29,978 13.7% MEXICO 11,828 13,693 15.8% PHILIPPINES 1,100 1,796 63.3% TAIWAN 9,670 8,770-9.3% OTHER 4,381 7,942-44.8% KNOWN 103,415 136,752 32.2% 2018 2017 During the week ending September 20, net sales were 16.0 kmt unchanged from last year s level During the last four weeks, total beef net export sales were up 36% from year prior Outstanding sales were up 32% from last year s level 30
Comprehensive cutout 245 Comprehensive Cutout ($/cwt) 235 225 215 205 195 185 175 165 2018 2017 2016 12-16 Avg Last week, the comprehensive cutout decreased to $201.13 down $0.98 from week prior and up 3.4% from one year ago 31
Choice primal prices 450 400 350 300 Rib Primal ($/cwt) 200 190 180 170 160 Chuck Primal 9$/cwt) 250 2018 2017 12-16 Avg Round Primal ($/cwt) 210 200 190 180 170 160 150 140 130 2018 2017 12-16 Avg 150 2018 2017 12-16 Avg Loin Primal ($/cwt) 400 350 300 250 200 2018 2017 12-16 Avg 32
Choice primal prices, grinds and trim Brisket Prmal ($/cwt) Beef 50s ($/cwt) 225 220 205 170 185 165 145 120 70 125 2018 2017 12-16 Avg 20 2018 2017 12-16 Avg 250 Beef 90s ($/cwt) 250 Ground Beef 81% Lean ($/cwt) 240 230 230 210 220 190 210 170 200 150 190 2018 2017 12-16 Avg 130 2018 2017 12-16 Avg 33
Choice + Prime & Select Grading Percent Prime + Choice Grading 82 80 78 76 74 72 70 68 66 2018 2017 12-16 Avg Percent Select Grading 30 25 20 15 10 2018 2017 12-16 Avg The percent prime + choice increased week-on-week and was below last year s level (percent) 9/22/18 9/15/18 9/23/17 Prime 7.93 7.75 6.86 Choice 70.73 70.42 72.67 Prime + Choice 78.66 78.17 79.53 Select 17.99 17.81 16.12 No roll 3.35 4.02 4.35 34
Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Prime + Choice grading 85.0% USDA Steer & Heifer Prime + Choice Grade (percent) 80.0% 75.0% 70.0% 65.0% 60.0% 55.0% 50.0% 45.0% Prime + Choice % 52 Week Average 35
Choice Select spread 35 Choice-Select Spread ($/cwt) 30 25 20 15 10 5 0 2018 2017 12-16 Avg The choice-select spread gained ground last week 36
Branded programs- percent of weekly volume 25.5% Branded Volume % of Total 23.5% 21.5% 19.5% 17.5% 15.5% 13.5% 11.5% 9.5% 7.5% Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Branded Volume % of Total 52 week avg 37