Cattle and Hog Outlook 2010 and Beyond John D. Lawrence Extension Livestock Economist Iowa State University 1
Current Situation Total red meat and poultry 2009 at 210# lowest since 1996 2010 at 206# lowest since 1991 Spending on food Domestic spending on food down. 1999-08 avg. growth of 5.1%/year, Q2 09-0.3% Global recession hampering exports 2
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 & +2.9 0.3 & +1.0 Turkeys -3.3 & +2.7-3.4 & +1.6 3
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
$ Per Pound BEEF PRICE-QUANTITY RELATIONSHIP Annual, Retail Weight, Deflated All Fresh Retail Price 3.50 3.40 3.30 04 08 05 3.20 91 90 07 3.10 03 93 06 92 89 3.00 2.90 01 94 02 88 87 2.80 95 00 2.70 96 97 98 2.60 99 2.50 62 64 66 68 70 72 74 5
$ Per Cwt. 105 SLAUGHTER STEER PRICES 5 Market Weighted Average, Weekly 100 Avg. 2003-07 95 90 2008 85 80 2009 75 JAN APR JUL OCT Livestock Marketing Information Center 6
$ Per Cwt. 140 135 130 125 120 115 110 105 100 95 JAN MED. & LRG. #1 STEER CALF PRICES 500-600 Pounds, South Dakota, Weekly APR JUL OCT $ Per Cwt. 125 120 115 110 Avg. 2003-07 2008 2009 Feeder cattle prices lower than 2008 and the 5-yr average MED. & LRG. #1 FEEDER STEER PRICES 700-800 Pounds, South Dakota, Weekly 105 100 95 Livestock Marketing Information Center 90 85 JAN APR JUL OCT 7
COMMERCIAL BEEF PRODUCTION Quarterly Bil. Pounds 6.8 6.6 6.4 6.2 Avg. 2004/08 2009 Yr/yr % Prd & Con -2.3 & -1.5 6.0 5.8 2010-1.4 & -1.2 5.6 JAN-MAR APR-JUN JUL-SEP OCT-DEC 2011-1.1 & -2.9 Livestock Marketing Information Center 8
$ Per Cwt 135 125 115 105 95 85 75 65 ANNUAL AVERAGE CATTLE PRICES Southern Plains 500-600lb Steer Calves 700-800lb Feeder Steers Fed Steers 55 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 C-P-06 10/09/09 Livestock Marketing Information Center 9
Cattle Price Forecast Live Sltr. Feeder Steer Price Year Steer Price Southern Plains Quarter 5-Mkt Avg 7-800# 5-600# 2010 I c 84-87 94-98 106-110 II 87-91 98-103 110-117 III 83-88 102-108 115-121 IV 87-93 101-110 109-119 Year 86-89 99-105 110-117 2011 I 88-95 97-106 111-122 II 92-100 103-113 115-126 III 86-95 106-117 117-130 IV 90-100 104-114 113-126 Year 90-96 103-113 114-126 10 Livestock Marketing Information Center
$ Per Cow ESTIMATED AVERAGE COW CALF RETURNS Returns Over Cash Cost (Includes Pasture Rent), Annual 150 100 50 0-50 -100 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 11 Livestock Marketing Information Center
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) http://www.econ.iastate.edu/faculty/lawrence/lawrence_website/livestockreturns.htm 12
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 http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/ Margins at bottom 13
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 2012+ Higher cost for cowherds Higher cost of gain pressure calf prices Narrow feeding margins Manage risk through transition 14
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
2.90 $ Per Pound PORK PRICE-QUANTITY RELATIONSHIP Annual, Retail Weight, Deflated Retail Price 2.80 2.70 2.60 2.50 2.40 2.30 2.20 97 87 8696 90 05 91 01 06 08 07 83 00 0402 03 89 84 48 49 50 51 52 53 54 55 85 88 93 95 98 92 94 99 16
COMMERCIAL PORK PRODUCTION Quarterly Bil. Pounds 6.5 6.0 5.5 Avg. 2004/08 2009 Yr/yr % Prd & Con -0.8 & +1.7 5.0 2010-0.6 & -2.5 4.5 JAN-MAR APR-JUN JUL-SEP OCT-DEC 2011-1.3 & -3.1 Livestock Marketing Information Center 17
Hog Price Forecast Prices Year National Wtd Weaned Pig Quarter Avg Base Avg Base 2010 I b 56-59 30-32 II 61-64 31-34 III 65-68 30-33 IV 61-65 31-34 Year 61-64 30-32 2011 I 61-68 33-36 II 66-71 35-38 III 70-76 33-35 IV 65-70 31-.34 Year 66-71 33-36 ISU Sep 30 ISM Live 40-42 48-50 43-46 Livestock Marketing Information Center 18
$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
$70 ISU Estimated Cost and Selling Prices, Farrow to Finish ($/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
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 2005-07 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
$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
$70 ISU Estimated Cost and Selling Prices, Farrow to Finish ($/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
ISU Estimated Returns Carcass Break-even for Farrow-Finish Production Estimated Total Cost of Production per Cwt Carcass SBM/Corn 3.00 4.00 5.00 6.00 7.00 8.00 250 62.64 68.53 74.43 80.32 86.21 92.10 300 64.41 70.30 76.20 82.09 87.98 93.87 350 66.18 72.07 77.96 83.86 89.75 95.64 400 67.95 73.84 79.73 85.62 91.52 97.41 450 69.72 75.61 81.50 87.39 93.29 99.18 500 71.49 77.38 83.27 89.16 95.05 100.95 Estimate of total cost of production Cash cost estimate, subtract $5/cwt for depreciation 24
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 http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/ Margins at bottom 25
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
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 1-800-447-1985 Farm Financial Associates Center for Agricultural Law and Taxation 27