Iowa Pork Congress 2012 Meat Sector Outlook Steve R. Meyer, Ph.D.
Key issues for 12 pork producer profits Exports Exchange rates, trade policy, disease status U.S. demand U.S. economy, prices of competitor goods Feed prices S. American crops, moisture situation, 2012 acreage/yields Hog/pork supplies -- Productivity (farrowings, litter size), herd health, weights Packing capacity re. hog numbers this fall
CROPS and COSTS
12 corn yield 5.8% below 1960-2010 trend...... And 8.2% below biotech trend
Result: Continually shrinking corn crop..... higher stocks, but still 2nd lowest S/U ratio U.S. CORN SUPPLY AND UTILIZATION - JANUARY 2009/10 2010/11 Estimate USDA December 2011/12 USDA January %Chng vs. '10-'11 Acres Planted Mil A 86.4 88.2 91.9 91.9 4.2% Acres Harvested Mil A 79.5 81.4 83.9 84 3.2% Yield Bu/A 164.7 152.8 146.7 147.2-3.7% Beginning Stocks Mil Bu. 1673 1708 1128 1128-34.0% Production Mil Bu. 13092 12447 12310 12358-0.7% Imports Mil Bu. 8 27 15 15-44.4% Total Supply Mil Bu. 5961 14182 13453 13501-4.8% Feed & Residual Mil Bu. 5125 4793 4600 4600-4.0% Ethanol for fuel Mil Bu. 4591 5021 5000 5000-0.4% Non-Ethanol FSI Mil Bu. 10183 1395 1405 1405 0.7% Exports Mil Bu. 1980 1835 1600 1650-10.1% Total Usage Mil Bu. 13066 13053 12605 12655-3.0% Carryover Mil Bu. 1708 1128 848 846-25.0% Stocks/Use 13.1% 8.6% 6.7% 6.7% -22.6% Nat. Wtd. Avg. Farm Price $/Bu. 3.55 5.18 5.90-6.90 5.70-6.70 27.6%
January Grain Stocks reports GRAIN STOCKS, DECEMBER 1, 2011 January 12, 2012 Grain Stocks Report Analysts' Estimates, Dec. 1, '11 Units USDA, Dec 1 '10 USDA, Sept 1, '11 Low High Average USDA, Dec1, '11 Wheat Bil. Bu. 1.933 2.150 1.590 1.904 1.695 1.656 Corn Bil. Bu. 10.057 1.128 9.200 9.700 9.391 9.641 Soybeans Bil. Bu. 2.278 0.215 2.227 2.577 2.324 2.366
Ethanol now uses more corn than feed/res.
Corn went to ethanol due to PROFITS!!!!
World corn stocks: Forecast is 3 rd lowest
Corn at bottom of range lower in Q3 & Q4
2011 drought grew into the Cornbelt
Conditions have improved but...
U.S. soybean crop has held up better U.S. SOYBEAN SUPPLY & UTILIZATION - JANUARY 2009/10 2010/11 USDA December 2011/12 USDA January % Chng vs '10-11 Acres Planted Mil A 77.5 77.4 75.0 75.0-3.1% Acres Harvested Mil A 76.4 76.6 73.7 73.6-3.9% Yield Bu/A 44.0 43.5 41.3 41.5-4.6% Beginning Stocks Mil Bu. 138 151 215 215 42.4% Production Mil Bu. 3359 3329 3046 3056-8.2% Imports Mil Bu. 15 14 15 15 7.1% Total Supply Mil Bu. 3512 3495 3275 3286-6.0% Crushings Mil Bu. 1752 1648 1625 1615-2.0% Exports Mil Bu. 1499 1501 1300 1275-15.1% Seed Mil Bu. 90 87 88 88 1.1% Residual Mil Bu. 20 43 32 32-25.6% Total Usage Mil Bu. 3361 3280 3045 3011-8.2% Carryover Mil Bu. 151 215 230 275 27.9% Stocks/Use 4.5% 6.6% 7.6% 9.1% 39.3% Nat. Wtd. Avg. Farm Price $/Bu. 9.59 11.3010.70-12.7010.95-12.45 3.5% Soybean Oil Price Cents/lb. 35.95 53.20 53.00-57.00 50.50-54.50-1.3% Soybean Meal Price $/ton 311.27 345.52 355-385 280-310 -15.7%
World soybean stocks/use is in good shape
Weekly SBM cash and futures prices
Still have ample wheat stocks
And wheat is NOT keeping up with corn...... More feeding is likely a long-term trend
DDGS may be pricing OUT of hog diets...... Cattle feed demand, exports
Hog costs were record high in 11...... Have risen from $81.12 for 12 since Dec
MEAT & POULTRY DEMAND
GDP growth: Improving again but still slow QTRLY GROSS DOMESTIC PRODUCT (GDP) Real Dollar (2005) Change from Previous Quarter Percent Change 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0-1.5-2.0-2.5 1996 1998 2000 2002 2004 2006 2008 2010 Livestock Marketing Information Center Data Source: Bureau of Economic Analysis, Compiled & Analysis by LMIC 12/29/11
Per cap Disposable Income = Mid-2006...... And 4.3% below the peak in 2008 Dollars 40000 PER CAPITA DISPOSABLE PERSONAL INCOME Quarterly 38000 36000 34000 32000 30000 Current Dollar 2005 Dollar 28000 26000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Consumer sentiment: Highest since June...... Improving employment/unemployment
Domestic meat demand improved in 11..... For all species, last data point is Dec-Nov
Yr/yr monthly data have softened recently November monthly index vs. 10: Pork: -1.7% Chicken: -8.7% Beef: +1.3%
RPI improving highest since April...
PC consumption fell sharply in 2011...... But demand is strong! How so?
What will be the impact of record prices?... NOT lower demand but lower Q demanded
Dollar Index futures have gained ~10%
Competitors: All have gained since mid 10... Some recent flight to safety Over?
Customers: Same situation...... Impact of peso and won weakening?
Pork exports will be record large in 2011... Again in 2012???
Pork exports EXCELLENT (+23%) thru Nov...... China & Korea up >100%, Mexico -0.5%
Total frozen meat/poultry down 7.6% vs. 11..... Led by chicken (-22%); pork +1% yr/yr
CHICKEN
Broiler losses Large and continuing!... 2010 expansion plus higher grain prices
AGGRESSIVE broiler cuts since mid-summer.. 2011 cuts offset ALL of 2010 increases DOWN 6% YTD 2012 Placements are now -4.2% since June 1 and 3.5% since Jan 1
Reason: Higher weights are persisting...... Continuing breast meat glut, low prices
Broiler cutout FINALLY broke thru $90...... traction from cutbacks has been slow
And some improvement in breast meat!
CATTLE/BEEF
Lowest U.S. beef cow inventory since 1963 2011 = 30.9 Million Head -1.6 Percent 2011 = 9.1 Million Head +0.7 Percent Livestock Marketing Information Center Data Source: USDA/NASS C-N-02 07/23/10
Beef: Four smallest calf crops since 1950 2011 = 35.5 Million Head -0.5 Percent 2010 = 35.7 Million Head -0.7 Percent
Drought is the driver for beef industry now 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 13512 Share 43.8%
Beef cow slaughter +11.3% since June 1...... Mainly TX & OK, some growth elsewhere
Jan 1 COF about as expected USDA Cattle on Feed Report Summary ---January 2012 Thous. Hd. 2012 as Pct. of 2011 2011 2012 Actual Estimateence Differ- On Feed, January 1 11,514 11,861 103.0 103.3-0.3 Placed on Feed in December 1,789 1,683 94.1 94.2-0.1 Fed Cattle Marketed, December 1,830 1,796 98.1 97.0 1.1
COF was +3% on Jan 1 19 months up...... But getting closer each month
Jan 1 COF about as expected USDA Cattle on Feed Report Summary ---January 2012 Thous. Hd. 2012 as Pct. of 2011 2011 2012 Actual Estimateence Differ- On Feed, January 1 11,514 11,861 103.0 103.3-0.3 Placed on Feed in December 1,789 1,683 94.1 94.2-0.1 Fed Cattle Marketed, December 1,830 1,796 98.1 97.0 1.1
COF was +3% on Jan 1 19 months up...... But getting closer each month
Slaughter lower than 10 in 11 of last 14 wks.
Add in growing exports and...... U.S. consumption/availability: -3.8% in 12 Pounds 75 U S BEEF CONSUMPTION Per Capita, Retail Weight, Annual 70 65 60 55 50 1987 1990 1993 1996 1999 2002 2005 2008 2011
New record high for Choice cutout @ $196.64... My $200 prediction appears safe???
HOGS AND PORK
Dec H&P Report: Continued slow growth... USDA Quarterly Hogs and Pigs Report December 23, 2011 2011 as Category 2010 2011 Pct of Pre- Report Actual - Estimate Inventories on December 11 All hogs and pigs 64,925 65,931 101.5 101.3 0.2 Kept for breeding 5,778 5,803 100.4 100.8-0.4 Kept for market 59,147 60,128 101.7 101.3 0.4 Under 50 lbs. 18,864 19,271 102.2 101.8 0.4 50-119 lbs. 16,519 16,895 102.3 101.5 0.8 120-179 lbs. 12,233 12,472 102.0 101.0 1.0 180 lbs. and over 11,531 11,490 99.6 101.2-1.6 Farrowings 2 Sep-Nov sows farrowed 2,874 2,894 100.7 99.9 0.8 Dec-Feb Intentions 2,843 2,865 100.8 100.6 0.2 Mar-May Intentions 2,917 2,890 99.1 100.8-1.7 Sep-Nov Pig Crop1 28,488 29,014 101.8 101.6 0.2 Sep-Nov pigs saved per litter 9.91 10.02 101.1 101.6-0.5 *Thousand head **Thousand litters
Litter size growth 2.0% over past 4 years...... How high can litter size go?
Doing more and more with same herd!
Q4 11 was -2 to 3% from 10...... With Q2 and Q3 12 supplies up 1.5 2.5%
Weights remain large and GROWING...... Genetics, fixed costs, matrixes
Cutout value begins 12 near 11 level...... Match yr ago: Exports, domestic demand
Neg d Net prices stayed above $80 from Jan!
Sows very likely to remain at $60-plus in 12
12 profits have increased $10/hd since Dec
Price forecasts December 2011 Hogs & Pigs Price Forecasts Missouri ISU LMIC Paragon CME Producer-Sold Net Price, All Methods Ia-Mn Wtd. Avg. Base Lean Hog 1 National Wtd Avg. Base Price National Net Neg'd Price, Wtd. Avg. CME Lean Hog Futures 1/18/12 2010 Q1 68.20 71.99 65.91 69.13 69.38** Q2 79.54 85.18 77.04 81.89 81.42** Q3 80.68 82.19 78.21 81.90 81.88** Q4 69.26 68.97 67.3 67.12 68.23** Year 74.42 77.08 82.42 75.01 75.23** 2011 Q1 80.63 78.92 78.38 80.91 81.54** Q2 92.39 89.37 89.49 94.89 93.97** Q3 95.74 92.31 92.71 97.61 97.49** Q4 87.68 85.03 85.03 88.74 88.11** Year 89.12 86.41 86.40 90.54 90.28** 2010 Q1 84-88 83-88 85-89 86.70 Q2 91-95 89-95 92-96 93.63 Q3 91-95 91-97 92-96 94.72 Q4 79-83 82-89 81-85 84.13 Year 86-90 86-92 87-91 89.80 1 Prior to Q2-11, ISU forecasts were Ia-Mn Live Price converted using a 75% yield **Average of CME Lean Hog Index *Partial USDA data
Monthly price forecasts
Pork outlook 2012 supplies will be 1.5 2.5% larger with bulk in Q2 and Q3, Q4 steady w/ 11 Weights will remain high Prices much like 11 mid $90s in summer Questions: - Will demand hold? Competitor prices, economy, $US, consumers - Is there enough finishing space for added pigs? - Slaughter capacity, fall 12?
Risks The U.S. economy World economy $US vs. other currencies 2012 corn and soybean crops Oil prices corn is hitched to it RFS waiver/reduction plan Export disruption - OIE disease unlikely but HUGE impact - Another swine flu type scare