SWINE MARKET OUTLOOK - PDF Free Download

2017 IOWA PORK REGIONAL CONFERENCES February 20-24, 2017 SWINE MARKET OUTLOOK Lee Schulz, Department of Economics, Iowa State University (515) 294-3356; lschulz@iastate.edu

U.S. Corn Supply and Use 2013 2014 2015 2016 2017 Area Planted (mil. acres) 95.4 90.6 88.0 94.0 90.0 Yield (bu./acre) 158.1 171.0 168.4 174.6 170.8 Production (mil. bu.) 13,829 14,216 13,602 15,148 14,060 Beg. Stocks (mil. bu.) 821 1,232 1,731 1,737 2,320 Imports (mil. bu.) 36 32 67 55 50 Total Supply (mil. bu.) 14,686 15,479 15,401 16,940 16,430 Feed & Residual (mil. bu.) 5,040 5,280 5,131 5,600 5,500 Ethanol (mil. bu.) 5,124 5,200 5,206 5,350 5,325 Food, Seed, & Other (mil. bu.) 1,369 1,401 1,429 1,445 1,440 Exports (mil. bu.) 1,920 1,867 1,898 2,225 1,950 Total Use (mil. bu.) 13,454 13,748 13,664 14,620 14,215 Ending Stocks (mil. bu.) 1,232 1,731 1,737 2,320 2,215 Season-Average Price ($/bu.) 4.46 3.70 3.61 3.40 3.30 Source: USDA/WAOB

U.S. Soybean Supply and Use 2013 2014 2015 2016 2017 Area Planted (mil. acres) 76.8 83.3 82.7 83.4 85.5 Yield (bu./acre) 44.0 47.5 48.0 52.1 47.9 Production (mil. bu.) 3,358 3,927 3,926 4,307 4,050 Beg. Stocks (mil. bu.) 141 92 191 197 420 Imports (mil. bu.) 72 33 24 25 30 Total Supply (mil. bu.) 3,570 4,052 4,140 4,528 4,500 Crush (mil. bu.) 1,734 1,873 1,886 1,930 1,935 Seed & Residual (mil. bu.) 107 146 122 128 130 Exports (mil. bu.) 1,638 1,842 1,936 2,050 2,100 Total Use (mil. bu.) 3,478 3,862 3,944 4,108 4,165 Ending Stocks (mil. bu.) 92 191 197 420 336 Season-Average Price ($/bu.) 13.00 10.10 8.95 9.50 9.35 Source: USDA/WAOB

Corn Yields Top: 2016 Yield Bottom: Change from last year Units: Bushels/acre Source: USDA/NASS

Soybean Yields Top: 2016 Yield Bottom: Change from last year Units: Bushels/acre Source: USDA/NASS

South American Weather Source: NOAA, Climate Prediction Center

World Corn Production Source: USDA/WAOB

World Soybean Production Source: USDA/WAOB

Corn Export Sales Source: USDA/FAS

Change in Corn Export Sales Source: USDA/FAS

Soybean Export Sales Source: USDA/FAS

Change in Soybean Export Sales Source: USDA/FAS

Current Corn Futures 3.99 4.07 3.60 Source: CME Group

Current Soybean Futures 9.89 10.07 9.65 Source: CME Group

2016/17 Crop Margins @ Actual Yields Source: Iowa State University

2017/18 Crop Margins Source: Iowa State University

Relative Changes in Pork & Hog Prices IA/MN CASH/ PORK TOTAL WTD FORMULA RETAIL PORK AVG BASE 10-12 LB PRICE CUTOUT LEAN HOG PIG $/lb $/cwt $/cwt $/head 2008 $2.94 $69.23 $65.12 $33.99 2009 $2.92 $58.04 $57.04 $32.15 2010 $3.11 $81.01 $72.51 $41.76 2011 $3.43 $93.82 $86.56 $38.09 2012 $3.47 $84.60 $83.54 $38.45 2013 $3.64 $92.71 $86.83 $42.42 2014 $4.02 $110.19 $100.82 $59.32 2015 $3.85 $79.27 $69.31 $38.10 2016 $3.75 $78.51 $63.76 $36.55 YR/YR Change (%) 2009-0.6% -16.2% -12.4% -5.4% 2010 6.6% 39.6% 27.1% 29.9% 2011 10.3% 15.8% 19.4% -8.8% 2012 1.0% -9.8% -3.5% 0.9% 2013 5.1% 9.6% 3.9% 10.3% 2014 10.3% 18.9% 16.1% 39.8% 2015-4.1% -28.1% -31.3% -35.8% 2016-2.7% -1.0% -8.0% -4.1% Source: USDA/ERS, USDA/AMS

Source: CME Group

Mil. Pounds 160 US PORK EXPORTS TO MAJOR MARKETS Carcass Weight, Monthly 140 120 100 80 60 40 20 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 Japan South Korea Hong Kong China-Mainland Data Source: USDA-ERS & USDA-FAS Livestock Marketing Information Center 02/08/17

Source: Trade Atlas

Source: CME Group

2013 = +$6.21 [-$25.60 to +$24.57] 2014 = +$61.85 [+$13.15 to +$107.25] 2015 = +$7.93 [-$18.40 to +$26.25] 2016 = -$1.26 [-$35.52 to +$32.92] 2017 f = +$11.09 [-$9.00 to +$25.93]

Historical and Projected Iowa Farrow to Finish Returns (as of 2/17/17) (http://www2.econ.iastate.edu/estimated-returns/) Closeout Total Cost Lean Hog Price Net Return Net Return Month Year $/carcass cwt $/carcass cwt $/carcass cwt $/head 2013 87.34 90.41 3.07 6.21 2014 75.34 105.89 30.54 61.85 2015 64.70 68.61 3.91 7.93 Jan-Mar 2016 61.24 60.41-0.83-1.68 Apr-Jun 2016 62.01 73.08 11.07 22.42 Jul-Sep 2016 62.91 63.62 0.71 1.43 Oct-Dec 2016 60.21 46.77-13.44-27.22 2016 61.59 60.97-0.62-1.26 Jan-Mar 2017 f 60.72 66.84 6.12 12.40 Apr-Jun 2017 f 63.17 72.44 9.27 18.77 Jul-Sep 2017 f 65.13 73.90 8.78 17.77 Oct-Dec 2017 f 65.13 62.88-2.25-4.56 2017 f 63.54 69.02 5.48 11.09 Jan-Mar 2018 f 65.32 63.40-1.92-3.89 Apr-Jun 2018 f 65.97 70.86 4.89 9.90 * Projected using basis adjusted futures prices.

USDA Quarterly Hogs and Pigs Report United States December 23, 2016 2016 as % Pre-Report Pre-Report Actual - 2015 2016 of 2015 Range Estimate Estimate Inventories on Dec 1 * All hogs and pigs 68,919 71,500 103.7 100.7-102.0 101.7 2.0 Kept for breeding 6,002 6,090 101.5 99.8-100.6 100.2 1.3 Market 62,917 65,410 104.0 100.8-102.5 102.0 2.0 Under 50 pounds 20,008 20,882 104.4 100.3-102.2 101.4 3.0 50-119 pounds 17,262 18,037 104.5 100.6-103.0 101.8 2.7 120-179 pounds 13,370 13,911 104.0 100.5-103.0 102.0 2.0 180 pounds and over 12,276 12,580 102.5 101.4-104.1 102.8-0.3 Farrowing ** Sep Nov sows farrowed 2,929 3,043 103.9 100.0-101.0 100.4 3.5 Dec Feb intentions 2,927 2,968 101.4 97.0-100.4 99.6 1.8 Mar May intentions 2,968 2,997 101.0 99.5-102.0 100.5 0.5 Sep Nov Pig Crop * 30,848 32,333 104.8 100.9-102.1 101.5 3.3 Sep Nov Pigs per Litter 10.53 10.63 100.9 100.7-101.6 101.1-0.2 * 1,000 head ** 1,000 litters Source: USDA/NASS. Urner Barry pre-report estimates

Mil. Head 7.5 DECEMBER 1 HOG BREEDING HERD U.S. Inventory 7.0 6.5 6.0 5.5 5.0 1991 1994 1997 2000 2003 2006 2009 2012 2015 Data Source: USDA-NASS Livestock Marketing Information Center H-N-09 12/23/16

Number of sows 2,275,939 Number of farms 789 Source: Swine Health Monitoring Project

Number of sows 2,829,183 Number of farms 1026 Source: Swine Health Monitoring Project

Source: USDA/AMS & APHIS

National Direct Delivered Feeder Pig Report: Week Ending February 17, 2017 Weekly Summary of prices on a delivered farm to farm basis Source: USDA/AMS

Mil. Head 70 DECEMBER 1 MARKET HOGS U.S. Inventory 65 60 55 50 45 40 1991 1994 1997 2000 2003 2006 2009 2012 2015 Data Source: USDA-NASS Livestock Marketing Information Center H-N-10 12/23/16

Source: USDA/AMS

Retail (57.9%), 14 = 53.3%, 15 = 62.1%, 16 = 60.0%, 17 = 57.5% Farmer (29.3%), 14 = 32.8%, 15 = 22.7%, 16 = 21.4%, 17 = 22.1% Packer (13.6%), 14 = 13.9%, 15 = 15.1%, 16 = 18.6%, 17 = 20.4% Source: USDA/ERS

U.S. Packing Capacity Under Construction New pork packing Fall 2016 Summer/Fall 2017 Summer/Fall 2018 plants Daily Annual Daily Annual Daily Annual Pleasant Hope, MO 2,500 625,000 2,500 625,000 2,500 625,000 Windom, MN 4,000 1,000,000 4,000 1,000,000 4,000 1,000,000 Sioux City, IA 12,000 3,000,000 24,000 6,000,000 Coldwater, MI 10,000 2,500,000 10,000 2,500,000 Wright County, IA 10,000 2,500,000 Total 6,500 1,625,000 28,500 7,125,000 50,500 12,625,000 Head per week 31,250 137,019 242,788 % of '15 avg = 2.195 mil 1.4% 6.2% 11.1% % of '15 max = 2.507 mil 1.2% 5.5% 9.7% Source: Steve Meyer. Published in National Hog Farmer Magazine, July 19, 2016. Source: Seaboard Triumph Foods plans to expand for second shift at Sioux City plant, February 17, 2017

Source: USDA/AMS. * Steve Meyer, EMI.

Source: USDA/AMS

2013 = +$4.77 [-$14.80 to +$22.07] 2014 = +$39.48 [+$1.62 to +$84.64] 2015 = -$14.32 [-$30.32 to +$4.70] 2016 = -$13.10 [-$45.69 to +$17.05] 2017 f = +$1.74 [-$16.04 to +$20.19]

Historical and Projected Iowa Wean to Finish Returns (as of 2/17/17) (http://www2.econ.iastate.edu/estimated-returns/) BE BE Place Market Net LH SEW BE LH SEW Mo-Yr Mo-Yr Return* FCOG** Price Price* FCOG** Price Price* 2013 4.77 54.86 90.41 36.78 56.71 88.06 41.55 2014 39.48 46.53 105.89 54.90 61.83 86.39 94.38 2015-14.32 40.48 68.61 48.83 34.93 75.69 34.51 Jul-Sep 2015 Jan-Mar 2016-5.76 37.84 60.41 30.46 35.61 63.25 24.70 Oct-Dec 2015 Apr-Jun 2016 9.31 38.60 73.08 39.09 42.21 68.48 48.40 Jan-Mar 2016 Jul-Sep 2016-19.23 38.97 63.62 47.51 31.51 73.11 28.28 Apr-Jun 2016 Oct-Dec 2016-36.73 37.27 46.77 35.28 23.04 64.91-1.45 2016-13.10 38.17 60.97 38.08 33.09 67.44 24.98 Jul-Sep 2016 Jan-Mar 2017 f 8.24 38.10 66.84 28.82 41.29 62.77 37.06 Oct-Dec 2016 Apr-Jun 2017 f 10.52 39.62 72.44 33.93 43.70 67.24 44.46 Jan-Mar 2017 Jul-Sep 2017 f 1.68 40.88 73.90 42.50 41.53 73.07 44.18 Apr-Jun 2017 Oct-Dec 2017 f -13.47 40.56 62.88 36.15 35.34 69.53 22.68 2017 f 1.74 39.79 69.02 35.35 40.47 68.15 37.10 Jul-Sep 2016 Jan-Mar 2018 f -8.95 40.67 63.40 32.40 37.21 67.82 23.45 Oct-Dec 2016 Apr-Jun 2018 f 3.14 41.18 70.86 34.11 42.39 69.31 37.25 Net return and SEW price is $/head and all other values are $/carcass cwt. ** FCOG = Feeding cost of gain. f Projected using basis adjusted futures prices.

Percent 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% HOGS SOLD BY TRANSACTION National Monthly 2002 2004 2006 2008 2010 2012 2014 2016 Negotiated Purchases Other Market Formula Swine or Pork Mkt Formula Other Purchase Packer Sold Packer Owned Data Source: USDA-AMS Livestock Marketing Information Center

HOGS SOLD BY TRANSACTION Negotiated: Cash or spot market purchase by a packer of livestock from a producer under which the base price for livestock is determined by seller-buyer interaction and agreement on a delivery day. The livestock are scheduled for delivery to the packer no more than 14 days after the date on which the livestock are committed to the packer. Other Market Formula: A purchase of swine by a packer in which the pricing mechanism is a formula price based on any market other than the market for swine, pork, or a pork product. The term other market formula purchase includes a formula purchase in a case in which the price formula is based on one or more futures or options contracts. Swine or Pork Market Formula: A purchase of swine by a packer in which the pricing mechanism is a formula based on a market for swine, pork, or a pork product, other than a future or option for swine, pork, or a pork product. E.g., WCB + $1.75 or Cutout - $9.00. Other Purchase Arrangement: A purchase of swine by a packer that is not a negotiated purchase, swine or pork market formula, or other market formula, and does not involve packer-owned swine. E.g., COP, Corn price matrix. Data Source: USDA/AMS

Data Source: USDA/AMS

IOWA/MINNESOTA DAILY DIRECT PRIOR DAY HOG REPORT BASED ON PLANT DELIVERED, LM_HG204, Annual Average Price Year Negotiated Other Mkt Formula Swine/pork Mkt Formula Other Purchase Arrangement Total Wtd Avg 2002 $45.41 $49.24 $45.10 $53.36 $47.73 2003 $51.85 $54.31 $51.13 $55.84 $52.77 2004 $69.82 $61.15 $68.33 $67.11 $67.18 2005 $66.94 $61.98 $65.46 $64.77 $64.96 2006 $62.69 $59.41 $61.99 $62.52 $61.63 2007 $61.89 $64.85 $61.72 $64.10 $62.70 2008 $63.64 $69.37 $63.21 $68.04 $65.12 2009 $55.18 $63.79 $54.78 $61.59 $57.04 2010 $72.61 $71.24 $72.69 $72.82 $72.51 2011 $87.70 $83.86 $87.23 $86.49 $86.56 2012 $83.47 $83.55 $82.53 $85.73 $83.54 2013 $86.94 $84.04 $86.53 $88.53 $86.83 2014 $102.95 $94.50 $102.85 $100.31 $100.82 2015 $67.51 $71.42 $68.00 $71.93 $69.31 2016 $60.91 $64.48 $62.31 $67.01 $63.80 2017YTD $65.08 $64.27 $65.86 $68.76 $66.52 Data Source: USDA/AMS

Bil. Pounds 120 Beef: + 2015.Q4 100 Pork: + 2015.Q1 Total Poultry: +2012.Q4 80 60 40 20 COMMERCIAL MEAT & POULTRY PRODUCTION By Type of Meat, Annual 0 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Beef Pork Lamb & Veal Chicken Turkey Data Source: USDA-NASS, Compiled & Analysis by LMIC Livestock Marketing Information Center M-S-03A 02/05/17

LMIC Pork Production and Price Quarterly Forecasts (2/17/17) Sources: USDA/NASS; USDA/AMS Livestock Market News; Projections and Forecasts by LMIC Year Comm l % Chg. Avg Carcass % Chg. Comm l Pork % Chg. Quarter Slaughter Year Ago Weight Year Ago Production Year Ago 2015 (1,000 hd) (lbs) (mil. Lbs) I 28,724 5.9 215 0.8 6,162 6.5 II 27,850 8.9 213-1.1 5,925 7.6 III 28,477 11.4 210-1.3 5,958 9.8 IV 30,375 6.2 213-0.9 6,457 5.3 Year 115,425 8.0 213-0.6 24,501 7.3 2016 I 29,259 1.9 213-0.9 6,230 1.1 II 28,111 0.9 213-0.2 5,962 0.6 III 29,317 2.9 208-0.6 6,099 2.4 IV 31,516 3.8 211-0.6 6,647 2.9 Year 118,203 2.4 211-0.6 24,939 1.8 2017 I 29,903 2.2 213 0.1 6,374 2.3 II 29,137 3.6 212-0.3 6,175 3.6 III 29,555 0.8 209 0.1 6,165 1.1 IV 32,305 2.5 212 0.2 6,839 2.9 Year 120,900 2.3 211 0.0 25,553 2.5 2018 I 30,376 1.6 214 0.2 6,486 1.8 II 29,591 1.6 212 0.1 6,276 1.6 III 29,852 1.0 209 0.2 6,238 1.2 IV 33,232 2.9 212 0.1 7,039 2.9 Year 123,051 1.8 212 0.1 26,039 1.9

Shortage is a loaded term in economic thinking

Data Source: USDA/ERS, BLS

Advertised Prices at Major Retail Supermarket Outlets 02/17 thru 02/23 NATIONAL RETAIL REPORT - PORK THIS WEEK LAST WEEK LAST YEAR Feature rate 87.8% 84.5% 71.4% Special rate 17.0% 19.3% 19.1% NATIONAL RETAIL REPORT - BEEF THIS WEEK LAST WEEK LAST YEAR Feature rate 74.3% 76.3% 81.3% Special rate 9.2% 16.5% 15.9% NATIONAL RETAIL REPORT - CHICKEN THIS WEEK LAST WEEK LAST YEAR Feature rate 64.9% 75.4% 72.3% Special rate 8.2% 17.4% 6.8% NATIONAL RETAIL REPORT - TURKEY THIS WEEK LAST WEEK LAST YEAR Feature rate 42.3% 30.0% 27.3% Special rate 1.8% 0.9% 1.8% Source: USDA/AMS

$ Per Pound 3.90 3.70 PORK PRICE-QUANTITY RELATIONSHIP Annual, Retail Weight, Deflated Retail Price 14 3.50 3.30 3.10 2.90 2.70 2.50 11 12 13 97 10 96 2016 50.1 lbs per capita & -4.0% Pork Price = -3.0% Demand Change 90 15 9101 05 06 08 09 07 000402 98 03 95 93 99 92 45 46 47 48 49 50 51 52 53 Pounds Per Capita 94 Data Source: Bureau of Economic Analysis & USDA-ERS, Compiled and Analysis by LMIC Livestock Marketing Information Center H-P-12 04/10/16

2016: Per Capita Consumption = +0.7% (Year over Year) Real Pork Prices = 4.0% IF Real All Fresh Beef Prices 1.0% = 0% Demand Change

2.00 Hog Production Costs by Country (Euro/kg hot weight) 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Source: InterPig

Source: Policy Analysis Computing & Information Facility In Commerce

U.S. Pork Exports, Jan-Dec 2016 (Volume excluding byproducts & variety meats) Dec-16/Nov-16 Dec-16/Dec-15 Year-to-Date Country Percent Percent 1,000 lbs Percent Japan -21% -6% -62,218-5% Mexico 8% 23% 50,480 3% Canada -2% 6% 8,488 2% South Korea 20% 14% -87,182-18% China (Mainland) -12% 67% 245,965 98% Hong Kong 5% -26% 22,267 18% Australia 21% 10% 10,562 6% Philippines -16% -1% 3,560 5% China (Taiwan) 101% 10% -18,565-49% Colombia -21% 164% 9,820 9% Honduras -41% 12% 10,879 17% Dominican Republic 10% 29% 9,134 14% Guatemala -44% -3% 2,162 6% Chile -65% 113% 5,675 14% Other Countries 8% 28% 13,111 7% Total -3% 15% 224,138 4% Source: USDA/ERS

USDA Long term Pork Projections, February 2017 http://usda.mannlib.cornell.edu/mannusda/viewdocumentinfo.do?documentid=1192 Item Units 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Beginning stocks Mil. lbs. 559 590 625 635 635 635 640 645 650 660 670 680 Commercial production Mil. lbs. 24,501 24,946 25,800 25,653 26,009 26,447 26,788 27,156 27,330 27,685 28,055 28,443 Chg from previous yr Percent 7.3 1.8 3.4-0.6 1.4 1.7 1.3 1.4 0.6 1.3 1.3 1.4 Farm production Mil. lbs. 16 16 16 16 16 16 16 16 16 16 16 16 Total production Mil. lbs. 24,517 24,961 25,816 25,669 26,025 26,463 26,804 27,172 27,346 27,701 28,071 28,459 Imports Mil. lbs. 1,116 1,106 1,095 1,000 1,040 1,058 1,072 1,086 1,093 1,107 1,122 1,138 Total supply Mil. lbs. 26,192 26,657 27,536 27,304 27,700 28,156 28,516 28,903 29,089 29,468 29,863 30,277 Exports Mil. lbs. 5,009 5,179 5,440 5,445 5,566 5,778 5,843 5,946 6,082 6,200 6,330 6,458 Ending stocks Mil. lbs. 590 625 635 635 635 640 645 650 660 670 680 690 Total consumption Mil. lbs. 20,593 20,853 21,461 21,224 21,499 21,738 22,028 22,307 22,347 22,598 22,853 23,129 Per capita, retail weight Pounds 49.7 49.9 51.0 50.0 50.3 50.4 50.7 51.0 50.7 50.9 51.1 51.4 Chg from previous yr Percent 8.5 0.5 2.2-2.0 0.5 0.3 0.6 0.5-0.6 0.4 0.4 0.5 Prices: Hogs, farm $/cwt 53.53 49.10 43.60 42.67 43.57 44.63 46.60 47.91 49.73 50.67 51.56 52.41 National base, live equiv $/cwt 50.23 45.65 40.00 40.64 41.50 42.50 44.38 45.63 47.36 48.26 49.11 49.91 National base, lean equiv $/cwt 66.97 60.87 53.33 54.18 55.33 56.67 59.17 60.84 63.15 64.35 65.48 66.55 Feed price ratio: Hog-corn Ratio 14.5 13.6 13.2 12.9 13.0 13.3 13.5 13.7 14.0 14.1 14.1 14.4 Hog inventory, December 1, previous yr 1,000 head 67,776 68,919 69,925 69,900 70,429 71,080 71,586 72,132 72,390 72,918 73,467 74,043 Hog Inventory 2016 to 2021: +4% 2016 to 2026: +7% Commercial Prod. 2016 to 2021: +7% 2016 to 2026: +14% Lean Hog Prices, $/cwt 2017 to 2021 Avg = $59.91 Min = $53.33, Max = $66.55 Exports 2016 to 2021: +13% 2016 to 2026: +25%

Thank You! More information available at: Iowa Farm Outlook & News www.econ.iastate.edu/ifo/ Ag Decision Maker www.extension.iastate.edu/agdm/ ISU Estimated Livestock Returns www.econ.iastate.edu/estimated-returns/ ISU Livestock Crush Margins www.econ.iastate.edu/margins/ http://www.iowabeefcenter.org/ http://www.ipic.iastate.edu/