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Steve R. Meyer, Ph.D. Paragon Economics, Inc.
PPIC-RAC – Raleigh, NC – April 2012.
Meat & Poultry Situation & Outlook
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IT’S DEMAND, STUPID!
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IT’S DEMAND, STUPID!
(and supply, too, for some things!)
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Broiler production is down 5.6% YTD
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Pork production is up only 1% YTD
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Beef production is down 3.5% YTD
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Total supply is down 2.8% -- & exports are up
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Some demand factors are positive: GDP
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Consumer sentiment: Highest since June . . .
. . . Improving employment/unemployment
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Food spending is rising again
Grocery store sales +3.7%, yr/yr in Feb.
Foodservice sales +7.7%, yr/yr in Feb.
Combined: +5.9% yr/yr
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RPI improving– and driven by PERFORMANCE!
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Domestic meat demand improved in ’11 . . .
. . ‘12 thru Feb. is mixed – soft since then?
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Beef per cap consumption – fell 2.3# in ‘11
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Per cap pork consumption fell by 2# in ‘11 . . .
. . . But demand is strong! How so?
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Monthly yr/yr indexes for February-- mixed
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Others are NOT – PDI stagnant since May. .
. . Per cap PDI was DOWN, yr/yr in Jan & Feb
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2008 record was $4.165 – How much higher?
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And along comes LFTB – and now BSE again
LFTB was negative publicity for MEAT, not just ground beef
- Took 400-500 million pounds out of lean beef supply
- At 3:1 conversion and 75% abandonment, put 900 million pounds of 50s back on the market
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Not hard to see the impact!
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And along comes LFTB – and now BSE again
LFTB was negative publicity for MEAT, not just ground beef
- Took 400-500 million pounds out of lean beef supply
- At 3:1 conversion and 75% abandonment, put 900 million pounds of 50s back on the market
My opinion: Demand impacts would have died earlier had Secretary of Ag and governors no “helped”
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Higher freezer stocks: Beef +14%, yr-on-yr . . .
. . . Pork +6.7%, Chicken - 17%, ALL +1.9%
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Record-high retail prices – good but . . .
. . if demand is soft, what is a good response?
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WORLD DEMAND
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World economy is much shakier than in ’11 . .
. . U.S. customers are recovering/expanding
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Another view of world growth prospects . . .
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Dollar Index futures have gained 6-7%
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Customers’ currencies are mixed vs. ‘11
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$US somewhat stronger vs. competitors
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Pork exports: up 23% in ‘11, RECORD LARGE . . .
. . . Any growth in 2012 will be a victory
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Pork exports +27%, led by China/HK at +141%
. . . Canada +38%, Mexico +20%, Japan +9%
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Beef exports were RECORD LARGE in 2011
U S BEEF AND VEAL EXPORTSCarcass Weight, Annual
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1988 1991 1994 1997 2000 2003 2006 2009 2012
Bil. Pounds
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U.S. beef has diversified its export markets . .
. . . Total shipments were down 6.2% thru Feb
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Broiler exports were RECORD LARGE in ’11 . . .
U S BROILER EXPORTSRTC, Annual
0
1
2
3
4
5
6
7
8
1988 1991 1994 1997 2000 2003 2006 2009 2012
Bil. Pounds
. . . And will remain roughly level thru ‘13
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PRODUCTION COSTS
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First major cost paradigm shift since ‘73-’74
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Ethanol now uses more corn than feed/res.
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Grains for feed – Lower 6 of last 7 years
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Add in DDGS – still 6 of 7 but decline is less
How can we grow output? Drive down prices?
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Historical perspective for acreages
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Corn stocks to use ratio near historic lows
- 40 -
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Higher S/U ratio but HIGHER price = Demand
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And wheat is NOT keeping up with corn . . .
. . . More feeding is likely a long-term trend
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Current cost estimates – Mid-$80s for ‘12
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Fed cattle costs near $140 by Q3-Q4
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Higher costs drove HUGE broiler losses . . .
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CHICKEN
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Huge reduction of the broiler brdng. flock
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AGGRESSIVE broiler cuts since mid-summer. .
2011 cuts offset ALL of
2010 increases – down
3.5% for the year
DOWN 5.3% YTD 2012
Placements were down
2.6% for 2011
Are -4.0% YTD 2012
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AGGRESSIVE broiler cuts since mid-summer. .
Finally hit broiler
slaughter in Q4 – Down
7.4%
DOWN 6.2% YTD 2012
But production is down
only 5.6% YTD
Significant but smaller
than other numbers
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Reason: A shift to heavy (8-9 lb.) birds . . .
. . . Will continue – more breast meat
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Broiler cutout FINALLY moved to mid-$90s. . .
. . . traction from cutbacks has been slow
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CATTLE & BEEF
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Beef and cattle
Assumptions:
- Worst of LFTB is behind us
- BSE will have short-term consequences
Higher feedlot inventories will continue to provide LOWER steer-heifer numbers
Though lower than expected and desired, the Choice cutout was still $188 last wk.
Lower supplies through 2014 – will still push beef prices up as demand rebounds
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Drought is still the driver for beef industry
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%
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Lowest U.S. beef cow inventory since 1963
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Beef: Four smallest calf crops since 1950
-0.7 Percent
2010 = 35.7 Million Head
-0.5 Percent
2011 = 35.5 Million Head
-1 Percent
2011 = 35.3 Million Head
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COF was +2.6% on Mar 1 – 21 months up . . .
. . . How to reconcile with LOWER slaughter?
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Str/Hfr slghtr down yr/yr in 38 of last 40 wks.
. . .and is down 5.6% YTD – HORRIBLE margins
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No turn-around in sight for availability. . .
. . . Per-cap down 2-3% in ‘12 and 3%+ in ‘13
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Choice cutout was headed for $200-plus . . .
. . . But was “slimed” – again above $185
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FC supplies on Jan 1 were down 4% from ‘11
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Record-high calf prices have barely blinked
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BIG, BIG incentives to grow the cow herd!
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Heifers retained were 1.4% lower than in ‘11
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Higher cattle/beef will last through 2014!
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HOGS & PORK
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March H&P report – close to expectations. . .
Category 2011 2012
12 as Pct
of '11
Pre-
Report
Actual -
Estimate
Inventories on March 11
All hogs and pigs 63684 64872 101.9 101.7 0.2
Kept for breeding 5788 5820 100.6 100.3 0.3
Kept for market 57896 59052 102.0 101.8 0.2
Under 50 lbs. 18863 19332 102.5 101.5 1.0
50-119 lbs. 16060 16456 102.5 101.9 0.6
120-179 lbs. 12361 12569 101.7 101.9 -0.2
180 lbs. and over 10612 10695 100.8 102.1 -1.3
Farrowings2
Dec-Feb sows farrowed 2843 2877 101.2 100.7 0.5
Mar-May Intentions 2917 2890 99.1 100.2 -1.1
Jun-Aug Intentions 2927 2880 98.4 100.3 -1.9
Dec-Feb Pig Crop1 27866 28681 102.9 102.4 0.5
Dec-Feb pigs saved per litter 9.8 9.97 101.7 101.7 0.0
*Thousand head **Thousand litters
USDA Quarterly Hogs and Pigs ReportMarch 30, 2012
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Litter size growth 2.0% over past 4 years. . .
. . . How high can litter size go?
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YTD slaughter within 0.1% of expected. . .
. . . Expect Q2 & Q3 ‘12 supplies up 2– 2.5%
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Weights remain high but will decline . . .
. . .‘12 increases: weather, margins, cutbacks
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YTD pork production is +0.9% from 2011
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Cutout value has softened since March 1. . .
. . . Normal rally? -- now only about $6
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Hog prices have held steadier . . .
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‘12 profits reached $19/hd in mid-Feb . . .
. . . Were <$1 last week – has been $8-10
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Key issues for ‘12 . . .
U.S. demand – LFTB-BSE, U.S. economy, consumer income levels
Exports – World economy, exchange rates, trade policy, disease status
Feed prices – moisture situation, 2012 acreage and yields, SBM costs
Supplies – Inventories, potential profits, productivity, herd health, weights, constraints
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Risks to the outlook
Export disruption – not even a major one would have a big impact
More LFTB-type, libelous crap
Poor growing weather and below-trend crop yields
For cattle: Worsening of drought
For hogs: Any problem with a packing plant in Q4 of 2012 or 2013, BH growth > 1% in 2012
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Questions or Comments?