turkey industry outlook for 2011-2012

FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident

Turkey Industry Outlook for 2011-2012

Dr. Thomas E. ElamPresidentFarmEcon LLCSeptember 21, 2010

1


Headline issues for 2011/12

Recession has officially ended, but it does not feel like a recoveryFeed costs – large crops, but huge demandInventories of frozen meats under controlProtein and dairy supplies reduced enough to restore profitability

Improved pricing may lead to overexpansionBut likely not until 2012

3


Globally: More Spending = More MeatOn average +10% Spending = +9% more meat

Sources: Consumer Spending: World Bank; United Nations. Meat Production: UN/FAO

$1 trillion increase in spending = 9 mmt more meat produced

R2 = 0.9988

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Con

sum

er S

pend

ing,

Tril

l. $2

000

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350

Mill

ion

Ton

s T

otal

Mea

t

Global Consumer Expenditures (constant 2000 US$Trillion) Global Total Meat Production, Million Tons

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Headline (U1) unemployment rate

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Actual (U6) unemployment rate

U1 + marginally attached + discouraged potential workersDoes not include those who have totally given up looking for work 7


Labor force participation rate, %

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Labor force (employed and unemployed) divided by the civilian population 16 years of age and over.

8


Private sector employment

10


Government sector employment

11

Total government sector employment has not grown since 2008 either.The 2000 and 2010 blips are temporary U.S. Census workers.


Issues for long term income recoveryWork = consumer income = spending = MEAT DEMANDWeak 2010/2011 protein demand increase2010 protein price strength almost totally due to supply reductions If meat supplies increase in the face of low income growth, prices will decline

Why are these statistics important?

12


Money finally ran out for pig and cattle operatorsThus, sow reductions and fewer fed cattleTurkey producers made large cutsEven 2009 broiler production droppedWholesale meat prices pushed higher to cover $4+ corn and $300+ soybean meal

Protein supply headlines

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Informa model broiler margins

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Informa model turkey margins

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Farrow-Finish returns, IA State budget

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$(60)

$(40)

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$-

$20

$40

$60

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1/1/

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/200

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/200

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/200

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/200

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/200

9-300

-200

-100

0

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$/H

ead P

rofit/

Loss

Yearling steer returns, IA State budget

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2003 2004 2005 2006 2007 2008 2009 2010f2011f80,000

82,000

84,000

86,000

88,000

90,000

92,000

94,000

Million P

ounds

2003-2011 total meat production:2.5 million pounds have gone away

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TURKEY OUTLOOK2010/12

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Turkey and parts prices

Overproduction in 2008 and early 2009 killed pricing across the parts spectrumFrozen stocks got “out of control”Reduced 2009/2010 production has restored demand/supply balancePrices now high enough to cover costsHave prices increased enough to encourage 2011/2012 overproduction?

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105

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Cent

s/Po

und

2007

2008

2009

2010a

2010f

Frozen toms, 16-22 pounds, UB

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60

110

160

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310


Cent

s/Po

und

2007

2008

2009

2010a

2010f

Fresh tom breast meat, UB

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60

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Cent

s/Po

und

2007

2008

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2010a

2010f

Fresh thigh meat, UB

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Cent

s/Po

und

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2010f

MDT, UB

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Turkey cold storage 2007-2010

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100,000

200,000

300,000

400,000

500,000

600,000

700,000

000

Pou

nds

Whole Birds Other Turkey

FarmEcon LLCA source of information on global farming and food systemsThomas E. Elam, PhDPresident2009 turkey exports drop with global recession

Mexico and China remain leading destinations

Source: U.S. Census Exports

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100,000

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500,000

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800,000

2005 2006 2007 2008 2009

000

Poun

ds R

TC W

eigh

t

All Other

South Africa

Cuba

Panama

Taiwan

Canada

Dominican Republic

Russia

Hong Kong

China

Mexico

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Large drops in 2009-2010 consumption needed to improve pricing

40¢

50¢

60¢

70¢

80¢

90¢

100¢

16.0 16.5 17.0 17.5 18.0U.S. Turkey Consumption, Pounds per Person

Wtd

. Ave

rage

: W

hol

e B

ird

s (3

0%)

&

Cu

tou

t (7

0%)

20002001

2002

2003

2004

2005

2006

2007

2008

Drop in production/consumption needed torecoup higher costs

2009

2010f2011f

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18,000

19,000

20,000

21,000

22,000

23,000

24,000

25,000

26,000

27,000

28,000


Poul

ts P

lace

d, (0

00) 2008

2009

2010

Poult placements, USDA, monthly,show production restraint in 2010

Placements through July, 2010 33


0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Wee

kly

Poul

ts D

estr

oyed

2008

2009

2010

The story behind higher placements…lower poults destroyed

Source: Urner Barry Weekly Hatch Report 34


2010/11 Turkey Forecast Summary(Production, Use and Stocks in Million Pounds)

2007 2008 2009 2010fcst 2011 fcstPct.

Change

Beginning Stocks 218 261 397 262 230 -12%Production 5,914 6,216 5,626 5,550 5,600 1%Total Supply 6,132 6,477 6,023 5,812 5,830 0%Exports 554 676 534 500 550 10%U.S. Consumption 5,318 5,404 5,226 5,082 5,030 -1% Per Capita (Lbs.) 17.6 17.7 17.0 16.3 16.1 -1%Total Use 5,871 6,080 5,760 5,582 5,580 0%Ending Stocks 261 397 262 230 250 9%

USDA Hen Price, $/lb. $0.821 $0.876 $0.794 $0.880 $0.850 -3%USDA Tom Price, $/lb. $0.820 $0.873 $0.794 $0.880 $0.850 -3%USDA Breast Meat, $/lb $2.306 $1.699 $1.370 $1.700 $1.650 -3%USDA Thigh Meat, $/lb $0.957 $1.013 $0.940 $1.050 $1.000 -5%USDA MDT, $/lb $0.246 $0.255 $0.330 $0.350 $0.300 -14%

Margin over Feed, ¢ 51.4¢ 31.6¢ 30.1¢ 50.0¢ 45.0¢ -10%35


Turkey Feed Cost Outlook – 2010/11

Includes transportation basis for corn, soybean meal, MBM and grease.Based on 2.6:1 FCR, 65% corn, 22.5% SBM, 5% meat and bone meal, 5.5% grease diet

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Item 2005 2006 2007 2008 2009 2010f 2011fCorn Price, Central Ill. ($/Bu.) + $0.60 $2.50 $3.01 $4.11 $5.50 $4.15 $4.50 $4.60Soybean Meal Price ($/ton , 47%) +$25 $216 $202 $261 $362 $376 $335 $325Meat and Bone Meal, Diluth/Ton +$20 $197 $188 $256 $358 $361 $335 $320Grease, Diluth/Ton +$20 $340 $306 $477 $590 $457 $600 $580Turkey feed costs (¢/lb, Live) 21.0¢ 22.0¢ 28.7¢ 37.0¢ 32.0¢ 33.1¢ 33.5¢Turkey feed costs (¢/lb, RTC) 26.6¢ 27.9¢ 36.3¢ 46.9¢ 40.5¢ 41.8¢ 42.4¢

Lowest Turkey feed cost (¢/lb, RTC) 25.0¢ 25.7¢ 33.8¢ 34.8¢ 37.5¢ na naHighest Turkey feed cost (¢/lb, RTC) 28.5¢ 33.9¢ 41.4¢ 56.8¢ 46.3¢ na naTurkey feed cost (¢/lb, RTC) Range 3.4¢ 8.3¢ 7.6¢ 21.9¢ 8.8¢ na na


2010/12 Turkey Outlook SummaryDemand will continue to be a major challenge

Economy expanding, but not a typical recovery rateCompeting meat supplies shrinking in 2010, but not 2011/12Chicken supplies in particular are headed up

Feed cost outlook has deteriorated in recent weeks, will remain on higher plateau2011/12 turkey prices likely to declineExcellent 2010 margins will fade, but not turn to losses in 20112012 could be a more difficult year 38


Feed Cost Outlook2010/2011

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Long term perspective…Corn at parity with gasoline and energy value.

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/Bu

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Corn, Central Illinois New York Harbor Conventional Gasoline

Corn price driven by feed value

Corn price driven by RFS, feed value, ethanol tax credit, corn production

Katrina


Weather and acreage still play a major roleNo increase in major crop acres since 1989Export and feed demand also still importantPrices elasticities – in decreasing rank

Ethanol is near 0Food and seed use near 0Exports – very low response to priceFeed use – all that’s left to adjust

But ethanol is not everything…

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No more acres found since 1990

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300,000

1980 1985 1990 1995 2000 2005 2010

Har

vest

ed A

cres

, 000

Corn Soybeans Wheat Sorghum Barley Oats Sunflowerseed45


Corn/Meal Price Outlook – 2010/2012

Cash corn prices remain at $4.25-$5.00, meal at $300-375, through Sept-Oct (basis Illinois cash markets)Actual crop size and demand drive pricesEthanol production will grow due to RFS

Ethanol use mandate = ethanol price mandateVolatile energy prices are critical to outlookMore volatility in feed ingredients likely

In 2012 look for more corn acres, less soybean

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Corn feeding, including DDGS

01,0002,0003,0004,0005,0006,0007,0008,000

2005/2006 2006/20072007/2008 2008/2009 2009/2010 FarmEcon

fcst.

2010/2011 FarmEcon

fcst.

Milli

on B

ushe

ls, C

orn

Equi

vale

nt

Corn Feed Use DDGS Feeding, Corn Equivalent

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Feed costs at new, higher, plateauFeed costs also likely to be more volatile than at any time in modern historyConstrained total protein production growthCustomer value creation still the name of the game!

Strategic issues:

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What basics created your business?Quality productsSafe productsProduction system controlCompetitive pricing vs. other proteinsInnovation in production and processingBeing close to the customer and consumerAccess to world marketsExcellent animal husbandry and disease preventionEnvironmental stewardshipAnd more…


U.S. Meat Protein Shares Reflect Long Term Competitive Strength of Poultry

Sources: USDA/ERS

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Turkey

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turkey industry outlook for 2011-2012

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