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2012 Turkey and Protein Sector Outlook

2012 Turkey and Protein Sector Outlook. Dr. Thomas E. Elam President FarmEcon LLC January 18, 2012. Overall Protein Market Drivers. $5.50-7.00 corn, $300-400 soybean meal Limited feed supplies Record-high meat and poultry exports Value, and Volume

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2012 Turkey and Protein Sector Outlook

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  1. 2012 Turkey and Protein Sector Outlook Dr. Thomas E. Elam President FarmEcon LLC January 18, 2012

  2. Overall Protein Market Drivers • $5.50-7.00 corn, $300-400 soybean meal • Limited feed supplies • Record-high meat and poultry exports • Value, and • Volume • Southwest drought, declining beef supply • Slow, but positive, domestic demand growth • All squeezing U.S. meat and poultry availability, and thus strong prices

  3. Feed Cost Drivers: Corn and Soymeal(Futures prices current as of 1-26-2012)

  4. Translated to HigherFeed Costs AND Volatility RFS 2 RFS 1

  5. Feed Cost Drivers • Low U.S. grain stocks • Mediocre U.S. yields • Declining U.S. major crop acreage • Growing global demand • Increasing U.S. biofuels mandates • High crude oil and finished fuels prices • Hot/dry southern hemisphere weather

  6. Protein wholesale prices relative to feed costs:A mixed bag of recent profitability trends

  7. 2012 Protein Production Outlook • Turkeys up 1-2% • Pork up 2-3%, export-driven • Beef down 4-5% – drought-driven • Milk up 1-2% • Broilers down 2-4% - 2011 financial losses • Wholesale prices for all likely to increase

  8. Per Capita Meat DisappearanceFirst 3 4 5 Year Decline on Record

  9. Why? • Continued tight feed supplies =Higher feed costs, lower availability =Need for higher product prices =Need to cut production • Perceived risks on feed costs • Record-high meat and poultry exports • 2008-2009 recession and lingering effects

  10. Feedgrains Ending Stocks/Use Ratio

  11. U.S. Feeding, Major Ingredients

  12. Ethanol Use and Corn Prices

  13. Total Meat and Poultry Exports

  14. 2012 Turkey outlook Details

  15. 2012 Summary Current pricing and low ending stocks imply modest 2012 turkey industry production growth. However, growth will be muted by continued high feed costs, and the need to recover those costs in wholesale pricing.

  16. 2012 Turkey Outlook Features • 1/1/2012 cold storage near record low 2011 level • Profitability supported by exports and pricing • Production: • Q1 2012: very near 2011 • Q2 2012: production +1% to +2% • Q3/Q4 2012: production also +1% to +2% • Flat or lower bird numbers, higher weights • Farbest adding 3 million birds, but not online until 2013 • Exports expected to decline slightly • Lower beef and broiler supply, higher prices • Feed costs remain the major wild card

  17. 2011 production & use = balanced inventories

  18. FarmEcon Model: RTC Value Per Pound and Feed Costs Based on FarmEcon LLC model of 70% cut-up and 30% whole bird marketing mix. Prices are USDA/AMS. Does not include value-added products.

  19. U.S. Market RTC Turkey Consumption

  20. U.S. Market RTC Turkey Consumption(Per Capita) Unprofitable Profitable

  21. Wholesale Value of Parts and Whole Birds Sets New Record

  22. Poult Placements, UB, Weekly,Point to Flat Q1 2012 Bird Numbers

  23. Turkey Export TonnageRecord November Volume, 29% Annualized Gain Over 2009

  24. Turkey Export ValueRecord Annual Value, 49% Annualized Gain over 2009

  25. Turkey Export Tonnage Shares by Product

  26. Turkey Export Value Shares by Product

  27. 2012 Turkey Forecast Details(Production, Use and Stocks in Million Pounds)

  28. Excellent Wholesale Demand Growth

  29. Early 2012 Price Comparisons

  30. 2012 Feed Cost Outlook

  31. Major Risk Factors for 2012 • Acreage and weather • Southern hemisphere now • U.S. spring plantings and summer growing season • USDA reports that have more “surprises” • Grain and meat/poultry export demand • Ethanol mandate up 215 million bushels

  32. Corn Price Model Forecast 2011/2012 Assumptions: Feedgrains Stocks/Use Ratio = 7.1% Ethanol Production = 13.7 Billion Gallons Ethanol Price = $2.65 per Gallon Predicted 2011/2012 average farm price received = $6.09 per bushel, and a new record-high

  33. Despite record high crop prices and farm income our acreage is declining.

  34. Blend Wall or Corn Wall? • E10 market is saturated • Requires about 13 billion gallons of ethanol • We produced 14 billion gallons in 2011 • We exported 1 billion gallons • Why not sell more E85? • Ethanol BTUs are priced at 50% over gasoline • Parity is equal cost per BTU • Corn priced higher than energy parity • Why? The RFS is set too high

  35. Ethanol/Gasoline Cost/BTUEthanol Is Not An Affordable Fuel!

  36. Typical E85 Price

  37. Equal Cost/Mile E85 Price

  38. Proud of the Product?

  39. Corn/Soymeal Outlook – 2012 Cash corn prices remain at $5.50-$7.00, meal at $300-400, through March/April (basis Illinois cash markets) Upside risks on poor South America/Australia weather U.S. acreage, weather and demand drive Jun-Dec prices 2012 predicted corn acreage up, soybeans down Ethanol production will decline slightly (no tax credits) Slightly less DDGS production, and ethanol use mandate = increased corn demand Increasing ethanol and DDGS exports Energy prices are also critical to outlook High volatility in all feed ingredient prices likely

  40. What Would 165 Bu. Corn Do? • Record 14.3 billion bushel crop • Make it possible to price corn for: • E85 sales • Higher feed use • More exports • Build stocks • Likely season average farm price $3.35-$4.00 • How likely, and is it repeatable?

  41. What Would 145 Bu. Corn Do? • 12.6 billion bushel crop • 2012 crop = current use rate • No room to increase use • Higher 2013 RFS crowds out feeding and exports • Ethanol priced per gallon higher than gasoline • Likely season average farm price $7-$8 • How likely? About the same chance as 165

  42. Summary: • Continued high, and volatile, feed costs • $5+ corn & $300+ soybean meal=new normal until a bumper corn crop • Feed cost volatility an ongoing issue • Four broiler company bankruptcies in 2011 • Increasing RFS, weather, and limited acreage are on a collision course • Another 2008 spike in the next 3-5 years?

  43. What Needs to Happen? • RFS reform for conventional ethanol • Farm Bill reform to encourage acreage • Vigilance on the GIPSA/EPA/FDA fronts

  44. Questions? Comments?

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