Npb swine educators sept 2013
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NPB Swine Educators – Sept. 2013. Meat Sector Economics Update and Outlook. Government shutdown – What is running?. “Essential services” – SS, Medicaid, law enforcement, air traffic control, firefighters Packing plants and processors – meat inspection is “essential”

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NPB Swine Educators – Sept. 2013

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NPB Swine Educators – Sept. 2013

Meat Sector Economics Update and Outlook


Government shutdown – What is running?

“Essential services” – SS, Medicaid, law enforcement, air traffic control, firefighters

Packing plants and processors – meat inspection is “essential”

Import inspection – generates import data but no one will be at AMS to use it!

Fee-based USDA programs – beef grading, checkoff oversight


What isn’t running?

  • USDA websites – none of them so even historic data are not available

  • AMS Market News

    • Price reporting for hogs and pork (and cattle, beef, chicken, etc.)

    • Slaughter and production data

    • Weekly live animals imports, meat exports

  • NASS – Hogs & Pigs report beat the bell!

    • This week: Broiler Hatchery

    • Next week: Crop Production, WASDE


What about hog and pork markets?

About 50% of hogs are priced off negoti-ated hogs or the cutout value

Hogs will still be traded but prices will be negotiated in a vacuum – no information

CRITICAL DAY: October 15 when October futures expires – CME LH Index???

Talk of voluntary reporting to an independent third party – devil is in the details and timing.


Key factors affecting meats and poultry . . .

Drought has been a game changer whose impacts will be felt for another 2 years

Grains/feed costs – has 2013 weather changed the game again?

Demand – performing well in spite of some lingering macro concerns

Pork and chicken supplies are growing

Beef supplies will not grow for 2 years – but incentives are in place


2011 drought is still critical – esp. for beef!!!


’12 drought: Much larger (77%, 44%> severe)

. . . And MUCH larger impact on feed supplies


And weather has remained critical in ‘13. . .

. . . as WCB has gotten progressively dryer

  • Severe drought: Up to 28% vs. 36% in ‘12

  • High Plains 38%, South 44%, West 53%

  • Note dry conditions in IA, MO, NE, IL, MN


Slow planting but better conditions, yr/yr . . .

Harvest vs. 5yr: SB 3 vs 9, corn 7 vs 15


Looks like we dodged the early frost bullet!


World corn situation is MUCH better for ‘14

Record high world production (+11%) and consumption (+6%)

Highest year-end stocks since 2001-02

BUT S/U RATIO IS 5TH LOWEST SINCE ‘75


Big increases for all corn uses – exc ethanol

. . . But still less feed availability than pre-’09


Ethanol’s challenge is NOT margins. . .

. . . The problem is SHARPLY LOWER gas usage


World soybean situation is different . . .

. . . Record high output, consumption, stocks

World output +6.2% in ‘13-’14

Consumption +4.4%

Ending stocks +20%, S/U tied for 3rd high


But SB prices are still near $13 . . .

. . . Primarily due to China’s appetite & means


KEY RESULT: Lower – but still HIGH -- costs


The macro-economy – Improving

  • Good things:

    • GDP growth, improving housing market, low interest rates, job growth (++167k in Aug)

    • Wealth effect has been positive -- mainly

    • U (7.3%) is falling but U-6 is still at 13.7%

  • Question marks:

    • Personal disposable income is still FLAT, yr/yr


Dec Real per capita PDI was false security . . .

. . . Average for 2013 YTD has been -0.1%


The macro-economy – Improving

  • Good things:

    • GDP growth, improving housing market, low interest rates, job growth (++167k in Aug)

    • Wealth effect has been positive -- mainly

    • U (7.3%) is falling but U-6 is still at 13.7%

  • Question marks:

    • Personal disposable income is still FLAT, yr/yr

    • Deficit & spending – must be reigned in

    • How will economy react when the Fed actually slows on Quantitative Easing?


PC cons stayed above 200 pounds in ‘12 . . .

. . . And is falling due to supplies/costs!


Retail prices are at or near record highs . . .

. . . Would not be if demand was, in fact, soft


Meat/Poultry demand has been good in’13


Beef & chicken demand are up, turkey lower


Pork demand has been good so far in ‘13

. . . July was +4.7% yr/yr, YTD RPCE is +2.8%


Large stocks but -1.4% vs. July, +0.6% yr/yr . . .

. . . Aug pork was -0.7% vs. July, -7.8% yr/yr


CHICKEN


Poultry: Reductions in ‘07 and ’11 but . . .

. . . ~+2% Jan-June and then +4.5% July & Aug


Broiler egg sets are +5% yr/yr last 2 wks.


Chicken prices – esp breasts – have fallen


BEEF


Better pasture conditions have allowed. . .

. . . Cow slghtr to fall 10-15% since mid-July

Data Source: USDA-NASS


Beef cow herd is smallest since the ’40’s . . .

. . . But we may stabilize the herd this year


Just as in ‘12, the sector is poised to grow . . .

. . . But will Mother Nature allow it to do so?


Beef: Long-term trends PLUS droughts . . .

. . . ‘13 will be smallest calf crop since 1949


Lower numbers are finally reducing supply!


Production maintained by higher weights . . .

. . . But can that continue – Zilmax situation?


FC supplies grew by 0.7% vs. Jan ‘12. . .

. . . But are still near record low at 25.56 mil.


FC imports from Mexico are down 46% YTD

. . . And 46% is 450,000 head

Data Source: USDA-AMS & APHIS


No turn-around in sight for availability . . .

. . . Per-cap: -3% in ‘13 and -5.5%+ in ’14 @ 52.6


Sept 1 COF – Lower than expected-- bullish


Can beef be competitive at $180 - $200/cwt.?

. . . As competitors lower their prices?


PORK


Pork exports: THE 2013 issue but improving

. . . July: 1st positive (+2%) month since Oct


July exports – growth in all but China, Korea . .

. . YTD: Canada +3%, Mexico +2%, Others +18%


Imports from Canada are -10% YTD . . .

. . . Risk issue for ‘14: MCOOL retaliation


September Hogs and Pigs – Surprise!!!!


Record-high litter size and return to 2%+ . . .


But what about PEDv??? . . .

. . . Missed losses or robust prod’ivity growth?


The June H&P was dead on until Labor Day . . .

. . Sept slghtr. was -7.4% yr/yr, -3-5% vsfrcst.


One reason for low slaughter: Low margins . .

. . . Nothing new: Lower vs. 5-yr avg for 2 yrs


Sept H&P: Growth in Q4, sizable growth in ‘14


‘14 prod costs continue to fall – now <$78 . . .

. . . Or roughly $32/head lower than in ‘13


Key issue for pork is slaughter weights . . .

. . . Currentness? Prod increase this fall?


Pork cutout value has held VERY well . . .

. . . How long can the counter-seasonal last?


Hog rally went to my “pre-March” highs. . .

. . . Then seasonal, then the rally of last 2 wks


‘14 forecast profits are now best since ‘05. . .

. . . For those who have avoided PEDv


Slaughter forecasts – from Sept H&P Report


Price forecasts – Lower that ‘13 in ‘14 . . .

. . . 2014 futures are offering opportunity now


BIG challenge for future growth -- capacity!

. . . And disincentives for current players


Closing thoughts . . .

  • Feed costs are lower – will drive expansion, especially for pork and chicken

  • Demand is good in spite of lackluster macro conditions – positive prefs for meat?

  • Beef supplies will continue tight – high prices and opportunities for competitors

  • MUCH STILL DEPENDS ON WEATHER

    • Beef still needs pasture/range recovery

    • Still hand-to-mouth for grains each year


Questions or Comments?


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