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NPB Swine Educators – Sept. 2013

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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  1. NPB Swine Educators – Sept. 2013

    Meat Sector Economics Update and Outlook
  2. 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
  3. 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
  4. 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.
  5. 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
  6. 2011 drought is still critical – esp. for beef!!!
  7. ’12 drought: Much larger (77%, 44%> severe) . . . And MUCH larger impact on feed supplies
  8. 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
  9. Slow planting but better conditions, yr/yr . . . Harvest vs. 5yr: SB 3 vs 9, corn 7 vs 15
  10. Looks like we dodged the early frost bullet!
  11. 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
  12. Big increases for all corn uses – exc ethanol . . . But still less feed availability than pre-’09
  13. Ethanol’s challenge is NOT margins. . . . . . The problem is SHARPLY LOWER gas usage
  14. 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
  15. But SB prices are still near $13 . . . . . . Primarily due to China’s appetite & means
  16. KEY RESULT: Lower – but still HIGH -- costs
  17. 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
  18. Dec Real per capita PDI was false security . . . . . . Average for 2013 YTD has been -0.1%
  19. 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?
  20. PC cons stayed above 200 pounds in ‘12 . . . . . . And is falling due to supplies/costs!
  21. Retail prices are at or near record highs . . . . . . Would not be if demand was, in fact, soft
  22. Meat/Poultry demand has been good in’13
  23. Beef & chicken demand are up, turkey lower
  24. Pork demand has been good so far in ‘13 . . . July was +4.7% yr/yr, YTD RPCE is +2.8%
  25. Large stocks but -1.4% vs. July, +0.6% yr/yr . . . . . . Aug pork was -0.7% vs. July, -7.8% yr/yr
  26. CHICKEN
  27. Poultry: Reductions in ‘07 and ’11 but . . . . . . ~+2% Jan-June and then +4.5% July & Aug
  28. Broiler egg sets are +5% yr/yr last 2 wks.
  29. Chicken prices – esp breasts – have fallen
  30. BEEF
  31. Better pasture conditions have allowed. . . . . . Cow slghtr to fall 10-15% since mid-July Data Source: USDA-NASS
  32. Beef cow herd is smallest since the ’40’s . . . . . . But we may stabilize the herd this year
  33. Just as in ‘12, the sector is poised to grow . . . . . . But will Mother Nature allow it to do so?
  34. Beef: Long-term trends PLUS droughts . . . . . . ‘13 will be smallest calf crop since 1949
  35. Lower numbers are finally reducing supply!
  36. Production maintained by higher weights . . . . . . But can that continue – Zilmax situation?
  37. FC supplies grew by 0.7% vs. Jan ‘12. . . . . . But are still near record low at 25.56 mil.
  38. FC imports from Mexico are down 46% YTD . . . And 46% is 450,000 head Data Source: USDA-AMS & APHIS
  39. No turn-around in sight for availability . . . . . . Per-cap: -3% in ‘13 and -5.5%+ in ’14 @ 52.6
  40. Sept 1 COF – Lower than expected-- bullish
  41. Can beef be competitive at $180 - $200/cwt.? . . . As competitors lower their prices?
  42. PORK
  43. Pork exports: THE 2013 issue but improving . . . July: 1st positive (+2%) month since Oct
  44. July exports – growth in all but China, Korea . . . . YTD: Canada +3%, Mexico +2%, Others +18%
  45. Imports from Canada are -10% YTD . . . . . . Risk issue for ‘14: MCOOL retaliation
  46. September Hogs and Pigs – Surprise!!!!
  47. Record-high litter size and return to 2%+ . . .
  48. But what about PEDv??? . . . . . . Missed losses or robust prod’ivity growth?
  49. The June H&P was dead on until Labor Day . . . . . Sept slghtr. was -7.4% yr/yr, -3-5% vsfrcst.
  50. One reason for low slaughter: Low margins . . . . . Nothing new: Lower vs. 5-yr avg for 2 yrs
  51. Sept H&P: Growth in Q4, sizable growth in ‘14
  52. ‘14 prod costs continue to fall – now <$78 . . . . . . Or roughly $32/head lower than in ‘13
  53. Key issue for pork is slaughter weights . . . . . . Currentness? Prod increase this fall?
  54. Pork cutout value has held VERY well . . . . . . How long can the counter-seasonal last?
  55. Hog rally went to my “pre-March” highs. . . . . . Then seasonal, then the rally of last 2 wks
  56. ‘14 forecast profits are now best since ‘05. . . . . . For those who have avoided PEDv
  57. Slaughter forecasts – from Sept H&P Report
  58. Price forecasts – Lower that ‘13 in ‘14 . . . . . . 2014 futures are offering opportunity now
  59. BIG challenge for future growth -- capacity! . . . And disincentives for current players
  60. 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
  61. Questions or Comments?
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