1 / 52

State of The Agricultural Economy

State of The Agricultural Economy. Dr. Thomas E. Elam President FarmEcon LLC November 8, 2011. First, the lawyer told me to say….

ila-bell
Download Presentation

State of The Agricultural Economy

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. State of The Agricultural Economy Dr. Thomas E. Elam President FarmEcon LLC November 8, 2011

  2. First, the lawyer told me to say… The information contained herein is currently believed to be reliable and the views expressed within this document reflect judgments at this time and are subject to change without notice. FarmEcon LLC does not warrant that the information contained herein is fully accurate or complete, and it should not be relied upon as such. Any business decisions made based on this information and analysis are the sole responsibility of the decision maker.

  3. Why has protein consumption and feed volume grown? Declining real costs relative to average goods and services Efficiency increases Gains in real incomes Combined = Production expansion incentives

  4. More Spending = More Meat, Globally and LocallyOn average +10% Spending = +9% more meat $1 trillion increase in spending = 9 mmtmore meat produced R2 = 0.9988 Sources: Consumer Spending: World Bank; United Nations. Meat Production: UN/FAO

  5. Corn Prices Matter Too: Real Price Index

  6. Corn Prices and Income Growth

  7. Macroeconomic Headlines Real U.S. GDP growth is slowing Why? Unprecedented government borrowing and market interference = uncertainty Labor market is not recovering U1 Unemployment rate down from recession low Because people are dropping out of the labor force Real U6 unemployment rate stuck at about 16% Almost no private sector job growth Therefore, no real improvement in earnings of people who buy consumer goods

  8. Total (U6) unemployment rate % U1 + marginally attached + discouraged potential workers Does not include those who have totally given up looking for work

  9. Labor force participation rate, % Employed + unemployed divided by adult population

  10. Employed as % of the Population Employed divided by total population

  11. Why you need to care… • Work = consumer income = spending = MEAT DEMAND • Weak 2011/12 protein demand increase • Turkey demand may be an exception • 2010/12 protein price strength almost totally due to lower supply/higher exports • If meat supplies increase or exports decline in the face of low income growth, prices will decline

  12. Informa Model Turkey Margins

  13. Informa Model Broiler Margins

  14. Farrow-Finish Returns, IA State Budget

  15. Yearling Steer Returns, IA State Budget

  16. The future looks like the recent past • We may have reached “peak meat” • Certain for the next 2-3 years • Likely for the next decade • Feed cost volatility here to stay • Low carryover stocks • Feed costs now linked to energy prices

  17. 2006-2012 Per Capita Total Meat Consumption: 10% Reduction • Recession and slow recovery • Lower availability driving pricing up • Root causes: • Higher Costs • Lower Production • Export growth

  18. Chicken/Turkey/EggOutlook2011/12

  19. What are the Underlying Issues? Higher feed costs driving production down Weak U.S. demand growth Russia and China broiler trade issues It’s both supply and demand Production needs to adjust to a new reality Prices need to increase to cover higher costs

  20. Chicken Cold Storage 2007-2011

  21. Turkey Cold Storage 2007-2011

  22. UB Turkey Egg Sets and Placements4 Week YoY %Change Moving Averages Feed Costs Spike

  23. U.S. Broiler Chicken Egg Sets and Placements3 Week YoY %Change Moving Averages Feed Costs Spike

  24. U.S. Cumulative Potential Egg-Type Layer PlacementsRelative to Current Supply Flocks 7-18 Months Earlier Feed Costs Spike

  25. Poultry Feed Costs – New Records!

  26. Supply Reductions are Helping • Turkey supply in line with demand • Excellent exports have helped • Prices have responded to lower domestic supply • Outlook is for positive margins through mid-2012 • Chicken supply still too high • Lack of export growth has hurt • Cutbacks just starting to take hold • Egg supply reductions will help by 2012

  27. Turkey Price Improvement Has Outpaced Supply Reduction

  28. Chicken Wholesale Price Scatter

  29. Turkey Feed Cost Outlook 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

  30. Broiler Feed Cost Outlook Includes transportation basis for corn, and soybean meal Based on 1.9:1 FCR, 55% corn, 35% SBM, 10% Other

  31. 2012 Turkey Forecast Summary(Production, Use and Stocks in Million Pounds) 2000-2008 Average: 42.7¢

  32. 2012 Broiler Forecast Summary(Production, Use and Stocks in Million Pounds)

  33. 2012 Egg Industry Forecast UEP/HSUS proposal will have long term cost impact 2011 margins have been tight Layer numbers forecast to decline, and remain 1-2% under year-earlier through 2012 Exports likely to grow modestly in 2012 Table eggs and egg product prices likely to set new records in 2012 Will be needed to offset feed costs

  34. 2012 Poultry Outlook Summary Demand vs. production cost a major challenge Economy expanding, but not a typical recovery rate Red meat domestic supplies shrinking in 2011 and 2012 Chicken supplies are declining due to incredible losses How much chicken reduction needed for profitability? 2012 prices and profitability factors: Feed costs Continued economic recovery – no double-dip Poultry production levels Extreme feed cost risk level will (hopefully) temper 2012 production plans

  35. Beef cattle outlook • Price outlook driven by exports and production • Exports will remain strong • Competitor countries declining exports • Global beef demand growing • U.S. production will decline in 2012-13 • Southwest drought and herd reductions • Higher feed costs

  36. Major Beef Exporter Volumes: Only U.S./India Growing Source: USDA/FAS Production, Supply, Demand database

  37. 2012 Cattle Forecast Record high prices, lowest production since 2005, lowest per capita consumption in records that go back to 1970!

  38. Pork Outlook2011/12

  39. Pork Summary “Steady as she goes” theme for 2012 Recent USDA numbers show no swings coming in sow numbers or pig crop Export demand seen growing in 2012 Prices likely to set new records, but not by much Remember though, VOLATILITY!

  40. 2012 Pork Forecast Record high prices, higher production, record exports and second lowest per capita consumption in records that go back to 1970! Prior low was 42.9 pounds in 1975.

  41. 2012 Feed Cost Outlook

  42. Something Changed!

  43. Correlations: Monthly Average Prices, Omaha #2 Yellow Corn; Petroleum Blender Gasoline and Ethanol

  44. Regression for Season Average Corn Price, Feedgrain Crops of 1990-2009 Ethanol production growth in excess to 4 billion gallons, ethanol prices over $2/gallon, and low stocks are all combining to drive corn prices up. The next year looks like more of the same at this point. R2 = 89% Forecast 2010 crop price was $5.47/bushel, above the USDA $5.18 average Forecast 2011 crop price is $6.46/bushel, vs. the USDA $6.20-$7.20 range Lower stocks, higher ethanol prices, and ethanol production all important drivers

  45. Feedgrains Balance * September 1 Crop Year

  46. Soybean Outlook Detail to 2011/2012* * September 1 Crop Year

  47. Corn/SBM/DDGS Feeding Lower feed availability & higher protein exports are squeezing consumption

  48. If Ethanol Tax Credit Goes Away? About $5.8 billion of revenue goes away Including DDGS, total ethanol plant sales are about $43 billion Most of credit stays with blender But that much money has a corn price effect Maximum effect is about $1/bushel Real effect will be less

  49. RFS is the Real Policy Issue Sets price insensitive floor for corn demand Inflates corn, DDGS and ethanol prices Absent RFS and tax credit, ethanol priced near BTU-parity to gasoline: 67% of gasoline Wholesale gasoline at $3.00 = $2.00 ethanol $2.00 ethanol = $4.75 corn and $150 DDGS

  50. Summary: • Any scenario has large up and downside risk • Realistic potential exists for: • $9+ corn • $6 corn • $450 soymeal • $300 soymeal • Prices will be volatile and will depend • Macroeconomics • Crop size (U.S. and global) • Energy prices • Potential biofuel policy changes

More Related