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NPB Pork Management Conference - 2013. Livestock and Meat Outlook. Key issues for 2013-2014 profitability . . . . Input prices and production costs Demand Domestic economic conditions World economy, competition and demand Exports and a resolution to challenges

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npb pork management conference 2013

NPB Pork Management Conference - 2013

Livestock and Meat Outlook

key issues for 2013 2014 profitability
Key issues for 2013-2014 profitability . . .
  • Input prices and production costs
  • Demand
    • Domestic economic conditions
    • World economy, competition and demand
    • Exports and a resolution to challenges
    • Competitor protein supplies – and prices
  • Output levels for 2013 – and ‘14
  • Prices and margins
cow calf profits with 2013 expected good
Cow-calf profits – with 2013 expected good

. . . Assumes “normal” weather, corn, hay

output trends all kinked in 08 09
Output trends all kinked in ‘08-’09 . . .

. . . and flattened in ‘12 – what about ‘13 & ‘14?

the critical issue for u s agriculture is still
The critical issue for U.S. agriculture is still:

Severe drought area is down to 25%

High Plaines 45%, South 34%, MW 0.0%,

scary context april 2012 some problems
Scary context: April 2012 -- some problems

. . . But LITTLE HINT of what was to come!

grain feed cost assumptions
Grain, feed, cost assumptions

“Normal” weather from here on out

Corn yields in the mid- to upper-140 range

SB yields in the mid-40s

Current futures are fairly priced for corn, a bit high for SBM – weather premium in SB

F-F hog costs near $80/cwt carcass

Fed cattle BE’s >$130 thru year end, $120s in 2014 as feeders increase

Chicken BE’s near $90 RTC weight

the macro economy key issues
The macro-economy – key issues
  • Short term
    • Housing market is improving – low interest rates, job growth
    • Wealth effect has been positive – at least until this week
    • U-rate is falling but will likely stay above 7%
  • Long term
    • Deficit & spending – must be reigned in
    • How will economy react when the Fed actually slows on Quant Easing?
january 2013 world economy is better
January 2013 – World economy is better . . .

. . . But EU is still a wreck – and now Japan

exchange rates
Exchange rates

Real moved big in ‘11-’12, stable recently

Peso has improved but is still weaker than in ’11, ditto for the won

Rapidly falling yen – due to gov’t policy

the u s economy muddles along
The U.S. economy muddles along . . .

. . . Q1 GDP +2.4% - Still slowed by uncertainty

dec real per capita pdi was false security
Dec Real per capita PDI was false security . . .

. . . Jan was -0.4%, April was only +0.3%

pc cons did not go below 200 last year
PC cons did not go below 200# last year . . .

. . . What about ‘13 or ’14?

demand primer
Demand Primer
  • Demand is – The quantities of a product that consumers are willing and able to buy at alternative prices.
    • A set of price-quantity pairs
    • Downward sloping in P-Q space
    • Consumer is the primary demand – all others are derived based on transformation costs
  • Factors: Tastes/preferences, prices of substitutes (+) and complements (-), consumer incomes (ie. budget constraint)
retail prices are at or near record highs
Retail prices are at or near record highs . . .

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

individual species indexes still mixed
Individual species indexes still mixed . . .

. . . Chicken, beef and pork: Up for past 12 mos.

further proof record high 12 expenditures
Further proof: Record high ’12 expenditures

. . . And another record expected in 2013

exports have been a big challenge in 13
Exports have been a BIG challenge in ‘13 . . .

. . . Pork is -14.5%, beef is -3%, chicken up

russia china why is it happening
Russia & China Why is it happening?
  • Not really about ractopamine
  • China: Low hog prices, protection
  • Russia:
    • Push-back on human rights language
    • Protecting its domestic industry – self-sufficiency goals, vested interests in govt.
    • “Normal” fun and games with Russkies
  • Exports to Russia accounted for 1.2% of ’12 pork production, China accounted for 3.4% -- 10-15% price impact?
further context summer 2012
Further context: Summer 2012

. . . On 8/21: 77% drought, 44% severe or worse

very high portion of pastures were poor
Very high portion of pastures were poor . . .

. . . In October ‘12 - last crop condition report

ranges pastures have improved sharply
Ranges/pastures have improved sharply . . .

. . . Still at the same level as last year

beef long term trends plus droughts
Beef: Long-term trends PLUS droughts . . .

. . . Smallest January 1 U.S. beef cow herd since ’46

. . . Smallest calf crop since 1949 is forecast for ‘13

fc supplies grew by 0 7 vs jan 12
FC supplies grew by 0.7% vs. Jan ‘12. . .

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

placements had been lower yr yr 8 of 9 mos
Placements had been lower yr/yr 8 of 9 mos.

. . . Until +6% & +15% in March and April

may 1 cof is still 3 4 below last year
May 1 COF is still 3.4% below last year . . .

. . . Lower near-term supplies, closer in fall

record high weights helped prod levels
Record-high weights helped prod levels . . .

. . . But we are now back to yr-ago weights

no turn around in sight for availability
No turn-around in sight for availability. . .

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

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

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

choice cutout finally broke 200
Choice cutout FINALLY broke $200 . . .

. . . Still there but falling from $210 peak

beef summary
Beef summary . ..

Cattle are still big but will run close to ‘12

Lower cattle numbers thru Q3 and thus lower beef supplies

Producers are keeping heifers but have some already moved to lots? Grass!!!!

Longer term: Tighter per cap supplies thru 2014 (‘15?) and higher prices

Will beef cease to be a habit for anyone below the middle class?

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

. . . Flock has been up 1-2% yr/yr since Jan.

sets have grown yr yr but placements
Sets have grown, yr/yr but placements . . .

. . . Are even with last year – so far

Sets were virtually even with ‘11 levels the entire second half of 2012 – now +1%

Chick placements YTD are unchanged from 2012

slaughter is up slightly but prod is up 2
Slaughter is up slightly but prod is up 2+%

Broiler slaughter is up 0.9%YTD vs. 2012 – and more to come!

Broiler production is now +2.2% YTD vs. 2012 – and more to come!

weights were a big driver for 12 output
Weights were a big driver for ‘12 output . . .

. . . A mixed bag so far in ‘13 – but still high

demand summary
Demand summary
  • Demand indexes are slightly higher than in ‘12 so far – with chicken leading
  • Still concerned about consumer incomes in ‘13 – wages, taxes?
  • New pork export records are in BIG doubt
    • Russia and China – over 20% of volume
    • Weaker yen will hurt Japanese buying power
    • MCOOL retaliation – may not hit until ‘14
  • Higher beef and chicken (??) prices will be positive for pork demand
exports have been the issue in 2013
Exports have been THE issue in 2013

. . . Down 16% thru April, Feb-Apr down 14.4%

april exports japan down but steady
April exports – Japan down but steady . . .

. . Mexico came back, China on LT trend

u s sow herd is near smallest on record
U.S. sow herd is near smallest on record . . .

. . . And yet Q4 production was record large!

weights have helped long term production
Weights have helped long-term production. .

. . . But feed costs have slowed them!

imports from canada are 9 ytd
Imports from Canada are -9% YTD . . .

. . . Risk issue for ‘14: MCOOL retaliation

12 production costs were record high
‘12 production costs were record-high . . .

. . .’13 will likely be higher -- new crop help?

6 20 cme group futures prices still imply
6/20 CME Group futures prices still imply . . .

. . . Large losses for 2013 – but profits in ‘14

sow slaughter higher due to prices
Sow slaughter: Higher due to prices . . .

. . . But lower than “normal” ALL YEAR

13 slaughter will be slightly larger than 12
‘13 slaughter will be slightly larger than ’12 . .

. . . But pattern will be different – summer???

what will be the impact of pedv as of 6 10
What will be the impact of PEDv? As of 6/10:

218 positive samples

199 premises, up 44 from 6/3 – 47 sow farms, 130 growing pigs sites, 20 unknown

Positive in 19 states

102 in Iowa, 19 in Minnesota and 38 in Oklahoma – up 20 from 6/3

Earliest confirmed case is still mid-April

Number of animals impacted is unknown

Death losses, 7-10 days of slow/no growth

disappointing q1 has given way to
Disappointing Q1 has given way to . .

. . . An exceptional rally – that is likely OVER

hog rally has gone to my pre march highs
Hog rally has gone to my “pre-March” highs. . .

. . . Unlikely to see much more this summer

packers have chased hogs since april
Packers have chased hogs since April . . .

. . . But margins are likely to widen soon

price forecasts april reductions
Price forecasts – April reductions . . .

. . . Now look too big -- book Q3 and Q4?

but the real capacity trend if flat
But the real capacity trend if FLAT!

. . . Potential trouble if we return to growth!

summary
Summary

Beef industry is still being impacted by ‘11 drought – and output will be effected through 2014 and into 2015 – high prices

Chicken slowed in ‘11 but has begun to grow again – and could grow QUICKLY

Pork industry: Huge equity hit but has “maintained” pending good ‘13 crops and a return to “normal” costs

Cornbelt rains have been good – need some warm, dry days now