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Dr. Steve Meyer - Meat/Poultry Economic Update & Outlook

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Information about Dr. Steve Meyer - Meat/Poultry Economic Update & Outlook
Business & Mgmt

Published on March 7, 2014

Author: trufflemedia

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Meat/Poultry Economic Update & Outlook - Dr. Steve Meyer, Paragon Economics, Inc., from the 2014 Missouri Pork Expo , February 11 - 12, 2014, Columbia, MO, USA.

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Missouri Pork Producers – Feb 2014 Meat/Poultry Economic Update & Outlook Steve R. Meyer, Ph.D. Paragon Economics, Inc. Paragon Economics, Inc. From information, knowledge

October‟s government shutdown – Impact?   No disruptions of animal or product flows – Inspectors were deemed “essential” No apparent “gouging” but a few price shenanigans - Most markets remained stable - Packers did not pressure prices – MUCH - Margins were tight by the end – lower prices  Big backlog of data – as much detail as we will see is now available Paragon Economics, Inc. 6/20/2013 2 From information, knowledge

Demonstrated the importance of USDA data  Many relied on Urner Barry‟s Yellow Sheet - Poultry and eggs have always used YS prices - Good coverage for beef and pork as well   CattleFax probably signed up a lot of new members – fed cattle markets were okay Hogs and Feeder Cattle were the voids - NPPC‟s effort for voluntary hog price reporting by packers » Good but too late » Antitrust challenges Paragon Economics, Inc. 6/20/2013 3 From information, knowledge

Now what?   Another shutdown avoided – for now CME Group has to have a better plan - Dodged a potential bullet with Oct LH close - Feeder cattle is cash settled, too - - MUCH trickier due to dispersion of data - Need “auditable” data if from a private source   Buyers & sellers should be investigating alternatives just in case NPPC hog system is functional – what legal criteria must be met? Paragon Economics, Inc. 6/20/2013 4 From information, knowledge

Smithfield and Tyson announcements  Smithfield announced that it is “asking” its contract growers to adopt group sow housing by 2022 - “You don‟t have to but contract extensions are less likely” = “change or else” - “Sliding scale” incentives to adopt faster - NOT A SURPRISE » Company-owned farms began switching in ‟07 » 54% now in group systems » Productivity has been maintained Paragon Economics, Inc. 6/20/2013 5 From information, knowledge

Tyson announcement is MUCH bigger deal  Because it‟s TYSON - #2 packer (77k/day), #12 producer (52k sows) - Successor to IBP which never backed down from a fight over priniciple - Historically a staunch defender of producers  Sow housing PLUS key items required for contract growers, “recommended” for all - Stop using blunt force euthanization - Pain mitigation for castration, tail docking - Video monitoring in all barns Paragon Economics, Inc. 6/20/2013 6 From information, knowledge

Key Factors for 2014  Costs Paragon Economics, Inc. 6/20/2013 7 From information, knowledge

„14 production costs – down ~$15/cwt carc. . . . ~$30/hd. better profits w/o price change! Paragon Economics, Inc. 6/20/2013 8 From information, knowledge

USDA Jan WASDE – LOWER corn yield, crop . . . . . . Record crop, higher F/R, steady ethanol U.S. CORN SUPPLY AND UTILIZATION -- FEBRUARY Units Acres Planted Acres Harvested Yield Beginning Stocks Production Imports Total Supply Feed & Residual Ethanol for fuel Non-Ethanol FSI Exports Total Usage Carryover Stocks/Use Nat. Wtd. Avg. Farm Price Mil A Mil A Bu/A Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Mil Bu. Pct. $/Bu. 2011/12 91.9 84.0 147.2 1128 12360 29 13517 4557 5000 1428 1543 12528 989 7.9% 6.22 2012/13 97.2 87.4 123.4 989 10780 162 11932 4335 4648 1396 731 11111 821 7.4% 6.89 USDA January 95.4 87.7 158.8 821 13925 35 14781 5300 5000 1400 1450 13150 1631 12.4% 4.10 - 4.70 2013/14 USDA % Chng February vs '12-13 95.4 -1.9% 87.7 0.3% 158.8 28.7% 821 -17.0% 13925 29.2% 35 -78.4% 14781 23.9% 5300 22.3% 5000 7.6% 1400 0.3% 1600 118.9% 13300 19.7% 1481 80.4% 11.1% 50.7% 4.20 - 4.80 -36.1% Source: USDA World Supply and Demand Estimates Paragon Economics, Inc. From information, knowledge

Better yields and record highs in the east Paragon Economics, Inc. 6/20/2013 10 From information, knowledge

Big increases for all corn uses – exc ethanol . . . Feed ingredient supply back near pre‟08 Paragon Economics, Inc. 6/20/2013 11 From information, knowledge

RFS is clearly not realistic due to gas usage . . . 13 bil. gal. of corn ethanol X Paragon Economics, Inc. From information, knowledge

Note the prod & cons trend change in „04 . . . . . . But not much change in stocks level Paragon Economics, Inc. 6/20/2013 13 From information, knowledge

World stocks are higher but S/U still tight . . . . . . Due to persistently larger usage levels! Paragon Economics, Inc. 6/20/2013 14 From information, knowledge

U.S. biofuels policy fueled growth . . . . . . and new, ongoing corn competition Paragon Economics, Inc. 6/20/2013 15 From information, knowledge

Have we seen the bottom for corn? . . . Likely, especially with Feb WASDE changes Paragon Economics, Inc. From information, knowledge

Corn is cheap versus about everything! Paragon Economics, Inc. From information, knowledge

World soybean situation is quite 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 Paragon Economics, Inc. From information, knowledge

But SB prices are still near $13 . . . . . . Primarily due to China‟s appetite & means Paragon Economics, Inc. From information, knowledge

Jan WASDE: Larger SB yield, crop . . . . . . Steady – and TIGHT – stocks, higher meal U.S. SOYBEAN SUPPLY & UTILIZATION - FEBRUARY Units Acres Planted Mil A Acres Harvested Mil A Yield Bu/A Beginning Stocks Mil Bu. Production Mil Bu. Imports Mil Bu. Total Supply Mil Bu. Crushings Mil Bu. Exports Mil Bu. Seed Mil Bu. Residual Mil Bu. Total Usage Mil Bu. Carryover Mil Bu. Stocks/Use Pct. Nat. Wtd. Avg. Farm Price $/Bu. Soybean Oil Price Cents/lb. Soybean Meal Price $/ton 2011/12 75.0 73.8 41.9 215 3094 16 3325 1703 1365 90 -2 3155 169 5.4% 12.50 51.90 393.53 2012/13 77.2 76.2 39.8 169.0 3034.0 36.0 3239.0 1689.0 1320.0 89.0 1.0 3099.0 141.0 4.5% 14.40 47.13 468.11 USDA January 76.5 75.9 43.3 141 3289 25 3454 1700 1495 87 22 3304 150 4.5% 11.75 - 13.25 35.50 - 39.50 375 - 415 2013/14 USDA % Chng February vs '12-13 76.5 -0.9% 75.9 -0.4% 43.3 8.8% 141 -16.6% 3289 8.4% 30 -16.7% 3459 6.8% 1700 0.7% 1510 14.4% 87 -2.2% 12 1100.0% 3309 6.8% 150 6.4% 4.5% 0% 11.95 - 13.45 -15.3% 34.50 - 37.50 -23.6% 425 - 465 -4.9% Source: USDA World Supply and Demand Estimates Paragon Economics, Inc. From information, knowledge

And MEAL has carried the value! Mar SBM Futures Mar SB Oil Futures Paragon Economics, Inc. From information, knowledge

Are “high” costs behind us?      Depends on your definition of “high” “Normal” 2014 crops will give us corn at $3.50 and beans at $9.00 – maybe less for both Reason: Yields (and acres) have finally caught up with ethanol usage $90-plus hog costs will be rare – only when we have a severe drought Key issue: Veg oil prices Paragon Economics, Inc. 6/20/2013 22 From information, knowledge

Key Factors for 2014   Costs Demand Paragon Economics, Inc. 6/20/2013 23 From information, knowledge

The macro-economy – Improving  Good things: - GDP growth, improving housing market, low interest rates, job growth (+175k Sept, +200k Oct, +203k Nov but only +74k in Dec) - Wealth effect has been positive – Record equity values prior to recent “correction”  Question marks: - U fell to 6.7% in Dec – due to -347k “seekers” - U-6 is 13.1% -- improving but still high - Personal disposable income – better, but ???? Paragon Economics, Inc. 6/20/2013 24 From information, knowledge

2013 RPDI growth averaged 0.1%/month . . . . . . And December was abysmal at -3.4%, yr/yr Paragon Economics, Inc. 6/20/2013 25 From information, knowledge

Per cap consumption is flat thru „14 . . . . . . Chicken, pork will grow, beef will decline Paragon Economics, Inc. 6/20/2013 26 From information, knowledge

Retail prices are at or near record highs . . . . . . Would not be if demand was, in fact, soft Paragon Economics, Inc. 6/20/2013 27 From information, knowledge

Meat/Poultry demand has been good in‟13 Paragon Economics, Inc. 6/20/2013 28 From information, knowledge

Beef, chicken & pork are up, turkey lower Paragon Economics, Inc. 6/20/2013 29 From information, knowledge

Pork exports: BIG 2013 issue & remain soft . . . . . USDA (and I) expect some growth in „14 (?) Paragon Economics, Inc. 6/20/2013 30 From information, knowledge

Decexports – +33.3% for Mexico, +17% Others YTD: Canada -1.6%, Mexico +9%, Others +12% Paragon Economics, Inc. 6/20/2013 31 From information, knowledge

Key Factors for 2014    Costs Demand Competitors Paragon Economics, Inc. 6/20/2013 32 From information, knowledge

Chicken is now in a full growth mode  Industry started positioning for growth last winter – delayed by backfilling Mexico AI losses Paragon Economics, Inc. 6/20/2013 33 From information, knowledge

Breeder flock grew modestly thru July . . . . . . Up 4.6% to 4.8%, yr/yr, Aug-Nov; +3.3% Dec Paragon Economics, Inc. 6/20/2013 34 From information, knowledge

Chicken is now in a full growth mode      Industry started positioning for growth last winter – delayed by backfilling Mexico AI losses Profitable at present and going forward – but can‟t stand prosperity Egg sets have been +2-3%, placements up only fractionally vs. ‟13 since Jan1 I expect 3-5% more broiler supply in 2014 Chicken will be very competitively priced Paragon Economics, Inc. 6/20/2013 35 From information, knowledge

Beef – Now in full expansion mode, too  Range/pasture conditions are good enough to support cow herd expansion Paragon Economics, Inc. 6/20/2013 36 From information, knowledge

Replacement cow prices are record high . . . . . . and even higher??? Paragon Economics, Inc. 6/20/2013 37 From information, knowledge

Cow-calf operations should get best of it! Paragon Economics, Inc. 6/20/2013 38 From information, knowledge

Feedlot breakevens are still VERY high . . . . . . Due to record-high calf, feeder prices Paragon Economics, Inc. 6/20/2013 39 From information, knowledge

Beef – Now in full expansion mode, too   Range/pasture conditions are good enough to support cow herd expansion Heifer retention is tightening an alreadytight feeder and fed cattle supply Paragon Economics, Inc. 6/20/2013 40 From information, knowledge

Jan Cattle report: Slow expansion . . . JANUARY 1, 2014 -- U S CATTLE INVENTORY Pre-Report Estimates* Pct of Yr Average Ago 2013 2014 All Cattle & Calves 89,300 87,730 98.2 98.6 98.0 - 99.1 Cows & Heifers That Have Calved Beef Cows Dairy Cows 38,515 29,297 9,218 38,251 29,042 9,209 99.3 99.1 99.9 98.9 98.5 99.9 98.7 - 99.3 98.3 - 99.1 99.8 - 100.0 Heifers 500 Pounds & Over Beef Cow Replacements Dairy Cow Replacements Other Heifers 19,134 5,381 4,551 9,203 18,751 5,471 4,539 8,741 98.0 101.7 99.7 95.0 99.0 103.1 100.3 95.9 97.9 - 99.6 102.4 - 103.5 98.9 - 101.1 93.2 - 97.1 Steers 500 Pounds & Over 15,813 15,415 97.5 98.4 97.3 - 99.6 2,056 2,035 99.0 99.0 98.4 - 99.7 Heifers, Steers & Bulls Under 500 Pounds 13,782 13,278 96.3 97.9 97.0 - 99.1 January 1 Cattle On Feed, All Feedlots 13,364 12,695 95.0 95.0 99.0 97.9 Bulls 500 Pounds & Over Rev 2012 2013 34,279 33,930 Calf Crop Range 97.7 - 98.1 Source: USDA National Agricultural Statistics Service, Urner Barry Paragon Economics, Inc. 6/20/2013 41 From information, knowledge

Beef – Now in full expansion mode, too    Range/pasture conditions are good enough to support cow herd expansion Heifer retention is tightening an alreadytight feeder and fed cattle supply Per capita beef availability in 2014 will be down 3-5% -- RECORD HIGH prices again Paragon Economics, Inc. 6/20/2013 42 From information, knowledge

RECORD-HIGH cutout values – in JANUARY!    Weekly averages hit $238 and $236 the week of January 24 Value is being carried by END meats Tighter supplies are still to come! Paragon Economics, Inc. 6/20/2013 43 From information, knowledge

Beef – Now in full expansion mode, too      Range/pasture conditions are good enough to support cow herd expansion Heifer retention is tightening an alreadytight feeder and fed cattle supply Per capita beef availability in 2014 will be down 3-5% -- RECORD HIGH prices again LONG reaction period – I don‟t expect more beef, yr/yr, until 2016 AN OPPORTUNITY FOR PORK & CHICKEN! Paragon Economics, Inc. 6/20/2013 44 From information, knowledge

Key Factors for 2014     Costs Demand Competitors Hog Numbers Paragon Economics, Inc. 6/20/2013 45 From information, knowledge

Imports from Canada are -11% for 2013 . . . . . . FP -11.7%, MH -14%, S&B -1.1% Paragon Economics, Inc. 6/20/2013 46 From information, knowledge

Sow slaughter was -6.5% yr/yr Q3 & Q4 . . . . . . And was down 2.9% for the year Paragon Economics, Inc. 6/20/2013 47 From information, knowledge

And gilt slaughter has been below average Paragon Economics, Inc. 6/20/2013 48 From information, knowledge

Dec Hogs and Pigs – BH was a surprise . . . . . . Other numbers were not – picked up PEDv? USDA QUARTERLY HOGS & PIGS REPORT December 27, 2013 Category 2012 2013 '13 as PreActual Pct of Report Est '12 Est's Inventories on December 1 All hogs and pigs 66,374 65,940 99.3 99.9 -0.6 Kept for breeding 5,819 5,757 98.9 101.0 -2.1 Kept for marketing 60,555 60,183 99.4 99.8 -0.4 Under 50 lbs. 19,299 19,049 98.7 99.7 -1.0 50-119 lbs. 16,752 16,669 99.5 99.7 -0.2 120-179 lbs. 12,634 12,626 99.9 99.9 0.0 180 lbs. and over 11,871 11,838 99.7 100.1 -0.4 Farrowings Sep-Nov sows farrowed 2,888 2,882 99.8 100.4 -0.6 Dec-Feb Intentions 2,788 2,825 101.3 100.9 0.4 Mar-May Intentions 2,816 2,855 101.4 101.2 0.2 Sep-Nov Pig Crop 29,319 29,298 99.9 101.2 -1.3 Sep-Nov pigs saved per litter 10.15 10.16 100.1 100.8 -0.7 *Thousand head ** Thousand Litters Source: WSJ (formerly DowJones) Paragon Economics, Inc. 6/20/2013 49 From information, knowledge

Sep-Nov litter size does show PEDv signs. . . . . . Closest to year-ago level since Q3 2003! Paragon Economics, Inc. 6/20/2013 50 From information, knowledge

What about PEDv? -- 1/26 was a new record . . . . . Big jump in IL, IN went from 9 to 25 in 1 wk.! Paragon Economics, Inc. 6/20/2013 51 From information, knowledge

PEDv – Must remember timing       First case was April 15 – in spite of conspiracy/neglect/incompetency theories Sow/boar and suckling pig cases began to grow sharply in June – DECEMBER slghtr Rules of thumb: 2.3, 2.5, 2.7 pigs/sow Anecdotal figure at present ~ 1.7M sows and growing 1.9M x 2.5 = 4.75M pigs lost in 8 months 7.1M in 12 months = ~6% of „14 pig crop Paragon Economics, Inc. 6/20/2013 52 From information, knowledge

Is Oklahoma a harbinger for other states? Paragon Economics, Inc. 6/20/2013 53 From information, knowledge

Immediate impact: RECORD HIGH pig prices Paragon Economics, Inc. 6/20/2013 54 From information, knowledge

Sept H&P: Growth in Q4, sizable growth in „14 . . . But from 9/1: -4.4% vs. „12, -3.0% vs. pred? Paragon Economics, Inc. 6/20/2013 55 From information, knowledge

Hogs & Pigs indicates tight supplies Q1-Q2 . . . Higher numbers in Q3-Q4 – farrowings? Paragon Economics, Inc. 6/20/2013 56 From information, knowledge

Making up for some losses with weights . . . +2.7% since shutdown, nearly +3% in „14 . . . Paragon Economics, Inc. 6/20/2013 57 From information, knowledge

Cutout has improved but hogs are lagging . . . . . . “Near last year” may become a refrain   Expect MUCH higher prices in March-April Summer highs at $105-$110 Paragon Economics, Inc. 6/20/2013 58 From information, knowledge

„14 forecast profits are now best since „87. . . . . . For those who have avoided PEDv -- All? Paragon Economics, Inc. 6/20/2013 59 From information, knowledge

Slaughter forecasts per Dec Hogs & Pigs December 2013 Hogs & Pigs -- Commercial Slaughter Forecasts Mizzou Mil. Hd 2013 Q1 Q2 Q3 Q4 Year 2014 Q1 Q2 Q3 Q4 Year % Chnge 27.874 -1.1% 29.730 0.8% 112.050 -1.0% 27.580 Paragon 0.4% 27.668 LMIC -0.8% 26.778 ISU Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge -1.1% 27.428 -1.6% 27.829 -0.2% 27.800 -0.3% 26.479 -1.1% 26.494 -1.1% 26.579 -0.7% 26.355 -1.6% 27.685 0.1% 27.923 0.9% 27.990 1.2% 27.088 -2.1% 30.027 1.0% 30.476 2.5% 30.496 2.6% 29.320 -1.4% 111.744 -0.3% 112.321 0.2% 112.894 0.8% 110.563 -1.3% Green figures are actual data from USDA. . Blue figures are estimated using USDA data 1/13/14 Paragon Economics, Inc. 6/20/2013 60 From information, knowledge

Price forecasts per Dec Hogs & Pigs December 2013 Hogs & Pigs -- Price Forecasts Mizzou Producer-Sold Net Price, All Methods 2013 Q1 83.53 Q2 91.80 Q3 97.90 Q4 84.99 Year 89.56 2014 Q1 84 - 88 Q2 94 - 98 Q3 92 - 96 Q4 77 - 81 Year 86 - 90 Green figures are actual data from USDA. ISU Ia-Mn Wtd. Avg. Base Lean Hog 80.83 88.06 94.34 82.57 86.45 85 - 90 95 - 100 91 - 96 80 - 85 88 - 93 LMIC Paragon National Net National Wtd Neg'd Price, Avg. Base Price Wtd. Avg. 81.08 82.73 89.32 90.83 95.25 98.00 82.98 85.26 87.16 89.21 85 - 87 83 - 86 91 - 95 95 - 99 92 - 97 96 - 100 81 - 87 82 - 86 87 - 92 89 - 93 Blue figures are estimated using USDA data **CME Lean Hog Index CME CME Lean Hog Futures 83.34** 90.66** 98.98** 83.93** 89.23** 86.28 100.88 104.10 85.86 94.28 2/10/14 Paragon Economics, Inc. 6/20/2013 61 From information, knowledge

Key Factors for 2014      Costs Demand Competitors Hog Numbers Strategic Issue for Pork -- Capacity Paragon Economics, Inc. 6/20/2013 62 From information, knowledge

I‟m still concerned about packing capacity . . . 2014 is okay – 2015 and beyond???? Paragon Economics, Inc. 6/20/2013 63 From information, knowledge

Closing thoughts . . .      Lower feed costs will drive expansion, especially for pork and chicken Demand is good, macro conditions are improving – positive prefs for meat? Beef supplies will be tight thru 2015 – high prices and opportunities for competitors Chicken will be MUCH more competitive Hog supplies will be lower due to PEDv --profitable but less price advantage Paragon Economics, Inc. 6/20/2013 64 From information, knowledge

Questions or Comments? Paragon Economics, Inc. 6/20/2013 65 From information, knowledge

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