Outlook for Hog Profits in 2012

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1 NPB Swine Conference, Sioux Falls, September 29, 2011 Outlook for Hog Profits in 2012 Ron Plain D. Howard Doane Professor of Agricultural Economics University of Missouri-Columbia

2 Presentation Outline Meat demand Macro outlook Corn outlook Competing meats Hog outlook

3 Meat Demand

4 2002 > May Sep 2003 > May Sep 2004 > May Sep 2005 > May Sep 2006 > May Sep 2007> May Sep 2008> May Sep 2009> May Sep 2010> May Sep 2011> May % change from year ago Change in Retail Meat Demand Base Elasticity =

5 2007 > Apr Jul Oct 2008 > Apr Jul Oct 2009 > Apr Jul Oct 2010 > Apr Jul Oct 2011 > Apr Jul Boneless Retail Meat Prices as % of Bologna, Monthly, Percent Beef Sirloin Pork Chops Chicken Breast Source: USDA/ERS

6 CHOICE MINUS SELECT BEEF PRICES Carcass Cutout Value Lbs., Weekly $ Per Cwt Avg JAN APR JUL OCT Livestock Marketing Information Center Data Source: USDA-AMS, Compiled & Analysis by LMIC C-P-68 09/12/11

7 2002 > May Sep 2003 > May Sep 2004 > May Sep 2005 > May Sep 2006 > May Sep 2007> May Sep 2008> May Sep 2009> May Sep 2010> May Sep 2011> May % change from year ago 15 Change in Pork Demand Base Elasticity =

8 2001 > May Sep 2002 > May Sep 2003 > May Sep 2004 > May Sep 2005 > May Sep 2006 > May Sep 2007 > May Sep 2008 > May Sep 2009 > May Sep 2010 > May Sep 2011 > May Cents/lb 500 Retail Boneless Pork Prices Retail Prices, Monthly, Bacon Chops Ham Source: USDA/ERS

9 The Great Recession

10 Percent Change Growth in Real GDP Source: U.S. Commerce Department

11 $ Per Head AVERAGE RETURNS TO CATTLE FEEDERS Feeding 725 Lb. Steers, S. Plains, Monthly Source: LMIC recession

12 Farrow to Finish Profits, $ Per Head 50 Iowa State University Calculations recession -70 Source: Shane Ellis, Iowa State University

13 Percent Change in Real GDP from Previous Year Seasonally Adjusted, Annual Rate, Source: U.S. Department of Commerce, Bureau of Economic Analysis

14 Consumer Confidence Job market Home values Stock market Government

15 Percent U.S. Unemployment Rate, Seasonally Adjusted, Source: Bureau of Labor Statistics

16 The average person looking for work in America has been unemployed for over 40 weeks

18 Consumer Confidence Job market Home values Stock market Government

22 Consumer Confidence Job market Home values Stock market Government

23 Dow Jones Industrial Average

24 Consumer Confidence Job market Home values Stock market Government

26 Million $ 300, , , , , , ,000-1,100,000-1,300,000-1,500,000-1,700,000 Federal Surplus, President s Budget, February 2011 Actual Forecast

27 Debt Ceiling Crisis The debt ceiling agreement calls for the federal debt to increase from $14.3 trillion to $23.3 trillion over the next 10 years rather than from $14.3 trillion to $25.7 trillion as previously planned.

28 Ever Growing Debt The federal government plans to pay its bills by borrowing more and more money. As long as someone will loan the government enough money, they can pay their bills.

31 Percent Federal Funds Rate, monthly average, Source: Board of Governors, Federal Reserve System

32 Billion $ St Louis Adjusted Monetary Base Source: St Louis Federal Reserve Bank

34 Current Situation The government is broke, the unemployment rate is over 9%, the economy is barely growing, the stock market is down, and the poverty rate is the highest since This is not good for meat demand.

35 Corn Outlook

36 $/Bushel Omaha Corn Prices, Weekly, Source: USDA/AMS

37 Million Acres Planted U.S. Corn Acres Planted, is 2 nd largest since 1944

38 Bushels U.S. Average Corn Yield, Yield is increasing by 2 bu/year

39 Billion Bushels U.S. Corn Production, Production is increasing by 190 million bu/year

40 Billion Bushels Corn Milled for Ethanol % corn for ethanol: : 6% : 14% : 23% : 35% : 40% Forecast 0

41 Dollars Per Bushel U.S. Corn Price,

42 Billion Dollars Value of U.S. Corn Crop,

43 Billion Dollars Value of U.S. Corn Crop, From , the U.S. livestock & poultry industry spent $10 billion annually to buy half the corn crop. This year it will spend $33 billion to buy 37% of the corn.

44 Bil. Bushels 8 Grains, Feed and Residual DDGS Wheat Oats Barley Sorghum Corn

45 Pounds U.S. Per Capita Meat Consumption per person meat consumption lowest since 1997 Source: USDA/ERS

46 U.S. Per Capita Meat Consumption Pounds Pork Beef Broilers Turkey Fish Source: USDA/ERS

47 Jan-00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Dollars Per Bushel U.S. Monthly Average Corn Price Cash futures 1 Thru Dec 2014 all corn futures contracts are above $5.52 per bushel

48 $ Per Cwt 135 Choice Steer Breakeven Price S. Plains Cattle Feedlots, Monthly 125 Breakeven Projected Breakeven Source: LMIC

49 Cost of Slaughter Hog Production Iowa State University Calculations, $ Per Live Cwt Marketing Month Source: Shane Ellis, Iowa State University

50 $ per bushel 7 Corn, Average Price Received, Monthly, Source: USDA/NASS

51 Corn Price & Cost of Hog Production Monthly, Hog Cost Corn $ Source: John Lawrence, Iowa State University

52 Corn Price & Cost of Hog Production Monthly, Hog Cost Corn $ $7 corn implies hog cost at $70/cwt live or $92/cwt car Source: Shane Ellis, Iowa State University

53 Breakeven Hog Price & U.S. Corn Price Iowa State University Calculations, $ Per Live Cwt Corn Price

54 Outlook for 2012 The futures market is predicting $6.28/bu corn for CY That should give a hog breakeven price of $66/cwt live or $87/cwt carcass. The futures market is predicting $87.75 hogs for CY That indicates a profit of $1.50/head

55 Iowa Farrow to Finish Profits, $ Per Head 50 Iowa State University Calculations Source: Shane Ellis, Iowa State University

56 97&07 98&08 99&09 00&10 01&11 02&12 Monthly Profit Per Pig Dollars Source: Shane Ellis, Iowa State University

57 Correlation of Profit & Lagged Hog Slght %ChDaHogSlt Lag 5 Qtr Profit

58 Competing Meats

59 Million Head U.S. Calf Crop, : 35.5 million head, Down 0.5% calf crop is smallest since 1950

61 Mil. Lbs 1000 BROILER PRODUCTION Federally Inspected, Weekly Avg JAN APR JUL OCT Livestock Marketing Information Center Data Source: USDA-AMS & USDA-NASS P-S-20 09/08/11

62 BROILER EGGS SET Weekly Mil. Eggs Avg JAN APR JUL OCT Livestock Marketing Information Center Data Source: USDA-NASS P-S-10 09/08/11

63 Mil. Lbs 175 TURKEY PRODUCTION Federally Inspected, Weekly Avg JAN APR JUL OCT Livestock Marketing Information Center Data Source: USDA-AMS & USDA-NASS P-S-21 09/08/11

64 Forecast Change in Meat Production --Percent Change-- Type Beef - 0.3% - 4.4% Pork +0.8% +1.5% Chicken +1.3% +0.2% Turkey +2.4% - 0.7% All Meats +0.8% - 0.9% Source: USDA-OCE WASDE, September 2011

65 Hog Outlook

66 International Trade

68 Tthousand pounds U.S. Meat Exports, Beef Pork Broiler Turkey Jan- 00 Jul Jan- 01 Jul Jan- 02 Jul Jan 03 Jul Jan- 04 Jul Jan 05 Jul Jan 06 Jul Jan 07 Jul Jan 08 Jul Jan 09 Jul Jan 10 Jul Jan 11 Jul

69 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan 07 Jan 08 Jan 09 Jan-10 Jan 11 U.S. Pork Imports & Exports, Mil. lbs. 600 Monthly Carcass Weight Equivalent Imports Exports

70 Jan 06 APR JUL OCT Jan 07 APR JUL OCT Jan 08 APR JUL OCT Jan 09 Apr Jul Oct Jan 10 Apr Jul Oct Jan 11 Apr Jul % of Production 30 U.S. Pork Imports & Exports as % of U.S. Pork Production, Monthly Carcass Weight Equivalent Imports Exports 5 0

71 Head per mo. 800, ,000 U.S. Hog Imports from Canada Slaughter Hogs Feeders Pigs 600, , , , , ,000 0

72 Inventory Surveys

73 Thousand Head U.S. Swine Breeding Herd, Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10

74 2011 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Actual & Predicted Change in B&G Slaughter U.S. Weekly F.I. Hog Slaughter, 2011 % change from yr. ago 8 6 Actual USDA Sep Forecast

75 Hog Inventory Reports U.S. Sept Canada July All Hogs & Pigs Kept for Breeding Kept for Marketing Under 50 lbs lbs lbs lbs. and over Dec-Feb Farrowings Mar-May Farrowings Jun-Aug Farrowings Sep-Nov Farrowing Intentions Dec-Feb Farrowing Intentions 100.5

76 Hog Inventory Reports U.S. Sept Canada July All Hogs & Pigs Kept for Breeding Kept for Marketing Which is Under 50 lbs important? lbs. More sows or lbs. fewer litters? lbs. and over Dec-Feb Farrowings Mar-May Farrowings Jun-Aug Farrowings Sep-Nov Farrowing Intentions Dec-Feb Farrowing Intentions 100.5

77 DJF99 DJF00 DJF01 DJF02 DJF03 DJF04 DJF05 DJF06 DJF07 DJF08 DJF09 DJF10 DJF11 Daily Hog Slaughter by Quarter % change from yr. ago

78 DJF99 DJF00 DJF01 DJF02 DJF03 DJF04 DJF05 DJF06 DJF07 DJF08 DJF09 DJF10 DJF Hog Slaughter & Breeding Herd by Quarter % change from yr. ago Br Herd D Hog Slt Correlation = 0.20

79 DJF99 DJF00 DJF01 DJF02 DJF03 DJF04 DJF05 DJF06 DJF07 DJF08 DJF09 DJF10 DJF11 DJF Sows Farrowed & Hog Slaughter by Quarter % change from yr. ago Sows Far D Hog Slt Correlation = 0.78

80 DJF99 DJF00 DJF01 DJF02 DJF03 DJF04 DJF05 DJF06 DJF07 DJF08 DJF09 DJF10 DJF11 Sows Farrowed-U.S. & Canada Combined % change from yr. ago

81 DJF99 DJF00 DJF01 DJF02 DJF03 DJF04 DJF05 DJF06 DJF07 DJF08 DJF09 DJF10 DJF11 U.S. Pigs Per Litter by Quarter % change from yr. ago

82 Pounds Barrow & Gilt Live Weights Iowa-Minnesota Weekly Average JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

83 Million Pounds Weekly Pork Production Jan Apr Jul Oct Source: USDA Prior Day Purchased reports

84 Prices

85 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Cents Per Pound U.S. Retail Pork Prices,

86 $ per cwt JAN Hog Cutout Value, Weekly APR Source: USDA/AMS JUL OCT Avg

87 $ per cwt JAN National Base Slaughter Hog Price, Weekly APR JUL Source: USDA Prior Day Purchased reports OCT Avg

88 $ per Head 60 Weekly Gross Pork Packer Margin, 200 Pound Carcass Avg JAN APR JUL OCT Calculation: Byproduct + Cutout Negotiated net

89 My Forecast

90 Commercial Hog Slaughter Forecast Million Head Qtr * * Qtr * * Qtr * Qtr * Year * Change % +0.4% + 0.2% +1.5% + 1.4% +1.0% - 0.9% +3.5% + 0.0% +1.6% *actual Note: Q1 10 & Q4 11 & Q3 12 have only 63 slaughter days

91 Iowa-Minn Hog Price Forecast Negotiated Base Price Per Carcass Hundredweight Qtr 1 $57.23* $66.81* $78.95* $80-84 Qtr 2 $57.32* $79.04* $91.80* $87-91 Qtr 3 $51.43* $79.44* $93.95 $85-89 Qtr 4 $54.98* $65.20* $77-81 $68-72 Year $55.23* $72.67* $85-87 $80-84 *actual price prior day purchased

92 Iowa-Minn Live Hog Price Forecast Negotiated Live Base Price Equivalent Qtr 1 $43.49* $50.78* $60.25* $60-64 Qtr 2 $43.56* $60.07* $69.77* $66-70 Qtr 3 $39.09* $60.37* $71.40 $64-68 Qtr 4 $41.78* $49.56* $58-62 $52-56 Year $41.97* $55.19* $65-67 $61-65 *actual carcass price x 76%

93 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Dollars Per Cwt U.S. Hog Net Carcass Price, Monthly Average, Cash Futures Thru February 2013 all hog futures contracts are above $80 per cwt

94 Major Uncertainties U.S. & World Economy Domestic pork demand Meat exports Exchange rates Corn prices & cost of gain Slaughter capacity

95 Any Questions?

96 Bil. Bushels Grains, Feed and Residual

97 % Change Grains, Feed and Residual

98 Grains Fed to U.S. Livestock & Poultry Corn 74.3% Sorghum 9.8% Barley 3.6% Oats 9.3% Wheat 2.7% DDGS 0.3% Corn 74.2% Sorghum 0.8% Barley 0.6% Oats 1.4% Wheat 3.6% DDGS 19.4%

99 $ Per Bu OMAHA CORN PRICES Weekly Avg JAN APR JUL OCT Livestock Marketing Information Center Data Source: USDA-AMS

100 $ Per Ton DISTILLER DRIED GRAIN PRICES Chicago, Illinois, Weekly Avg JAN APR JUL OCT Livestock Marketing Information Center Data Source: USDA-AMS

101 $ Per Ton 250 DISTILLERS GRAIN PRICES Illinois - E Cornbelt, Weekly 200 Dried w/ Solubles Modified Wet 50 0 Wet Jan-10 Apr Jul Oct Jan-11 Apr Jul Livestock Marketing Information Center Data Source: USDA-AMS 09/08/11

102 $ Per Ton 400 CENTRAL ILLINOIS SOYBEAN MEAL (48%) PRICES Weekly Avg JAN APR JUL OCT Livestock Marketing Information Center Data Source: USDA-AMS G-P-07 08/26/11

103 IOWA ETHANOL PRICE Weekly $ Per Gallon Jan-10 Apr Jul Oct Jan-11 Apr Jul Livestock Marketing Information Center Data Source: USDA-AMS 09/08/11

104 2002 Apr Jul Oct 2003 Apr Jul Oct 2004 Apr Jul Oct 2005 Apr Jul Oct 2006 Apr Jul Oct 2007 Apr Jul Oct 2008 Apr Jul Oct 2009 Apr Jul Oct 2010 Apr Jul Oct 2011 Apr Jul % Change Year Ago Change in Domestic Beef Demand 15 Base Elasticity = Source: Ron Plain, University of Missouri

105 Percent Percentage of U.S. Consumers Who Eat Animal Proteins % 90% 97% 88% % 20 0 Beef Pork Lam b Chicken Fish&Seafood Source: IPSOS Public Affairs, 10-survey average,

106 CHOICE MINUS SELECT BEEF PRICES Carcass Cutout Value Lbs., Weekly $ Per Cwt Avg JAN APR JUL OCT Livestock Marketing Information Center C-P-68 09/12/11 Data Source: USDA-AMS, Compiled & Analysis by LMIC

107 cents/lb Yen/lb U.S. Pork Prices, cents/lb and Yen/lb U.S. $ Yen

108 Million Pounds Frozen Pork, , Start of the Month Jan 00 JUL Jan 01 JUL Jan 02 JUL Jan 03 Jul Jan 04 Jul Jan 05 Jul Jan 06 Jul Jan 07 Jul Jan 08 Jul Jan 09 Jul Jan 10 Jul Jan 11 Jul

109 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan 07 Jan 08 Jan 09 Jan-10 Jan 11 U.S. Pork Exports, Mil. lbs. 600 Monthly Carcass Weight Equivalent

110 Frozen Pork (million pounds) Pork Exports (million pounds) Frozen Pork & U.S. Pork Exports, Jan- 00 Jul Jan- 01 Jul Jan- 02 Jul Jan- 03 Jul Jan- 04 Jul Jan- 05 Jul Cold Storage Jan- 06 Jul Jan 07 Jul Jan 08 Jul Jan 09 Exports Jul Jan 10 Jul Jan 11 Jul 100 0

111 Crop Condition Report, 9/11 U.S. Corn: 53% good/excellent Week ago: 52% good/excellent Year ago: 68% good/excellent U.S. Soybeans: 56% good/excellent Week ago: 56% good/excellent Year ago: 63% good/excellent Source: USDA/NASS

112 Billion Gallons 2007 Renewable Fuels Mandate Corn ethanol Cellulosic Bio-diesel More non-grain Corn for ethanol needs to increase 220 million bushels/year

113 2002 > May Sep 2003 > May Sep 2004 > May Sep 2005 > May Sep 2006 > May Sep 2007> May Sep 2008> May Sep 2009> May Sep 2010> May Sep 2011> May % change from year ago Change in Pork Export Demand Base Elasticity = - 0.5

114 2002 > May Sep 2003 > May Sep 2004 > May Sep 2005 > May Sep 2006 > May Sep 2007> May Sep 2008> May Sep 2009> May Sep 2010> May Sep 2011> May % change from year ago 18 Change in Hog Demand Base Elasticity =

115 Been a rough summer, no rain, heat over 100 every day and lots of wind, but I made it so far. How about you?

116 BROILER CHICKS PLACED Weekly Mil. Birds Avg JAN APR JUL OCT Livestock Marketing Information Center Data Source: USDA-NASS P-S-11 09/08/11

117 Barrow & Gilt Negotiated Base Price $/cwt Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: USDA Prior Day Slaughter reports

118 2009 Apr Jul Oct 2010 Apr Jul Oct 2011 Apr Jul $/cwt Pork Cutout and Hog Price, Weekly, Cutout Carcass Source: USDA/AMS

Hog Market Outlook & Pricing Methods

Banff Pork Seminar January 11, 2018 Hog Market Outlook & Pricing Methods Ron Plain Professor Emeritus of Agricultural Economics University of Missouri-Columbia http://web.missouri.edu/~plainr/ The way