Outlook for Livestock and Poultry Michael Jewison World Agricultural Outlook Board, USDA USDA Agricultural Outlook Forum February 20, 2015
About Those Forecasts Everything makes sense in hindsight, a fact that analysts exploit every evening as they offer convincing accounts of the day s events the illusion that we understand the past fosters overconfidence in our ability to predict the future. -Daniel Kahneman Thinking, Fast and Slow 2011
Outline What about the U.S. consumer? 2015 outlooks for cattle, hogs and poultry Wild cards to watch
Protein Prices Relative to Wages in United States 1988 1996 2004 2008 2014 Wage, $/hr $9.44 $12.04 $15.69 $18.07 $20.60 Beef, $/lb % of wage $2.25 24% $2.52 21% $3.61 23% $3.97 22% $5.60 27% Pork, $/lb % of wage $1.13 12% $2.34 19% $2.79 18% $2.94 16% $4.02 20% Chicken, $/lb % of wage $1.34 14% $1.51 13% $1.73 11% $1.75 10% $1.96 10% Eggs, $/dz % of wage N/A $1.11 9% $1.34 9% $1.99 11% $2.02 10% All values are nominal. Source: Bureau of Labor Statistics Average Hourly Earnings of Total Private Production and Nonsupervisory Employees. USDA/ERS retail meat price spreads.
Per Capita Disappearance of Chicken and Eggs Growing, Pork Higher and Beef Down Meat Pounds Per Capita 90 Eggs Per Capita 270 80 260 70 250 60 240 50 230 40 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Beef Pork Chicken Eggs 220
Total Per Capita Disappearance of Red Meat and Poultry Higher Pounds Per Capita 225 220 215 210 205 200 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Consumer Confidence and Restaurant Performance Index Confidence 1985=100 160 140 120 100 80 60 40 20 0 Jan-15 Jul-14 Jan-14 Jul-13 Jan-13 Jul-12 Jan-12 Jul-11 Jan-11 Jul-10 Jan-10 Jul-09 Jan-09 Jul-08 Jan-08 Jul-07 Jan-07 Jul-06 Jan-06 Jul-05 Jan-05 Jul-04 Jan-04 Jul-03 Jan-03 <$50k >$50k RPI Source: Conference Board and National Restaurant Association. Less than $50k category is average of $25-$35k and $35-$50k. RPI 106 104 102 100 98 96 94
Record Crops in 2014 Corn and soybean yields above trends Lower feed prices General improvement in pasture and rangeland conditions in most areas
Prices for Corn and Soybean 1997=100 300 Meal vs. Inflation 250 200 150 100 50 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Corn Soybean Meal CPI Source: USDA and Bureau of Labor Statistics. Corn price is marketing-year weighted average price received by farmers. Soybean meal is Decatur marketing-year simple average of 48 percent protein meal. Hay is marketing-year weighted average price received by farmers. CPI is seasonally adjusted Consumer Price Index for All Urban Consumers. 2010 2011 2012 2013 2014 2015
Prices for Cattle, Hogs and 1997=100 260 240 220 200 180 160 140 120 100 80 60 Broilers vs. Inflation 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Hogs Cattle Broilers CPI Source: USDA and Bureau of Labor Statistics. Livestock prices are annual averages. Cattle price is 5-Area Direct Total for all grades, hogs are National Base, Live equivalent 51-52 percent lean, broilers are Wholesale National Composite Weighted 2011 2012 2013 2014 2015
Livestock and Poultry Price Forecasts for 2015 2013 2014 2015 Cattle, $/CWT $126 $155 $157-$167 Hogs, $/CWT live equivalent National Broiler Composite, $/lb $64 $76 $54-$58 $1.00 $1.05 $0.97-$1.03 Turkey, $/lb $1.00 $1.08 $1.02-$1.08 Eggs, N.Y. Wholesale Price, $/dozen $1.25 $1.42 $1.25-$1.34
Fund Hog Futures Net Position vs. Total Open Interest Open Interest, 1000 Contracts 350 300 250 200 150 100 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 Open Interest Fund Net Note: Futures only. Fund net position is the total of managed money and other reportables. Fund Net Position, 1000 Contracts 110 90 70 50 30 10-10 -30-50
Fund Fed Cattle Futures Net Position vs. Total Open Interest Open Interest, 1000 Contracts 450 400 350 300 250 200 150 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 Open Interest Fund Net Note: Futures only. Fund net position is the total of managed money and other reportables. Fund Net Position, 1000 Contracts 140 120 100 80 60 40 20 0-20
Beef Production Forecast Slightly Lower in 2015, Pork and Billion Pounds Poultry Higher 50 45 40 35 30 25 20 15 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Beef Pork Poultry
Change in Meat Production 2004 to 2013: Number Slaughtered vs. Weights Billion Pounds 5.0 4.0 3.0 2.0 1.0 0.0-1.0 Cattle Hogs Broilers Slaughter Weight Note: Cattle and Hogs are on dressed basis, broilers are on ready to cook basis.
Change in Meat Production 2013 to 2014: Weights Partially Offset Declines for Beef and Pork Billion Pounds 1.0 0.5 0.0-0.5 Cattle Hogs Broilers -1.0-1.5-2.0 Slaughter Weight Note: Cattle and Hogs are on dressed basis, broilers are on ready to cook basis.
February 19, 2013: 56 Percent of Continental U.S. in Drought Source: U.S. Drought Monitor
February 11, 2014: 38 Percent of Continental U.S. in Drought Source: U.S. Drought Monitor
February 10, 2015: 29 Percent of Continental U.S. in Drought Source: U.S. Drought Monitor
$/Cow 550 500 450 400 350 300 250 200 150 100 50-50 0-100 -150 1997 1998 Cow-Calf Returns 1999 2000 2001 $/cow Skyrocket 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Livestock Marketing Information Center; USDA 2012 2013 Beef Heifer Retention January 1 (t+1) 2014 Beef Heifers Held for Replacement, 1000 Head 2015 6000 5800 5600 5400 5200 5000 4800 4600
2014 Beef Cow Inventory Increase Year-over-year Change, Million Head 1.5 Largest Since 1994 1.0 0.5 0.0-0.5 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-1.0
Cattle Herd on January 1, 2015, Expands For First Time Since 2007 Million Head 120 115 110 105 100 95 90 85
Record U.S. Beef Imports in 2014 Imports, 90% ground Million lbs beef, $/lb 300 4.00 280 3.50 260 240 3.00 220 2.50 200 2.00 180 1.50 160 140 1.00 120 0.50 100 0.00 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Beef Imports (t+1) 90 percent lean ground beef
Robust Farrow-to-Finish Returns for Hogs in Iowa $/Head 120 100 80 60 40 20 0-20 -40-60 -80 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Source: Iowa State University
Rebound in Pigs Per Litter after PEDv Litter Rate 11.0 10.5 10.0 2004-2013 Annual Growth Rate = 1.5% 9.5 9.0 8.5 8.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Ratio of Broiler Composite Price Relative to NE Composite $lb/1 lb feed 16 14 12 10 8 6 4 Dec-96 Dec-97 Dec-98 Dec-99 Feed Cost Rebounds Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Source: WAOB estimates, 3-month moving average of ratio. Corn price is monthly marketing-year weighted average price received by farmers. Soybean meal is Decatur simple monthly average of 48 percent protein. Assumes 1 lb of feed is 30 percent soybean meal and 70 percent corn. NE Composite is a weighted average of thighs, drumsticks, breasts and wings. Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14
Important Factors for 2015 U.S. Dollar strength visà-vis other exporters Lower U.S. exports Expected larger pig crops in the U.S.
U.S. Dollar Strength Relative to Competitors a Headwind for Exports Country- Weighted Index 120 115 110 105 100 95 90 85 Beef Pork Poultry Source: USDA-ERS. Real export-weighted exchange rates for each commodity.
Chinese Yuan Strengthening Relative to Euro and Canadian Dollar Index 12/15/14=100 115 110 105 100 95 12/15/2014 12/19/2014 12/23/2014 12/27/2014 12/31/2014 1/4/2015 1/8/2015 1/12/2015 1/16/2015 1/20/2015 1/24/2015 1/28/2015 2/1/2015 2/5/2015 2/9/2015 2/13/2015 2/17/2015 CNY/EUR CNY/USD CNY/CAD All values are nominal
U.S. Meat Exports Lower in 2015 Beef & Pork, Billion Pounds 6.0 5.0 4.0 3.0 2.0 1.0 Broilers, Billion Pounds 8.0 7.0 6.0 5.0 4.0 3.0 0.0 2.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Beef Pork Broilers
Year-over-year % Change 8.0% 6.0% 4.0% 2.0% Much Larger U.S. Pig Crop Expected in 2015 0.0% -2.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-4.0% -6.0%