Midwest/Great Plains & Western Outlook Conference Indianapolis, August 2007 Pork Outlook Ron Plain Professor of Agricultural Economics University of Missouri-Columbia http://web.missouri.edu/~plainr/
Long Run Factors Production efficiency Hog cycle Seasonality Cost of production International trade Slaughter capacity Demand
Production Efficiency
Head 9.5 9.0 8.5 8.0 7.5 70 7.0 6.5 60 6.0 5.5 Pigs Per Litter, 1930-2006 USDA Hogs & Pigs Reports 193 0 193 5 194 5 195 0 195 5 196 0 196 5 197 0 197 5 198 0 198 5 1999 0 1999 5 194 0 2000 0 2000 5
Litters Per Sow Per Year, 1930-2006 Litters 2.2 2.0 18 1.8 1.6 1.4 1.2 1.0 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
210 Average U.S. Hog Carcass Weight, 1930-2006 Pounds 200 190 180 170 160 150 140 130 120 110 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05
Pounds 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Annual U.S. Pork Production Per Sow, 1930-2006 0 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Pounds 4,500 4,000 3,500 Annual U.S. Pork Production Per Sow, 1930-2006 1930-80 growth rate: 2.027% 3,000 1980-06 06 growth rate 2.793% 2,500 2,000 1,500 1,000 500 0 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Million Head 10 9 8 7 6 5 4 3 2 1 0 U.S. Live Hog Imports, 1930-2006 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05
Million Head 10 9 8 7 6 5 4 3 2 1 0 U.S. Live Hog Exports, 1930-2006 1930 35 40 45 50 55 60 65 70 75 80 85 90 95 2000 05
10 Net U.S. Live Hog Imports, 1930-2006 Million Head 9 8 7 6 5 4 3 2 1 0-1 1 930 35 40 45 50 55 60 65 70 75 80 85 90 95 2000 05
Pounds 4,500 3,500 3,000 Annual U.S. Pork Production Per Sow, 1930-2006 4,000 total domestic 2,500 2,000 1500 1,500 1,000 500 0 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Annual U.S. Pork Production Per Sow, 1930-2006 Pounds 4,500 4,000 3,500 3000 3,000 2,500 2,000 1,500 1,000 500 0 1930-80 growth rate: 2.027% 1980-06 growth rate 2.793% 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Average Annual Productivity Growth 1930-80 1980-06 Pigs/litter + 0.37% + 0.89% Litters/sow/year + 0.49% + 1.06% Pigs/sow/year + 0.87% + 1.96% Dom slght/pig weaned + 0.53% - 0.12% Dom slght/sow/year + 1.40% + 1.84% Slaughter weight + 0.62% + 0.62% Dom pork prod/sow/year + 2.02% + 2.47% Net hog trade impact + 0.01% + 0.32% Pork prod/sow/year + 2.03% + 2.79%
Hog Cycle
% change from year ago 30 20 10 0-10 -20-30 U.S. Commercial Hog Slaughter Quarterly Data, 1970-2007 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
% change from year ago 80 60 40 20 0-20 -40-60 Terminal Market Barrow & Gilt Price Quarterly Data 1970-2007 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06
15 10 5 0-5 -10-15 -20-25 -30 Hog Price Flexibility Quarterly Data 1970-2007 % ch T Mkt B&G price / % ch com hog slt 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 In 8 of last 15 quarters, price & slaughter moved in the same direction
Seasonality
Million Lbs 90 85 Average U.S. Daily Pork Production 1990-99 2000-06 80 75 70 65 60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$/cwt 52 U.S. Monthly Average Hog Price 50 1990-99 2000-0606 48 46 44 42 40 38 36 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
July to November Changes Daily Pork Production Barrow & Gilt Prices 1970s +30% 1970s -11% 1980s +24% 1980s -13% 1990s +20% 1990s -20% 2000-6 +18% 2000-6 -18%
Cost of Production
$ Per Live Cwt 55 53 51 49 47 45 43 41 39 37 Cost of Slaughter Hog Production Iowa State University Calculations, 1987-2007 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Marketing Month Source: John Lawrence, Iowa State University
$ Per Bu. OMAHA CORN PRICES Weekly 4.50 425 4.25 4.00 3.75 3.50 Avg. 3.25 3.00 2.75 2.50 2006 2.25 2.00 2007 175 1.75 1.50 1.25 JAN APR JUL OCT 1999-03 2005
Ethanol Capacity Growth 12 billion ga al. 10 8 6 4 Jan. 1 capacity Under construction 2 0 2001 2002 2003 2004 2005 2006 2007 Source: Renewable Fuel Association website http://www.ethanolrfa.org/industry/statistics/#b
Billio on Bush hels 6.0 5.0 40 4.0 3.0 2.0 1.0 Corn Milled for Ethanol % corn for ethanol: 2000-01: 6% 2005-06: 06: 14% 2006-07: 20% 2007-08: 26% Forecast 0.0 90 0-91 92 2-93 94 4-95 96 6-97 98 8-99 00 0-01 02 2-03 04 4-05 06 6-07 08 8-09
International Pork Trade
Thousand Metric Tons 1600 U.S. Pork Exports 1400 1200 1000 800 600 400 200 0 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 2006 was the 15th consecutive record year for U.S. exports
$/hog slt 30 Value of U.S. Pork Exports 25 Pork ByProduct 20 15 10 5 0 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Iowa Farrow to Finish Profits, 1994-2006 $ Per Head 50 Iowa State University Calculations 30 10-10 -30-50 35 consecutive months of profit, longest of record -70 1 1 1 1 1 1 2 2 2 2 2 2 2 994 995 996 997 998 999 000 001 002 003 004 005 006 Source: John Lawrence, Iowa State University
Billion Pounds 22 21 20 19 18 17 16 15 14 13 12 U.S. Commercial Pork Production 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: USDA/NASS
3.5 3 2.5 2 1.5 1 U.S. Pork Exports Carcass Weight Equivalent Billion Pounds 0.5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: USDA/ERS
1.4 12 1.2 1 0.8 0.6 U.S. Pork Imports Carcass Weight Equivalent ion Pounds 0.4 Bill 0.2 0 19 95 19 96 19 19 19 20 20 20 20 97 98 99 00 01 02 03 20 04 20 20 05 06 Source: USDA/ERS
Billion Pounds 20 19 18 17 16 15 14 13 12 U.S. Production + Imports - Exports 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Pounds 55 U.S. Per Capita Pork Consumption 50 45 40 35 30 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: USDA/ERS
Cents Per Pound 290 270 250 230 210 190 170 U.S. US Retail Pork Price 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: USDA/ERS
Pork Trade Overview The steady decrease in US pork imports and increase in pork exports has caused per capita US pork consumption to decline. Thus, hog producers were able to enjoy three consecutive years with record hog slaughter and profitable prices.
U.S. Pork Imports & Exports, 2000-2007 Mil. lbs. 350 Monthly Carcass Weight Equivalent 300 Imports Exports 250 200 150 100 50 0 14.3% of 2006 U.S. pork production was exported Jan Jan Jan Jan Jan Jan Jan Jan -00-01 -02-03 -04-05 -06 07
U.S. Pork Exports, Jan-May 2007 Change from year ago Country 000 lbs Percent Japan + 48,697 + 11.5% Mexico - 79,081-29.1% Canada + 3,186 + 2.5% S. Korea + 4,049 + 31% 3.1% Russia - 23,402-23.2% China & HK + 30,123 + 45.5% Taiwan - 13,651-41.2% TOTAL - 37,029-2.9%
U.S. Pork Exports, 2000-2007 C Mil. lbs. Monthly Carcass Weight Equivalent 300 250 Japan Total 200 150 100 50 0 Jan-0 0 Jan-0 1 Jan-0 2 Jan-0 3 Jan-0 4 Jan-0 5 Jan-0 6 Jan 0 7
U.S. Pork Exports, 2000-2007 C Mil. lbs. Monthly Carcass Weight Equivalent 300 250 Mexico Total 200 150 100 50 0 Jan-0 0 Jan-0 1 Jan-0 2 Jan-0 3 Jan-0 4 Jan-0 5 Jan-0 6 Jan 0 7
China Pork Trade China is reported to be buying 70,000 MT of U.S. pork to help ease a run up in domestic pork prices (up 67.7% in June) caused by a pork shortage due to high feed prices and blue ear disease. In perspective, 70,000 MT* equals: 94% of 2006 China/HK imports of U.S. pork 5.1% of 2006 U.S. pork exports 0.73% of 2006 U.S. pork production * carcass weight equivalent
Fall Price Decline Aug-Oct Oct-Dec Aug-Dec 10 yr average -$6.82 - $4.63 -$11.45 10 yr minimum -$3.09 +$2.51 -$ 1.1616 Futures -$2.62 - $1.35 -$ 3.97
Live Hog Trade
Thousands 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Pigs Born in Canada, 1996-07 JFM96 JFM97 JFM98 JFM99 JFM00 JFM01 JFM02 JFM03 JFM04 JFM05 JFM06 JFM07
Thousands 30000 25000 20000 15000 10000 5000 0 U.S. Pig Crop, 1996-07 DJF 96 JJA 96 DJF 97 JJA 97 DJF 98 JJA 98 DJF 99 JJA 99 DJF 00 JJA 00 DJF 01 JJA 01 DJF 02 JJA 02 DJF 03 JJA 03 DJF 04 JJA 04 DJF 05 JJA 05 DJF 06 JJA 06 DJF 07
Growth in U.S.-Canadian Pig Crop 1995-2005 (million head) 4.869 Canada USA U.S.A. 13.9805 During the past decade, 74% of the increase in U.S. S-Canadian pig production took place in Canada. Source: USDA/FAS
1.70 1.60 1.50 1.40 1.30 1.20 110 1.10 1.00 Exchange Rate: Can $ Per US $ Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Head per mo. 700,000 600,000 U.S. Hog Imports from Canada Slaughter Hogs Feeders Pigs 500,000 400,000 300,000 200,000 100,000 0 19 19 19 20 20 20 20 20 20 20 20 97 98 99 00 01 02 03 04 05 06 07
Head 150000 140000 130000 U.S. Weekly Feeder Pig Imports 2005 2006 2007 120000 110000 100000 90000 80000 70000 60000 JAN AP JUL OC
U.S. Weekly Slaughter Hog Imports Head 85000 80000 75000 70000 2005 2006 2007 65000 60000 55000 50000 45000 40000 35000 Jan Apr Jul Oct
Percent 25 23 21 19 Canadian Hog Exports as % of Canadian Slauaghter 2005 2006 2007 17 15 13 11 9 7 JAN APR JUL OCT
% change from yr. ago 15 10 5 0-5 -10 Change in Hog Slaughter: US & Canada Weekly F.I. Hog Slaughter, 2006-07 07 USA combined Canada -15-20 Jan Feb Ma r Ap r Ma Jun Ju ul Au Sep Oc t No Dec Jan Feb Ma Ap r r Ma Jun Ju ul Au
Slaughter Capacity
Head 430000 Daily Hog Slaughter Capacity 420000 410000 400000 390000 380000 370000 360000 350000 340000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Steve Meyer s survey indicates 2007 capacity of 425,185
Demand
Annual U.S. Pork Production, 1930-2006 Billion Pounds 25 20 actual 1.5% trend 15 10 5 0 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
U.S. Per Capita Pork Consumption, 1930-2006 Pounds 90 80 70 60 50 40 30 20 10 0 Retail Weight 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
U.S. Per Capita Pork Consumption, 1930-2006 Pounds 60 50 40 30 20 Boneless Weight 10 0 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
70 60 50 40 30 20 10 0-10 -20-30 Change in Export Pork Demand Base Elasticity it = - 05 0.5 % Cha nge Year Ago 2001 Jun Nov Apr Sep Feb Jul Dec M ay Oct M ar Aug 2006 Jun Nov Apr
Change in Export Pork Demand Base Elasticity it = - 05 0.5 100 150 80 %change Yen/$ 145 140 60 135 40 130 125 % Change fromyear Ago Yen Per $ 20 120 0 115 1999 May Sep 2000 May Sep 2001 May Sep 2002 May Sep 2003 May Sep 2004 May Sep 2005 May Sep 2006 May Sep 2007 May -20 110 105-40 100
Short Run Factors Demand Inventory Weights Price Forecast
Cents/lb. 293 291 Retail Price of Pork Record high 289 287 2005 285 2006 283 281 279 277 275 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2007
% change from year ago 10 8 6 4 2 0-2 -4-6 -8-10 Change in Pork Demand Base Elasticity = - 0.75 2001 > Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug 2006 > Jun Nov Apr
% change from year ago 17 12 7 2-3 -8 Change in Hog Demand Base Elasticity = - 0.2 2001 > Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug 2006 > Jun Nov Apr
Inventory Reports
Pig/Month Accumulated Profits, 1990-2007 Dollars 1200 Iowa State University Calculations 1000 800 600 400 200 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: John Lawrence, Iowa State University
Hog Inventory Reports U.S. June Canada April All Hogs & Pigs 101.7 96.9 Kept for Breeding 100.9 98.4 Kept for Marketing 101.8 96.7 Under 60 lbs 101.8 102.7 60-119 lbs. 101.5 89.5 120-179 lbs. 101.2 87.9 180 lbs. and over 103.0 Sep-Nov Farrowings 101.7 100.8 Dec-Feb Farrowings 101.6 98.1 Mar-May Farrowings 101.3 100.7 Jun-Aug Farrowing Intentions 101.6 Sep-Nov Farrowing Intentions 100.4
Sows Farrowed-U.S. & Canada Combined % change from yr. ago 5 4 3 2 1 0-1 -2-3 -4 JFM99 JAS99 JFM00 JAS00 JFM01 JAS01 JFM02 JAS02 JFM03 JAS03 JFM04 JAS04 JFM05 JAS05 JFM06 JAS06 JFM07
Estimated Gilt Retention & Sow Loss, 2006-2007 GG Cattle & Hog Fax 140 120 100 80 60 40 20 Gilts Retained Sow Loss Thousand Head Per Week 0 '06 Feb Mar Apr Ma Jun Jul Au Sep Oct Nov Dec '07 Feb Mar Apr Ma Jun Jul
Hog Weights
Pounds 208 Barrow & Gilt Carcass Weights Prior Day Slaughter Weekly Average 206 204 202 2005 2006 2007 200 198 196 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Hog Prices
$ per cwt. 85 BARROW AND GILT BASE PRICES Iowa - Minnesota, Carcass Basis, Weekly 80 75 70 65 60 Avg. 2001-05 2006 2007 55 50 JAN APR Source: USDA Prior Day Purchased reports JUL OCT
$ per cwt. 80 BARROW AND GILT NET PRICES National, Carcass Basis, Weekly 75 Avg. 70 2002-05 65 60 2006 2007 55 50 JAN APR Source: USDA Prior Day Slaughtered reports JUL OCT
Barrow & Gilt Negotiated Live Price 60 58 56 54 52 50 48 46 44 42 40 2004-06 2007 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: USDA Prior Day Purchased reports
Major Unknowns Circovirus vaccine & death losses China & pork exports Weather Slaughter capacity
My Forecast
Commercial Hog Slaughter Forecast Million Head 2006 2007 2008 Qtr 1 26.208* 26.686* 27.330 ------Change------ 06-07 07-08. +1.8% +2.4% Qtr 2 24.839* 25.524* 25.830.+2.7% +1.2% Qtr 3 25.810* 26.425 27.165 Qtr 4 27.880* 29.100 29.400 +2.4% +1.2% +2.8% +1.0% Year 104.737* 107.734 109.725 +2.4% +1.4% Note: Q4 07 & Q3 08 have 1 more slaughter day *actual
Iowa-Minn Hog Price Forecast Negotiated Base Price Per Carcass Hundredweight 2006 2007 2008 Qtr 1 $56.37 37* $60.65 65* $64-6868 Qtr 2 $65.41* $69.60* $67-71 Qtr 3 $68.24* $68-70 $64-68 Qtr 4 $60.76 76* $61-65 65 $58-62 Year $62.68* $65-67 $63-67 *actual price prior day purchased
Iowa-Minn Live Hog Price Forecast Negotiated Base Price Per Live Hundredweight 2006 2007 2008 Qtr 1 $41.71 71* $44.88 88* $47-50 Qtr 2 $48.40* $51.50* $49-52 Qtr 3 $50.50* $50-52 $47-50 Qtr 4 $44.96 96* $45-48 $43-46 Year $46.38* $48-50 $46-49 *actual price 74% of carcass price
Forecast Summary Farrowings 0-2% above year-ago Continued 2-3% productivity growth More imports of Canadian hogs/pigs Possible increase in pork exports Stable domestic demand Rising feed cost
Any Questions?