From information, knowledge
Paragon Economics, Inc.
Steve R. Meyer, Ph.D.Paragon Economics, Inc.
NPB Pork Management Conference - 2013
Livestock and Meat Outlook
From information, knowledge
Paragon Economics, Inc.
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
6/20/2013 2
From information, knowledge
Paragon Economics, Inc.
Backdrop: Massive losses for hogs, cattle
6/20/2013
3
From information, knowledge
Paragon Economics, Inc.
Cow-calf profits – with 2013 expected good. . . Assumes “normal” weather,
corn, hay
6/20/2013
4
From information, knowledge
Paragon Economics, Inc.
Output trends all kinked in ‘08-’09 . . . . . . and flattened in ‘12 – what
about ‘13 & ‘14?
6/20/2013
5
From information, knowledge
Paragon Economics, Inc.
The critical issue for U.S. agriculture is still:
Severe drought area is down to 25% High Plaines 45%, South 34%, MW
0.0%, 6/20/2013
6
From information, knowledge
Paragon Economics, Inc.
Scary context: April 2012 -- some problems. . . But LITTLE HINT of what was to
come!
6/20/2013
7
From information, knowledge
Paragon Economics, Inc.
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 weight6/20/2013
8
From information, knowledge
Paragon Economics, Inc.
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?6/20/2013 9
From information, knowledge
Paragon Economics, Inc.
January 2013 – World economy is better . . . . . . But EU is still a wreck – and
now Japan
6/20/2013 10
From information, knowledge
Paragon Economics, Inc.
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
6/20/2013 11
From information, knowledge
Paragon Economics, Inc.
The U.S. economy muddles along . . . . . . Q1 GDP +2.4% - Still slowed by
uncertainty
6/20/2013 12
From information, knowledge
Paragon Economics, Inc.
Dec Real per capita PDI was false security . . .. . . Jan was -0.4%, April was only
+0.3%
6/20/2013 13
From information, knowledge
Paragon Economics, Inc.
PC cons did not go below 200# last year . . .
. . . What about ‘13 or ’14?
6/20/2013 14
From information, knowledge
Paragon Economics, Inc.
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)6/20/2013 15
From information, knowledge
Paragon Economics, Inc.
Retail prices are at or near record highs . . .. . . Would not be if demand was, in
fact, lower
6/20/2013 16
From information, knowledge
Paragon Economics, Inc.
Individual species indexes still mixed . . . . . . Chicken, beef and pork: Up for
past 12 mos.
6/20/2013 17
From information, knowledge
Paragon Economics, Inc.
Further proof: Record high ’12 expenditures. . . And another record expected
in 2013
6/20/2013 19
From information, knowledge
Paragon Economics, Inc.
Exports have been a BIG challenge in ‘13 . . .. . . Pork is -14.5%, beef is -3%,
chicken up
6/20/2013 20
From information, knowledge
Paragon Economics, Inc.
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?6/20/2013 21
From information, knowledge
Paragon Economics, Inc.
Some context: August 2011 – severe in SW
State Beef Cows(Thousand)
TX 5025OK 2036KS 1478FL 926CO 727AL 659GA 502MS 495NM 488LA 461NC 351SC 184AZ 180Total 13512Share 43.8%
6/20/2013 23
From information, knowledge
Paragon Economics, Inc.
Further context: Summer 2012. . . On 8/21: 77% drought, 44%
severe or worse
6/20/2013 24
From information, knowledge
Paragon Economics, Inc.
‘11 drought drove beef cow slaughter
6/20/2013 25
From information, knowledge
Paragon Economics, Inc.
‘11 drought also drove HIGHER placements
6/20/2013 26
From information, knowledge
Paragon Economics, Inc.
Very high portion of pastures were poor . . . . . . In October ‘12 - last crop
condition report
6/20/2013 27
From information, knowledge
Paragon Economics, Inc.
Ranges/pastures have improved sharply . . . . . . Still at the same level as last
year
6/20/2013 28
From information, knowledge
Paragon Economics, Inc.
Dec 1 Hay Stocks – Pct change, ‘12 vs. ‘11
6/20/2013 30
From information, knowledge
Paragon Economics, Inc.
Beef: Long-term trends PLUS droughts . . . . . . Smallest
January 1 U.S. beef cow herd
since ’46
. . . Smallest calf crop since
1949 is forecast for
‘136/20/2013 31
From information, knowledge
Paragon Economics, Inc.
FC supplies grew by 0.7% vs. Jan ‘12. . .. . . But are still near record low at
25.56 mil.JANUARY 1 FEEDER CATTLE SUPPLIES
Residual, Outside Feedlots, U.S.
25
27
29
31
33
35
37
39
41
43
1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Mil. Head
6/20/2013 32
From information, knowledge
Paragon Economics, Inc.
Placements had been lower yr/yr 8 of 9 mos.. . . Until +6% & +15% in March
and April
6/20/2013 33
From information, knowledge
Paragon Economics, Inc.
May 1 COF is still 3.4% below last year . . . . . . Lower near-term supplies,
closer in fall
6/20/2013 34
From information, knowledge
Paragon Economics, Inc.
May placements expected to be down again
Range of Estimates
Average of Estimates
On Feed, June 1 94.3 - 97.6 96.5Placed in May 84.3 - 99.8 95.9Marketed in May 97.0 - 101.1 97.9
Pre-Report Estimates -- USDA Cattle On FeedSaturday, June 22, 2013
(Percent of year ago)
Source: Dow Jones
6/20/2013 35
From information, knowledge
Paragon Economics, Inc.
Record-high weights helped prod levels . . . . . . But we are now back to yr-ago
weights
6/20/2013 36
From information, knowledge
Paragon Economics, Inc.
No turn-around in sight for availability. . . . . . Per-cap: -3% in ‘13 and -5.5%+
in ’14 @ 52.6
6/20/2013 37
From information, knowledge
Paragon Economics, Inc.
Just as in ‘12, the sector is poised to grow . . . . . . But will Mother Nature allow it to
do so?
6/20/2013 38
From information, knowledge
Paragon Economics, Inc.
Choice cutout FINALLY broke $200 . . . . . . Still there but falling from $210
peak
6/20/2013 39
From information, knowledge
Paragon Economics, Inc.
Driven by middle meats as end meats lag
6/20/2013 40
From information, knowledge
Paragon Economics, Inc.
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?
6/20/2013 41
From information, knowledge
Paragon Economics, Inc.
Poultry: Reductions in ‘07 and ’11 but . . . . . . Flock has been up 1-2% yr/yr
since Jan.
6/20/2013 43
From information, knowledge
Paragon Economics, Inc.
Sets have grown, yr/yr but placements . . .
Sets were virtually even with ‘11 levels
the entire second half of 2012 – now +1%
. . . Are even with last year – so far
Chick placements YTD are unchanged
from 2012
6/20/2013 44
From information, knowledge
Paragon Economics, Inc.
Slaughter is up slightly but prod is up 2+%
Broiler production is now +2.2% YTD vs. 2012 – and more to
come!
Broiler slaughter is up 0.9%YTD vs. 2012 – and more to come!
6/20/2013 45
From information, knowledge
Paragon Economics, Inc.
Weights were a big driver for ‘12 output . . .. . . A mixed bag so far in ‘13 – but
still high
6/20/2013 46
From information, knowledge
Paragon Economics, Inc.
STRONG chicken prices driven by breasts!
6/20/2013 47
From information, knowledge
Paragon Economics, Inc.
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
6/20/2013 48
From information, knowledge
Paragon Economics, Inc.
2012 exports were 4% higher than ‘11 record
6/20/2013 50
From information, knowledge
Paragon Economics, Inc.
Exports have been THE issue in 2013 . . . Down 16% thru April, Feb-Apr
down 14.4%
6/20/2013 51
From information, knowledge
Paragon Economics, Inc.
April exports – Japan down but steady . . . . . Mexico came back, China on LT
trend
6/20/2013 52
From information, knowledge
Paragon Economics, Inc.
U.S. sow herd is near smallest on record . . . . . . And yet Q4 production was
record large!
6/20/2013 53
From information, knowledge
Paragon Economics, Inc.
Steady and dramatic productivity growth . . .
6/20/2013 54
From information, knowledge
Paragon Economics, Inc.
Weights have helped long-term production. . . . . But feed costs have slowed
them!
6/20/2013 55
From information, knowledge
Paragon Economics, Inc.
Imports from Canada are -9% YTD . . . . . . Risk issue for ‘14: MCOOL
retaliation
6/20/2013 56
From information, knowledge
Paragon Economics, Inc.
‘12 production costs were record-high . . . . . .’13 will likely be higher -- new
crop help?
6/20/2013 57
From information, knowledge
Paragon Economics, Inc.
6/20 CME Group futures prices still imply . . . . . . Large losses for 2013 – but
profits in ‘14
6/20/2013 58
From information, knowledge
Paragon Economics, Inc.
Sow slaughter: Higher due to prices . . . . . . But lower than “normal” ALL
YEAR
6/20/2013 59
From information, knowledge
Paragon Economics, Inc.
March H&P Report: The herd is GROWING
Category2012 2013
'13 as Pct of
'12
Pre-Report Est's
Actual - Est
Inventories on Dec 1*
All hogs and pigs 64,937 65,911 101.5 100.7 0.8Kept for breeding 5,820 5,834 100.2 100.3 -0.1Kept for market 59,117 60,077 101.6 100.8 0.8
Under 50 lbs. 19,235 19,426 101.0 100.9 0.150-119 lbs. 16,409 16,650 101.5 100.7 0.8120-179 lbs. 12,780 13,059 102.2 99.9 2.3180 lbs. and over 10,693 10,942 102.3 101.6 0.7
Farrowings**Dec-Feb sows farrowed 2,864 2,879 100.5 100.1 0.4
Mar-May Intentions 2,982 2,955 99.1 98.7 0.4 June-Aug Intentions 2,890 2,905 100.5 100.9 -0.4Dec-Feb Pig Crop1 28,550 29,019 101.6 101.2 0.4Dec-Feb pigs saved per litter 9.97 10.08 101.1 101.1 0.0*Thousand head **Thousand litters
USDA QUARTERLY HOGS & PIGS REPORTMarch 28, 2013
6/20/2013 60
From information, knowledge
Paragon Economics, Inc.
‘13 slaughter will be slightly larger than ’12 . . . . . But pattern will be different –
summer???
6/20/2013 61
From information, knowledge
Paragon Economics, Inc.
March H&P Report slaughter forecasts
Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge
2012 Q1 28.104 2.3%
Q2 26.659 2.1%
Q3* 27.963 2.1%
Q4** 30.426 1.8%
Year 113.152 2.1%
2013 Q1* 27.930 -0.6% 27.930 -0.6% 27.930 -0.6% 27.930 -0.6%
Q2 26.811 0.6% 26.960 1.1% 26.242 -1.6% 26.892 0.9%
Q3** 28.437 1.7% 28.419 1.6% 27.869 -0.3% 28.393 1.5%
Q4 30.349 -0.3% 30.609 0.6% 30.207 -0.7% 29.880 -1.8%
Year 113.527 0.3% 113.918 0.7% 112.248 -0.8% 113.095 -0.1%Green figures are actual data from USDA. Blue figures are estimated using USDA data 4/1/13
*Quarter has one LESS slaughter day vs. year ago **Quarter has one MORE slaughter day vs. year ago
March 2013 Hogs & Pigs -- Commercial Slaughter ForecastsMizzou ISU LMIC Paragon
6/20/2013 62
From information, knowledge
Paragon Economics, Inc.
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
6/20/2013 63
From information, knowledge
Paragon Economics, Inc.
Disappointing Q1 has given way to . . . . . An exceptional rally – that is
likely OVER
6/20/2013 64
From information, knowledge
Paragon Economics, Inc.
Support from MANY part of the pig! Next?
6/20/2013 65
From information, knowledge
Paragon Economics, Inc.
Hog rally has gone to my “pre-March” highs. . . . . . Unlikely to see much more this
summer
6/20/2013 66
From information, knowledge
Paragon Economics, Inc.
Packers have chased hogs since April . . .
6/20/2013 67
. . . But margins are likely to widen soon
From information, knowledge
Paragon Economics, Inc.
Price forecasts – April reductions . . .
Mizzou ISU LMIC Paragon CME
Producer-Sold Net Price, All
Methods
Ia-Mn Wtd. Avg. Base Lean Hog
National Wtd Avg. Base Price
National Net Neg'd Price,
Wtd. Avg.
CME Lean Hog Futures
2012 Q1 86.56 84.27 84.11 86.11 86.44**Q2 87.76 83.67 85.31 86.67 86.64**Q3 87.69 85.05 84.74 84.97 86.64**Q4 82.90 79.59 80.60 81.61 82.13**Year 86.20 83.15 83.69 84.84 85.46**
2013 Q1 83.54 80.83 81.14 82.72 83.34**Q2 87 - 91 84 - 88 83 - 86 87 - 91 97.15Q3 86 - 90 83 - 87 82 - 86 88 - 92 96.53Q4 78 - 82 78 - 82 78 - 83 79 - 83 83.56Year 83 - 8 81 - 85 81 - 84 84 - 88 90.14
2014 Q1 82 - 86 81 - 85 78 - 84 81 - 85 83.83Green figures are actual data from USDA. Blue figures are estimated using USDA data **CME Lean Hog Index 6/21/13
March 2013 Hogs & Pigs -- Price Forecasts
. . . Now look too big -- book Q3 and Q4?
6/20/2013 68
From information, knowledge
Paragon Economics, Inc.
Slaughter trends vs. packing capacity
6/20/2013 69
From information, knowledge
Paragon Economics, Inc.
But the real capacity trend if FLAT!
6/20/2013 70
. . . Potential trouble if we return to growth!
From information, knowledge
Paragon Economics, Inc.
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
6/20/2013 71
Top Related