NPB Pork Management Conference - 2013
Livestock and Meat Outlook
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
Paragon Economics, Inc.
From information, knowledge
Key issues for 2013-2014 profitability . . .
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Input prices and production costs
Demand
-
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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
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6/20/2013
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Backdrop: Massive losses for hogs, cattle
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6/20/2013
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Cow-calf profits – with 2013 expected good
. . . Assumes “normal” weather, corn, hay
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6/20/2013
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Output trends all kinked in ‘08-’09 . . .
. . . and flattened in ‘12 – what about ‘13 & ‘14?
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6/20/2013
5
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The critical issue for U.S. agriculture is still:


Severe drought area is down to 25%
High Plaines 45%, South 34%, MW 0.0%,
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6/20/2013
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Scary context: April 2012 -- some problems
. . . But LITTLE HINT of what was to come!
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6/20/2013
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Grain, feed, cost assumptions
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“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 weight
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6/20/2013
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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?
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6/20/2013
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January 2013 – World economy is better . . .
. . . But EU is still a wreck – and now Japan
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6/20/2013
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Exchange rates

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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
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The U.S. economy muddles along . . .
. . . Q1 GDP +2.4% - Still slowed by uncertainty
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6/20/2013
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Dec Real per capita PDI was false security . . .
. . . Jan was -0.4%, April was only +0.3%
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6/20/2013
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PC cons did not go below 200# last year . . .
. . . What about ‘13 or ’14?
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6/20/2013
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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)
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6/20/2013
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Retail prices are at or near record highs . . .
. . . Would not be if demand was, in fact, lower
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6/20/2013
16
From information, knowledge
Individual species indexes still mixed . . .
. . . Chicken, beef and pork: Up for past 12 mos.
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6/20/2013
17
From information, knowledge
RPCE figures show monthly changes
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6/20/2013
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Further proof: Record high ’12 expenditures
. . . And another record expected in 2013
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6/20/2013
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Exports have been a BIG challenge in ‘13 . . .
. . . Pork is -14.5%, beef is -3%, chicken up
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6/20/2013
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Russia & China Why is it happening?
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Not really about ractopamine
China: Low hog prices, protection
Russia:
- Push-back on human rights language
- Protecting its domestic industry – selfsufficiency 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?
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6/20/2013
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CATTLE AND BEEF
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6/20/2013
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Some context: August 2011 – severe in SW
State
TX
OK
KS
FL
CO
AL
GA
MS
NM
LA
NC
SC
AZ
Total
Share
Beef Cows
(Thousand)
5025
2036
1478
926
727
659
502
495
488
461
351
184
180
13512
43.8%
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6/20/2013
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From information, knowledge
Further context: Summer 2012
. . . On 8/21: 77% drought, 44% severe or worse
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6/20/2013
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‘11 drought drove beef cow slaughter
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6/20/2013
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‘11 drought also drove HIGHER placements
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6/20/2013
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Very high portion of pastures were poor . . .
. . . In October ‘12 - last crop condition report
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6/20/2013
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Ranges/pastures have improved sharply . . .
. . . Still at the same level as last year
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Regional -- Only the west is bad
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6/20/2013
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Dec 1 Hay Stocks – Pct change, ‘12 vs. ‘11
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6/20/2013
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Beef: Long-term trends PLUS droughts . . .
. . . Smallest January 1
U.S. beef cow herd
since ’46
. . . Smallest calf
crop since 1949
is forecast for ‘13
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6/20/2013
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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.
Mil. Head
43
41
39
37
35
33
31
29
27
25
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
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6/20/2013
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Placements had been lower yr/yr 8 of 9 mos.
. . . Until +6% & +15% in March and April
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6/20/2013
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May 1 COF is still 3.4% below last year . . .
. . . Lower near-term supplies, closer in fall
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6/20/2013
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May placements expected to be down again
Pre-Report Estimates -- USDA Cattle On Feed
On Feed, June 1
Placed in May
Marketed in May
Saturday, June 22, 2013
Range of
Average of
Estimates
Estimates
(Percent of year ago)
94.3 - 97.6
96.5
84.3 - 99.8
95.9
97.0 - 101.1
97.9
Source: Dow Jones
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6/20/2013
35
From information, knowledge
Record-high weights helped prod levels . . .
. . . But we are now back to yr-ago weights
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6/20/2013
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No turn-around in sight for availability. . .
. . . Per-cap: -3% in ‘13 and -5.5%+ in ’14 @ 52.6
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6/20/2013
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Just as in ‘12, the sector is poised to grow . . .
. . . But will Mother Nature allow it to do so?
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6/20/2013
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Choice cutout FINALLY broke $200 . . .
. . . Still there but falling from $210 peak
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6/20/2013
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Driven by middle meats as end meats lag
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6/20/2013
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Beef summary . ..
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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?
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6/20/2013
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CHICKEN
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6/20/2013
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Poultry: Reductions in ‘07 and ’11 but . . .
. . . Flock has been up 1-2% yr/yr since Jan.
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6/20/2013
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Sets have grown, yr/yr but placements . . .
. . . Are even with last year – so far
Sets were virtually
even with ‘11 levels
the entire second half
of 2012 – now +1%
Chick placements
YTD are unchanged
from 2012
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6/20/2013
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Slaughter is up slightly but prod is up 2+%
Broiler slaughter is up
0.9%YTD vs. 2012 –
and more to come!
Broiler production is
now +2.2% YTD vs.
2012 – and more to
come!
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6/20/2013
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From information, knowledge
Weights were a big driver for ‘12 output . . .
. . . A mixed bag so far in ‘13 – but still high
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6/20/2013
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From information, knowledge
STRONG chicken prices driven by breasts!
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6/20/2013
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Demand summary
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

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 Paragon Economics, Inc.
6/20/2013
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From information, knowledge
HOGS AND PORK
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6/20/2013
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2012 exports were 4% higher than ‘11 record
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6/20/2013
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Exports have been THE issue in 2013
. . . Down 16% thru April, Feb-Apr down 14.4%
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6/20/2013
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April exports – Japan down but steady . . .
. . Mexico came back, China on LT trend
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6/20/2013
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U.S. sow herd is near smallest on record . . .
. . . And yet Q4 production was record large!
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6/20/2013
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Steady and dramatic productivity growth . . .
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6/20/2013
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Weights have helped long-term production. .
. . . But feed costs have slowed them!
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6/20/2013
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Imports from Canada are -9% YTD . . .
. . . Risk issue for ‘14: MCOOL retaliation
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6/20/2013
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‘12 production costs were record-high . . .
. . .’13 will likely be higher -- new crop help?
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6/20/2013
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6/20 CME Group futures prices still imply . . .
. . . Large losses for 2013 – but profits in ‘14
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6/20/2013
58
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Sow slaughter: Higher due to prices . . .
. . . But lower than “normal” ALL YEAR
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6/20/2013
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March H&P Report: The herd is GROWING
USDA QUARTERLY HOGS & PIGS REPORT
March 28, 2013
2012
2013
Category
Inventories on Dec 1*
All hogs and pigs
64,937
65,911
Kept for breeding
5,820
5,834
Kept for market
59,117
60,077
Under 50 lbs.
19,235
19,426
50-119 lbs.
16,409
16,650
120-179 lbs.
12,780
13,059
180 lbs. and over
10,693
10,942
Farrowings**
Dec-Feb sows farrowed
2,864
2,879
Mar-May Intentions
2,982
2,955
June-Aug Intentions
2,890
2,905
Dec-Feb Pig Crop1
28,550
29,019
Dec-Feb pigs saved per litter
9.97
10.08
*Thousand head
**Thousand litters
'13 as
PreActual Pct of Report
Est
'12
Est's
101.5
100.2
101.6
101.0
101.5
102.2
102.3
100.7
100.3
100.8
100.9
100.7
99.9
101.6
0.8
-0.1
0.8
0.1
0.8
2.3
0.7
100.5
99.1
100.5
101.6
101.1
100.1
98.7
100.9
101.2
101.1
0.4
0.4
-0.4
0.4
0.0
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6/20/2013
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From information, knowledge
‘13 slaughter will be slightly larger than ’12 . .
. . . But pattern will be different – summer???
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6/20/2013
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March H&P Report slaughter forecasts
March 2013 Hogs & Pigs -- Commercial Slaughter Forecasts
Mizzou
2012 Q1
Q2
Q3*
Q4**
Year
2013 Q1*
Q2
Q3**
Q4
Year
Mil. Hd
% Chnge
28.104
2.3%
26.659
2.1%
27.963
2.1%
30.426
1.8%
113.152
2.1%
27.930
ISU
LMIC
Paragon
Mil. Hd
% Chnge
Mil. Hd
% Chnge
Mil. Hd
% Chnge
-0.6%
27.930
-0.6%
27.930
-0.6%
27.930
-0.6%
26.811
0.6%
26.960
1.1%
26.242
-1.6%
26.892
0.9%
28.437
1.7%
28.419
1.6%
27.869
-0.3%
28.393
1.5%
30.349
-0.3%
30.609
0.6%
30.207
-0.7%
29.880
-1.8%
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
*Quarter has one LESS slaughter day vs. year ago **Quarter has one MORE slaughter day vs. year ago
4/1/13
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6/20/2013
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From information, knowledge
What will be the impact of PEDv? As of 6/10:
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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
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6/20/2013
63
From information, knowledge
Disappointing Q1 has given way to . .
. . . An exceptional rally – that is likely OVER
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6/20/2013
64
From information, knowledge
Support from MANY part of the pig! Next?
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6/20/2013
65
From information, knowledge
Hog rally has gone to my “pre-March” highs. . .
. . . Unlikely to see much more this summer
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6/20/2013
66
From information, knowledge
Packers have chased hogs since April . . .
. . . But margins are likely to widen soon
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6/20/2013
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From information, knowledge
Price forecasts – April reductions . . .
. . . Now look too big -- book Q3 and Q4?
March 2013 Hogs & Pigs -- Price Forecasts
2012 Q1
Q2
Q3
Q4
Year
2013 Q1
Q2
Q3
Q4
Year
2014 Q1
Mizzou
ISU
LMIC
Producer-Sold
Ia-Mn Wtd. Avg. National Wtd
Net Price, All
Base Lean Hog Avg. Base Price
Methods
86.56
84.27
84.11
87.76
83.67
85.31
87.69
85.05
84.74
82.90
79.59
80.60
86.20
83.15
83.69
83.54
80.83
81.14
87 - 91
84 - 88
83 - 86
86 - 90
83 - 87
82 - 86
78 - 82
78 - 82
78 - 83
83 - 8
81 - 85
81 - 84
82 - 86
81 - 85
78 - 84
Green figures are actual data from USDA.
Blue figures are estimated using USDA data
Paragon
National Net
Neg'd Price,
Wtd. Avg.
86.11
86.67
84.97
81.61
84.84
82.72
87 - 91
88 - 92
79 - 83
84 - 88
81 - 85
**CME Lean Hog Index
CME
CME Lean Hog
Futures
86.44**
86.64**
86.64**
82.13**
85.46**
83.34**
97.15
96.53
83.56
90.14
83.83
6/21/13
Paragon Economics, Inc.
6/20/2013
68
From information, knowledge
Slaughter trends vs. packing capacity
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6/20/2013
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From information, knowledge
But the real capacity trend if FLAT!
. . . Potential trouble if we return to growth!
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6/20/2013
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From information, knowledge
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
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6/20/2013
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From information, knowledge
Questions or Comments?
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6/20/2013
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