economic outlook: heidi klum or the witch of the west?
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Economic Outlook: Heidi Klum or The Witch of the West? by Steve R. Meyer, Ph.D. Paragon Economics, Inc., from the Morrison Group's At The Meeting.TRANSCRIPT
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Steve R. Meyer, Ph.D. Paragon Economics, Inc.
Pig Ski Conference – February 2009
Economic Outlook: Heidi Klum or The Witch of the West?
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COMPETITORS
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Current market shares of broiler companies
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’08 broiler slaughter: DOWN 0.7% . . . . . . On equal number of weeks! Q4: -4.7%
YTD ’09: -6%
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Higher weights offset some of the reduction . . . production still grew – but only 1.2% in ‘08
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But HUGE cutbacks are on the way w/ sets . . . . . . down 2.9% for ’08, 7.6% for Q4-08, 7.1% YTD
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Prices ARE better this year . . . . . . but are not good enough to cover costs
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Signs of longer-term reductions . . .
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Dec 2008 COF was 6.2% lower than in ’07 . . . . . . and COF was yr/yr lower from July on in ‘08
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Jan 1 COF was down 7.1% from Jan 2007
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But the July Cattle Inventory said . . . . . . there are plenty of cattle still out there
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January Cattle report due out tomorrow . . . . . . still a lot of feeder cattle vs. placements
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Delayed placements due to feed costs . . . . . . mean larger cattle in and out of lots
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Longer term – fewer beef cows . . . . . . Canadian cows are ~30% of this increase
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FEED PRICES AND COSTS
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Ethanol producers are hurting – Ohhhhhh.
“The ethanol industry is on its back despite the billions of dollars they have gotten in taxpayer assistance AND a guaranteed market.”
Amy Myers Jaffe Energy Analyst Rice University
In the New York Times, February 12
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Forget cellulosic. Will the RFS be met in ’09?
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And now E-10 will cost MORE than gasoline?
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But these guys are STILL DANGEROUS!
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Corn and oil correlation is breaking down . . . . . Speculative? Necessary for acres?
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Corn prices have likely made a bottom . . . . . . Future a function of soybeans, weather
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Corn must keep up with beans . . . . . . And is not doing very well at the moment
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Weekly chart: Now in ’06-’07 trading range. . . . . . But $3 to $4.50 is VERY wide, historically
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SBM futures: Confirmed double bottom . . . . . . Now a function of Brazil, Arg, U.S. weather
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Feed costs have risen since early December
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DEMAND
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Demand indexes are down for all meats . . . . . . And ALL have had a tough 3 years
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An alternate demand measure: RPCE
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Monthly RPCE clearly shows ’08 problem . . . . . . retail price did not make up for exports
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Huge growth in pork exports -- +49.7% in ‘08 . . . Nov & Dec: up only 0.5% & 3.2% from ‘07
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Exports to China are down 80% from June. . . . . . other markets are holding pretty well
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Impact 1: Exports pulled up low value cuts . . . but we are back to “normal” now
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Impact 2: Record high by-product values . . . but those are returning to “normal”, too
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How will a stronger $US impact exports? . . . $US is still WEAK in historic terms
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HOG SUPPLIES
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Profits plunged again in Nov & Dec . . . . . . To -$45 & -$40, -$27.86/hd in January
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2008 will be the second worst year EVER . . . . . . At $-21.78, second only to 1998
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Producer wealth is now at ’97 and ’06 levels
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December H&P Report: A hodge-podge
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Lower hog supplies are on the way . . . . . . with significant reductions in Q2 & Q3
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Fewer Canadian market hogs -- MCOOL & $C . . . down 76% year-to-date
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FP imports: 6.7 mil in ’08, 5 to 5.2 mil in ’09?
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MCOOL: What the (*&^)*(#@ is going on? Government rules were pretty well
understood – until the final rule and Secretary Vilsack’s muddying the waters! - Big concern: Consumers Union and Food &
Water Watch were cited in stories on “voluntary” rules
The final rule provides LOADS of flexibility – probably too much for MHs
The final rule changes came from the office of U.S. Trade Rep – avoid trade war
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The ultimate judge will be the consumer Wild card: Consumer reaction to multi-
country label - Will “Canada” on label be a problem? - “Mexico”, “Uruguay”, etc. may be – beef
My expectation: Consumer will NOT dis-criminate against “U.S & Canada” label - Canadian feeders/weaners will be wanted - But will they be available?
» Shrinking Canadian herd » Renewal of Canadian feeding -- Hytek
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Breeding herds are falling rapidly . . . . . . But the incentives have changed
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Oct Canada-U.S. BH was smallest since 1986
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Sow slaughter slowed markedly in late ‘08
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Quarterly slaughter forecasts . . .
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Price forecasts based on Dec H&P . . . . . . w/ futures lower re. cash forecasts
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2009 prices are not “BAD” hog prices!!! . . . but they’ve fallen $5 since Jan 1
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2009: Futures prices are back to breakeven
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July & Aug: About 50% of seasonal rally . . . . . . comes after January – mid to upper $80s
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Supply and price expectations HIGHER meat prices LED by chicken this
winter – Ethanol’s impact on food is finally here!
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Retail meat prices may flatten in short run . . . . . but they still must rise to cover all costs!
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Supply and price expectations HIGHER meat prices LED by chicken this
winter Hog prices – GOOD but not good enough.
Profits Q2 and Q3, losses Q1 and Q4 More breeding herd reduction – Canada’s
is slowing but will U.S. cut back more? Weights constant to growing slightly Productivity is increasing sharply -- Will
the cutbacks be enough to keep the industry profitable?
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Risks Demand, both domestic and international, given
the financial crisis Exports – Declining growth rate is virtually
certain but will they actually fall? - Yes: Exchange rates – esp. Mexico - No: Output reductions by competitors (mainly EU) - Wild card: China?
Productivity growth may out-strip breeding herd/flock reductions
A new round of cost increases in ’09 -- bidding for acres? weather?
MCOOL – impacts?
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CME’s Daily Livestock Report www.dailylivestockreport.com
National Hog Farmer’s North American Preview
www.nationalhogfarmer.com
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Price forecasts based on Dec H&P . . . . . . w/ futures lower re. cash forecasts