profit prospects for 2011 and beyond - amazon web services · march hogs & pigs report –...

From information, knowledge

Paragon Economics, Inc.

Steve R. Meyer, Ph.D. Paragon Economics, Inc.

World Pork Expo – June 2011

Profit Prospects for 2011 and Beyond



MEAT/POULTRY DEMAND



What do we need for sustained recovery . . .

Moderate growth in GDP

Steady private sector job gains

Resumption of income growth

Normal spending by consumers

Reduction in household debt

Increase in the savings rate

An end to the real estate debacle

AND ALL BUT THE LAST ARE OCCUR-RING TO SOME DEGREE!



Moderate growth in GDP . . .

. . . 3.2-3.5% expected in 2011, „10 was +2.9%



Steady private sector job growth – May?



Growing incomes – happening now but . . .

. . . not back to pre-recession average



A return to “normal” consumer spending



Lower household debt . . .

. . . Falling more slowly, but still declining



Higher saving rate . . . Also happening . . .

. . But we aren‟t sure we like it!



An end to the real estate debacle . . .

. . . not happening yet – and it will take time



Unemployment RATE remains high . . .

. . . And is negatively related to confidence



Domestic meat demand has improved . . .

. . . For all species – last data point is Apr-Mar



Yr/yr change in monthly indexes -- POSITIVE

March

monthly index

vs. ‘10:

Pork: +2.8%

Chicken: +8.5%

Beef: +1.5%



What will be the impact of record prices?

. . . NOT lower demand but lower Q demanded



How much damage from high gas prices?



EXPORTS



$US is falling again -- but . . .

. . . may be down only until the next Euro crisis



ALL customer currencies are gaining



Competitors‟ have lost value recently



‟10 pork value got close to 2008 “outlier”



Pork exports +19% YTD – Korea, Japan . . .

. . . Pork value is up 28% YTD



CATTLE/BEEF



C-N-02

07/23/10

Livestock Marketing Information Center

Data Source: USDA/NASS

Lowest U.S. beef cow inventory since 1963

-1.6 Percent

2011 = 30.9 Million Head

+0.7 Percent




Three smallest calf crops since 1950

-0.7 Percent




Feeder cattle supplies were down 1.4% . . .

. . . -2.6% in July, Jan 500+ cattle were -4.5%



COF were +5% on April – 11 months up . . .

. . . must stop soon – or USDA is wrong.



Yr/yr decline is coming in Q3 and forward

. . . With significant drops in 2012



Consumption/availability: Falling thru „12



Choice cutout has fallen since April 1. . .

. . . But will likely rebound in summer/fall



Fed cattle have made their seasonal high . . .

. . . Expect a bottom ~$105 and then rise



Annual average prices rising sharply in „11



Choice steers BE‟s of $125+ by year‟s end



Profits in cow-calf – enough to drive growth?



CHICKEN



Broiler companies are dealing with LOSSES!



Egg sets have fallen in recent weeks!

After being sharply

higher MUCH of 2010!

Should drive chick

numbers lower this

summer



May broiler flock was -2.6% from ‟11 . . .

. . . But slightly higher than April



Production is still +2.4% mainly due to wts. . .



Chicken prices are still about even with „10



Breasts & wings are still VERY LOW . . .

Leg Quarters

are carrying

VALUE!



COSTS



Key factors for grains and costs . . .

VERY UNCERTAIN

International issues:

- Dry conditions in Europe and China

- Chinese feed supply???

- Russia lifted embargo but 2011 crop???

- Brazil – less corn, more soybeans

- Argentina has committed corn to China

- Canada – Late and prevented plantings



The U.S. situation is at least as uncertain . . .

Late plantings and potential use of prevented planting insurance

Flooding – Ohio, Mississippi Valley, Missouri Valley, Dakotas

Drought – Southeast, Southern Plains

- VERY negative impact on HRW wheat crop

SRW wheat is priced favorably to corn but the carry will encourage storage

How many acres planted? Harvested? Yield?



How many acres flooded? -- per Dr. Wisner

NDSU estimates 2 mil. acres prevented

Missouri – 570k acres flooded – so far

Mississippi Dept of Ag – 600k acres

Louisiana – 280k acres of cropland

IL – 500k, AR – 1 mil

SD, NE, IA and MO from the Missouri River – est’d 450k corn, 350k soybeans

Will they even get to plant soybeans in the flooded areas?



The key factor for the foreseeable future:

ETHANOL WILL COMPETE SUCCESSFULLY FOR CORN IN 2011 REGARDLESS OF POLICY

ISSUES!



Oil prices have fallen slightly . . .

. . . But not enough to dent corn prices much



Ethanol will use over 1/3 of this year‟s crop

. . . 9 yrs. of level/lower corn+DDGS supplies



RFS is 12.6 bil. gal. this year – 4.5 bil. bu. . . .

. . . will grow by 600 mil. bu./yr. thru 2015



USDA June WASDE: Lower acres, higher price

. . . And feed/resid is the ONLY rationer!

2008/09 2009/10

USDA

May

USDA

June

%Chng

vs. '10-

'11

Acres Planted Mil A 86.0 86.4 88.2 92.2 90.7 2.8%

Acres Harvested Mil A 78.6 79.5 81.4 85.1 83.2 2.2%

Yield Bu/A 153.9 164.7 152.8 158.7 158.7 3.9%

Beginning Stocks Mil Bu. 1624 1673 1708 730 730 -57.3%

Production Mil Bu. 12092 13092 12447 13505 13200 6.0%

Imports Mil Bu. 14 8 25 20 20 -20.0%

Total Supply Mil Bu. 13729 14774 14180 14255 13950 -1.6%

Feed & Residual Mil Bu. 5182 5140 5150 5100 5000 -2.9%

Ethanol for fuel Mil Bu. 3709 4568 5000 5050 5050 1.0%

Non-Ethanol FSI Mil Bu. 1316 1371 1400 1405 1405 0.4%

Exports Mil Bu. 1849 1987 1900 1800 1800 -5.3%

Total Usage Mil Bu. 12056 13066 13450 13355 13255 -1.4%

Carryover Mil Bu. 1673 1708 730 900 695 -4.8%

Stocks/Use 13.9% 13.1% 5.4% 6.7% 5.2% -3.4%

Nat. Wtd. Avg. Farm Price $/Bu. 4.06 3.55 5.20-5.50 5.50-6.50 6.00-7.00 21.5%

2010/11

Estimate

2011/12

U.S. CORN SUPPLY AND UTILIZATION - JUNE



Corn Stocks/Use is record low



Ditto for soybeans – but price is not as high



Soybeans: Higher S/U and Higher Price!

2009/10 2010/11

USDA May USDA June

% Chng vs

'10-11

Acres Planted Mil A 77.5 77.4 76.6 76.6 -1.0%

Acres Harvested Mil A 76.4 76.6 75.7 75.7 -1.2%

Yield Bu/A 44.0 43.5 43.4 43.4 -0.2%

Beginning Stocks Mil Bu. 138 151 170 180 19.2%

Production Mil Bu. 3359 3329 3285 3285 -1.3%

Imports Mil Bu. 15 15 15 15 0.0%

Total Supply Mil Bu. 3512 3495 3470 3480 -0.4%

Crushings Mil Bu. 1752 1650 1655 1655 0.3%

Exports Mil Bu. 1501 1540 1540 1520 -1.3%

Seed Mil Bu. 90 89 90 90 1.1%

Residual Mil Bu. 18 36 25 25 -30.6%

Total Usage Mil Bu. 3361 3315 3310 3290 -0.8%

Carryover Mil Bu. 151 180 160 190 5.6%

Stocks/Use 4.5% 5.4% 4.8% 5.8% 6.4%

Nat. Wtd. Avg. Farm Price $/Bu. 9.59 11.40 12.00-14.00 13.00-15.00 14.0%

Soybean Oil Price Cents/lb. 35.95 53.50 56 - 60 58-62 8.4%

Soybean Meal Price $/ton 311.27 350.00 350-380 375-405 4.3%

U.S. SOYBEAN SUPPLY & UTILIZATION - JUNE2011/12



Current price forecasts

USDA June WASDE

- Nat. Wtd. Avg. Farm Price -- $6.00-$7.00

- Soybean Meal -- $375-$405/ton

Dr. Wisner’s most likely yields-pre WASDE

- Corn at $5.80

- SBM at $370/ton

CME Group Futures – average for next 12 months, mid-session June 9 -- today

- Corn -- $7.41

- SBM -- $364.58



DDGS should remain very affordable



2011 hog costs=$86.90/cwt carcass . . .

. . . Next 12 months -- $91.60/cwt. carcass



HOGS & PORK



March Hogs & Pigs Report – bearish?

Category 2010 2010

2010 as Pct

of 2009

Pre-Report

Estimates

Actual -

Estimate

Inventories on March 1*

All hogs and pigs 63,568 63,964 100.6 100.0 0.6

Kept for breeding 5,760 5,788 100.5 99.8 0.7

Kept for market 57,808 58,176 100.6 99.9 0.7

Under 50 lbs. 18,757 18,898 100.8 100.7 0.1

50-119 lbs. 15,993 16,225 101.5 100.1 1.4

120-179 lbs. 12,307 12,309 100.0 99.5 0.5

180 lbs. and over 10,742 10,744 100.0 99.2 0.8

Farrowings**

Dec-Feb sows farrowed 2,872 2,856 99.4 99.2 0.2

Mar-May Intentions 2,929 2,854 97.4 98.6 -1.2

June-Aug Intentions 2,944 2,867 97.4 99.5 -2.1

Dec-Feb Pig Crop* 27,597 27,986 101.4 100.9 0.5

Dec-Feb pigs saved per litter 9.61 9.80 102.0 101.7 0.3

*Thousand head **Thousand litters

USDA Quarterly Hogs and Pigs Report

March 25, 2011



Farrowing intentions are low re. BH size . . .

. . . Is one wrong? Or are litters/sow falling?



Litter size back to 2% yr/yr growth . . .

. . . How high can litter size go?



„11 weekly slaughter much like „10 . . .

. . . Since March 1 – Actual-Expected = -0.46%



Weights driven by grain quality, capacity . . .

. . . At yr-ago levels for 1st time in a YEAR!



YTD „11 prod slightly higher than last year . . .

. . . Expect more of that through Q3



LH decline has reduced ‟11 futures margins . . .

. . . And taken next „12 negative thru May



Pre-Memorial Day rally was impressive . . .

. . . But did not hold, cutout lowest since Feb



Pork packer margins – lowest since 10/09

. . . Add to “current” situation. Rebound?



April rally produced RECORD-HIGH prices . . .

. . . Most likely lower for rest of 2011



LH futures are still beyond analysts‟ prices!

Missouri ISU LMIC Meyer CME

Producer-Sold

Net Price, All

Methods

ISU Lean Hog

Price

Forecast1

National Wtd

Avg. Base

Price

National Net

Neg'd Price,

Wtd. Avg.

CME Lean

Hog Futures

6/6/11

2010 Q1 68.20 71.99 65.87 69.13 69.38**

Q2 79.54 85.18 76.92 81.89 81.42**

Q3 80.68 82.19 78.08 81.90 81.88**

Q4 69.26 68.97 67.19 67.12 68.23**

Year 74.42 77.08 72.02 75.01 75.23**

2011 Q1 80.54 80.14 78.25 80.91 81.54**

Q2 84 - 88 92 - 95 83 - 88 90 - 94 92.00**

Q3 85 - 89 91 - 94 82 - 87 90 - 94 87.61

Q4 79 - 83 83 - 86 73 - 79 83 - 86 83.15

Year 82 - 86 87 - 89 79 - 83 86 - 87 90.40

2010 Q1 84 - 88 83 - 86 80 - 82 82 - 86 86.081Prior to Q2-11, ISU forecasts were Ia-Mn Live Price converted using a 75% yield **Average of CME Lean Hog Index

*Partial USDA data

March 2011Hogs & Pigs Price Forecasts



Bottom Line

Pork and hogs . . .

- Seasonal highs are very likely in

- Little incentive for expansion – liquidation??

- Producers are still wary of corn crop and cost

Beef will be a major driver through 2011 and 2012 – 2013

- Lower numbers and SLOW turn-around

- $200 Choice beef cutout is VERY possible

- Exports are a key

Competition from chicken?



Risks to the forecast

Double-dip recession – low probability??

- Impact of Japan disaster

- Persistent high oil prices

A short corn 2011 crop

- Drought -- last one was in ’88 (23 yrs. ago)

- Flood, wet conditions

More trade games with China, Russia

“Black Swan” event – Trade-disrupting animal disease in the U.S., terror attack

profit prospects for 2011 and beyond - amazon web services · march hogs & pigs report –...

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