Dr. Steve Meyer - Pork Industry Economic Outlook

From information, knowledge
Paragon Economics, Inc.
Steve R. Meyer, Ph.D.
Minnesota Pork Congress – January 2015
Pork Industry Economic Outlook

Key Issues
 Fundamental shift in grain/oilseed S & D
 World and domestic economic growth
 Big change in U.S. consumers
 Expansion everywhere
- Chicken: Belated but big
- Hogs: Overcoming PEDv
- Cattle: A Loooooong Time Coming
3/18/2022 2

The corn supply situation is vastly improved
 Record high world output & consumption
 Projected Y/E stocks the highest in 15 yrs.
 MAJOR increase in non-U.S. production –
and especially in S. America
3/18/2022 3

World SB prod, cons, stocks are record high
 Beans still strong due to China – now
takes over 60% of world soybean trade
 And still growing!
3/18/2022 4
. . . & S/U is 2nd highest ever

Jan WASDE – Bull for corn, bear for beans
 The bear showed up – Beans down $0.35,
SBM down $7 to $10
 The bull was a veal calf – Corn + 1 to 5
Units 13-14 14-15, Dec 14-15, Jan Low High Average
Corn Yield Bu/Acre 158.8 173.4 171.0 171.3 174.3 173.3
Crop Bil. Bu. 13.925 14.407 14.216 14.171 14.554 14.349
Ending Stocks Bil. Bu. 1.236 1.998 1.877 1.710 2.081 1.927
Soybeans Yield Bu/Acre 44.0 47.5 47.8 46.8 48.2 47.6
Crop Bil. Bu. 3.358 3.958 3.969 3.844 4.020 3.956
'15 Ending StocksBil. Bu. 0.092 0.410 0.410 0.355 0.452 0.393
Wheat '15 Ending StocksBil. Bu. 0.590 0.654 0.687 0.636 0.699 0.660
CORN, SOYBEAN & WHEAT ESTIMATES
January 12, 2015 WASDE Report
USDA Analysts' Estimates, January

Jan WASDE – Yield reduction was a surprise. .
3/18/2022 6
. . But the market shrugged off crop reduction
USDA
Nov
USDA
Dec
% Chng
vs '13-14
Acres Planted Mil A 97.3 95.4 90.9 90.6 -5.0%
Acres Harvested Mil A 87.4 87.5 83.1 83.1 -5.0%
Yield Bu/A 123.1 158.1 173.4 171.0 8.2%
Beginning Stocks Mil Bu. 989 821 1236 1232 50.1%
Production Mil Bu. 10755 13829 14407 14216 2.8%
Imports Mil Bu. 160 36 25 25 -30.6%
Total Supply Mil Bu. 11904 14686 15668 15472 5.4%
Feed & Residual Mil Bu. 4315 5036 5375 5275 4.7%
Ethanol for fuel Mil Bu. 4641 5134 5150 5175 0.8%
Non-Ethanol FSI Mil Bu. 1397 1367 1395 1395 2.0%
Exports Mil Bu. 730 1917 1750 1750 -8.7%
Total Usage Mil Bu. 11083 13454 13670 13595 1.0%
Carryover Mil Bu. 821 1232 1998 1877 52.4%
Stocks/Use Pct. 7.4% 9.2% 14.6% 13.8% 50.8%
Nat. Wtd. Avg. Farm Price $/Bu. 6.89 4.46 3.20 - 3.80 3.35 - 3.95 -15.9%
Source: USDA World Supply and Demand Estimates
U.S. CORN SUPPLY AND UTILIZATION - JANUARY
Units 2012/13 2013/14
2014/15

USDA price: Consistent with recent demand
. . . But will that demand hold with $50 oil?

Larger crops, flat ethanol usage . . .
. . . Feed/resid + DDGS back to ‘04-’06 levels

HUGE ethanol profits in ‘13 and ‘14 . . .
. . . But lower margins now – ethanol price

Jan SBs: Lower prod and carryout expected. .
3/18/2022 10
. . USDA left y/e stocks at 410 mil. – 4X as large
USDA
December
USDA
January
% Chng
vs '13-14
Acres Planted Mil A 77.2 76.8 84.2 83.7 9.0%
Acres Harvested Mil A 76.1 76.3 83.4 83.1 8.9%
Yield Bu/A 40.0 44.0 47.5 47.8 8.6%
Beginning Stocks Mil Bu. 169 141.0 92 92 -34.8%
Production Mil Bu. 3042 3358.0 3958 3969 18.2%
Imports Mil Bu. 41 72.0 15 15 -79.2%
Total Supply Mil Bu. 3252 3570.0 4065 4076 14.2%
Crushings Mil Bu. 1689 1734.0 1780 1780 2.7%
Exports Mil Bu. 1317 1647.0 1760 1770 7.5%
Seed Mil Bu. 89 97.0 92 92 -5.2%
Residual Mil Bu. 16 0.0 23 24 N/A
Total Usage Mil Bu. 3111 3478.0 3655 3666 5.4%
Carryover Mil Bu. 141 92.0 410 410 345.7%
Stocks/Use Pct. 4.5% 2.6% 11.2% 11.2% 323%
Nat. Wtd. Avg. Farm Price $/Bu. 14.40 13.00 9.00 - 11.00 9.45 - 10.95 -19.2%
Soybean Oil Price Cents/lb. 47.13 38.23 32.00 - 36.00 31.00 - 35.00 -5.8%
Soybean Meal Price $/ton 468.11 489.94 330-370 340-380 -28.6%
Source: USDA World Supply and Demand Estimates
U.S. SOYBEAN SUPPLY & UTILIZATION - JANUARY
Units 2012/13 2013/14
2014/15

Implications of current and future costs
 Lower costs will fuel expansion – across
the board – but timing will differ per
species
 FUNDAMENTAL and LONG-TERM change
in grain prices
- We have now caught up with ethanol usage
- Growing oil/gas output will limit ethanol
future growth
- Yields continue to grow – Only cost hikes will
come with drought
3/18/2022 11

Costs ~20% lower than 2013 peak and . . .
. . . ~8% lower than ‘14 – will they be < $70?

But fed cattle costs are HIGHER . . .
. . . Lower gain costs but much HIGHER feeders

World economy Oct. ’14 – EU is still a mess . . .
Source: Moody’s Economy.com, Steiner Consulting Group
. . . Japan is wrong here – back in recession

Euro zone is still the drag on world economy
Source: Moody's Economy.com
. . . China may be slower but Asia is still good

GDP is growing and the rate is improving . . .
3/18/2022 16
. . .Q3 +5% qtr/qtr was best since ‘03!

RPDI growth has been MUCH better in ‘14 . . .
. . .November was +2.2%, average of 1.6% YTD
3/18/2022 17

Consumers’ outlooks are improving, too . . .
3/18/2022 18
. . . both indexes highest since 2007

RPI was down slightly in Nov after Oct gain . . .
3/18/2022 19
. . . 21 months of >100 which demarks growth

And now – “cheap” oil and sub-$2 gas???
Weekly
Crude
Oil
Futures
Monthly
RBOB
Gasoline
Futures

Oil: Both higher supply and softer demand
. . . & a strong, negative relationship with $US

But the big factor is preferences. . .
 Research: “Low-carb
Diet Better Than
Low-Fat Diet”
 The Big Fat Surprise
by Nina Teicholz
 “Lost Weight on
Bacon and Cream” –
vox.com, Greg Feren-
stein
3/18/2022 22
. . . protein is in, carbs are out – BIG CHANGE!

The evidence of strong demand is PRICES . . .
. . New beef records in Nov, lower pork
3/18/2022 23

Meat/Poultry RPCE: Yr/yr higher since January
3/18/2022 24
. . . And HUGE positive months in Aug - Nov

The big demand strength is for “red meat” . . .
3/18/2022 25

Major trend changes for red meat RPCEs . . .
 Pork RPCE is now ahead of 2004 levels
driven by Atkins diet, beef is gaining
 Can this be sustained?
. . . Pork’s $13.74 in Nov highest since Dec ‘90!

What can we do for consumption?
. . . Higher demand + lower costs = MORE LBS.!

Volume has been lower yr/yr since June . . .
. . . But VALUE is still up 11%, VM value is up 15%
3/18/2022 28

Displaced EU pork is a big driver at present
. . . ~40k MT of pork had to find a home!

Beef exports are near year-ago levels . . .
. . . Note the pattern over time – same as pork

The U.S. dollar is becoming an issue . . .
3/18/2022 31

Expectations for chicken . . .
 GROWTH!!!
- Companies are solving problems and have a
HUGE incentive
- Reports of aggressive expansion – adding
growout barns
 The 3-4% growth I expected this year will
come in 2015
 Lower chicken prices will still be profitable
 Chicken will be very competitive at both
retail and foodservice
3/18/2022 32

The key for beef growth is WEATHER!

Beef: Unprecedented cow/calf profits!!!!
3/18/2022 34

But cattle numbers are low across the board
3/18/2022 35

. . . Feeder supply is down 3% vs. ‘12– record low
3/18/2022 36
Livestock Marketing Information Center
Data Source: USDA-NASS
Placements are coming from a TIGHT supply

Beef consumption/supply will be -4.7% yr/yr . . .
3/18/2022 37
. . . & down another 2% in 2015 and 1% in 2016!
Livestock Marketing Information Center
Data Source: USDA-NASS

May-Aug Placements: -7%, -6.2%, -7.4%, -4.2% . . .
3/18/2022 38
Steadily smaller
placements but
Dec 1 COF was
larger than in ‘13 –
SLOW Mktngs!!!!

Cattle and beef summary . . .
 Growth – but characteristically slow
- Biology, producer age, capital cost
- Growth means tighter near term supply
 HIGH prices through 2015 and 2016 will
provide opportunities for competitors
 Recent selloff is a futures/technicals issue
– not supported by product or cattle!
 Long-term impacts of VERY HIGH prices
on beef consumers?
3/18/2022 39

Pigs – all PEDv, all the time it seems . . .
 New high wk. of 12/20 at 118 vs. 187 in ’13
 Many of these accessions are “monitoring”
3/18/2022 40

KEY DEVELOPMENT: Few sow herd breaks
 Data from 753 sow farm, 16 of 19 large
systems reporting, 2.1 million sows!
 Nov-Dec: 12 breaks vs. ~85 in ‘13
3/18/2022 41

Paragon slaughter comps were close . . .
3/18/2022 42
. . Thru August but yr/yr declines have fallen
Month
Forecast
Yr/Yr Chnge
(000 Hd.) (Pct. Chnge.) (000 Hd.) (Pct. Chnge.)
Dec 1.45% 9730.1 -2.14% 9397 -2.01%
Jan 1.30% 9791.2 -1.66% 9459 -1.39%
Feb -0.78% 8668.2 0.90% 8366 1.10%
Mar -0.26% 8674.6 -6.89% 8356 -6.92%
Apr -2.17% 8855.0 -5.38% 8527 -5.32%
May -2.89% 8619.7 -1.96% 8311 -1.72%
Jun -4.94% 8099.5 -5.89% 7795 -5.85%
Jul -7.46% 8456.7 -6.80% 8136 -6.81%
Aug -10.04% 8268.1 -9.35% 7952 -9.42%
Sep -11.86% 8828.8 -6.82%* 8497 -6.89%*
Oct -9.13% 9953.1 -4.48% 9588 -4.47%
Nov -8.58% 8812.2 -3.8%** 8509 -3.9%**
Dec -4.82% 9777.5 -3.4%*
Jan -3.52%
Feb -2.18%
*Adjusted for one more work day in Sept & Dec 2014
**Adjustef for one less work day in November 2014
FI Hog Slaughter FI Barr/Gilt Slaughter
PREDICTED HOG SLAUGHTER CHANGE PER
PEDv ACCESSIONS & ACTUAL HOG

PRRS was MUCH quieter in ‘13-’14 – and now

Dec Hogs & Pigs report: GROWTH is coming. . .
3/18/2022 44
. . . Larger BH, intentions, pig crop
Inventories on Dec 1
All hogs and pigs 64775 66,050 102.0 101.5 0.5
Kept for breeding 5757 5,969 103.7 103.0 0.7
Kept for marketing 59018 60,082 101.8 101.3 0.5
Under 50 lbs. 18389 19,026 103.5 103.7 -0.2
50-119 lbs. 16080 16,630 103.4 102.7 0.7
120-179 lbs. 12576 12,635 100.5 99.4 1.1
180 lbs. and over 11972 11,791 98.5 97.5 1.0
Farrowings
Sep-Nov sows farrowed 2,780 2,871 103.3 103.8 -0.5
Dec-Feb Intentions 2,763 2,870 103.9 103.8 0.1
Mar-May Intentions 2,810 2,900 103.2 103.9 -0.7
Sep-Nov Pig Crop 28,253 29,373 104.0 103.3 0.7
Sep-Nov pigs saved per litter 10.16 10.23 100.7 99.9 0.8
*Thousand head ** Thousand Litters 1
Source: Urner Barry
Category 2013 2014
'14 as
Pct of
'13
Pre-
Report
Est's1
Actual
minus
Est.
USDA QUARTERLY HOGS & PIGS REPORT
December 23, 2014

Productivity measure are CRITICAL for ‘15!
 Farrowing intentions are, if anything, low
relative to Dec 1 breeding herd
 Normal litter patterns would put Dec-Feb
& Mar-May up 6.8% & 4.7% from ‘14

Will these changes happen?
 Farrowings growth is VERY likely
- “Overstocking” with females to handle PEDv
has left most units very full
- Question is breeding/farrowing efficiency
following PEDv – some reports of problems
 Litter growth of 6.8% and 4.7% is unlikely
- There will still be some pre-weaning loss
- Re-breaks are occurring – not as bad as in
‘13-’14 but still have losses
- We are using 4.5% and 3.1% in our calcs.

Large yr/yr increases in summer & fall . .
. . . Capacity will be tight but not limiting in Q4

Weights will be a critical issue in ‘15
 Hardly any seasonal increase in Q4
 Recent yr/yr change is small due to last yr!
 We expect weights to be flat (Up from ‘14)
thru April and then LOWER thru Sept –
primarily due to fully stocked finishers
3/18/2022 48

Combo of lower number & higher weights . . .
. . . kept production close to ‘13 levels

‘14 prices were anything but normal but . . .
 My opinion:
- This market went too high three times this year
- And too low once – in August
 Reason: It was information-starved, groping
for the “right” price – Is it still?
3/18/2022 50
. . . values/prices stabilized in Q4 – Normalcy?

2015 profits have fallen sharply since Oct . . .
3/18/2022 51
. . . When futures offered $30/hd

U.S. sow slaughter in ‘14 was down 5.0% . . .
 Now replacing aging sows?
 June & Sept BHs implied sharply higher
gilt retention but Q4 data belie that
 Anecdotal evidence: More expansion!
3/18/2022 52
. . . Gilt share has risen recently – retention???

Slaughter forecasts from Dec. H&P . . .
Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge Mil. Hd % Chnge
2013 Q1 27.870 -0.8%
Q2 26.778 0.4%
Q3 27.668 -1.1%
Q4 29.808 0.8%
Year 112.124 -1.0%
2014 Q1 27.580 -1.0% 27.428 -1.6% 27.214 -2.4% 27.320 -2.0% 27.134 -2.6%
Q2 25.420 -5.1% 25.787 -3.7% 25.572 -4.5% 25.020 -6.6% 25.574 -4.5%
Q3 26.459 -4.4% 26.340 -4.8% 26.173 -5.4% 25.520 -7.8% 25.554 -7.6%
Q4 28.930 -2.9% 28.795 -3.4% 28.826 -3.3% 28.912 -3.0% 28.755 -3.5%
Year* 107.192 -4.4% 107.057 -4.5% 107.088 -4.5% 107.174 -4.4% 107.017 -4.6%
2015 Q1 27.571 1.6% 27.650 1.9% 27.398 1.0% 27.405 1.0%
Q2 26.660 4.2% 26.725 4.5% 26.425 3.3% 26.725 4.5%
Q3 27.305 6.9% 27.317 6.9% 26.813 4.9% 27.471 7.5%
Q4 30.294 5.4% 30.365 5.6% 30.063 4.3% 30.791 6.5%
Year 111.830 4.5% 112.057 4.7% 110.699 3.4% 112.392 5.0%
Red figures are analysts' last FORECAST for the given quarter (Q1 done in Dec, Q2 done in Mar, etc.) 12/31/14
Blue figures are estimated using USDA data *Annual total uses actuals to-date plus forecasts for the rest of the year.
Mizzou ISU LMIC Paragon ACTUAL
December 2014 Hogs & Pigs -- Commercial Slaughter Forecasts

Price forecasts, December H&P Report . . .
. . . LH futures are FAR below forecasts
Mizzou ISU LMIC Paragon CME
Producer-Sold
Net Price, All
Methods
Ia-Mn
Producer-Sold
Neg'd Base
National Wtd
Avg. Base Price
National Net
Neg'd Price,
Wtd. Avg.
CME Lean Hog
Futures
2013 Q1 83.53 80.63 81.08 82.73 83.34**
Q2 91.80 89.30 89.32 90.83 90.66**
Q3 97.90 95.58 95.25 98.00 98.98**
Q4 84.99 81.28 82.98 85.26 83.93**
Year 89.56 86.70 87.16 89.21 89.23**
2014 Q1 93.10 93.10 91.34 93.80 94.91**
Q2 113.54 115.36 111.61 116.83 117.48**
Q3 111.84 111.77 109.63 114.25 115.70**
Q4 94 - 98 94 - 99 94 - 96 90 - 92 91.85**
Year 105 - 107 104 - 105 102 - 103 103 - 105 104.99
2015 Q1 83 - 87 83 - 88 86 - 89 84 - 88 74.50
Q2 88 - 92 85 - 90 89 - 93 92 - 96 82.57
Q3 84 - 88 81 - 86 86 - 91 88 - 92 84.59
Q4 77 - 81 78 - 83 77 - 83 76 - 80 74.09
Year 84 - 88 82 - 87 85 - 89 85 - 89 78.94
Blue figures are estimated using USDA data **CME Lean Hog Index 1/17/15
December 2014 Hogs & Pigs -- Price Forecasts

Risks
 Major export disruption – with a capital D!
 PEDv impact on pre-weaning mortality falls
to near zero – we have 1/3 as large as ‘14
 Demand weakening
- Domestic: Newly positive prefs continue?
- Exports: World economy
 How much expansion in pigs and chicken?
 Hogs: Packing capacity – New plant in ‘17
 Diet guidelines & processed meats???

Dr. Steve Meyer - Pork Industry Economic Outlook

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Dr. Steve Meyer - Pork Industry Economic Outlook