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.

1. Pig Ski Conference – February 2009
Economic Outlook: Heidi Klum or
The Witch of the West?
Steve R. Meyer, Ph.D.
Paragon Economics, Inc.
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2. COMPETITORS
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3. Current market shares of broiler companies
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4. ’08 broiler slaughter: DOWN 0.7% . . .
. . . On equal number of weeks! Q4: -4.7%
YTD ’09: -6%
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5. Higher weights offset some of the reduction
. . . production still grew – but only 1.2% in ‘08
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6. 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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7. Prices ARE better this year . . .
. . . but are not good enough to cover costs
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8. Signs of longer-term reductions . . .
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9. 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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10. Jan 1 COF was down 7.1% from Jan 2007
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11. But the July Cattle Inventory said . . .
. . . there are plenty of cattle still out there
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12. January Cattle report due out tomorrow . . .
. . . still a lot of feeder cattle vs. placements
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13. Delayed placements due to feed costs . . .
. . . mean larger cattle in and out of lots
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14. Longer term – fewer beef cows . . .
. . . Canadian cows are ~30% of this increase
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15. FEED PRICES AND COSTS
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16. 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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17. Forget cellulosic. Will the RFS be met in ’09?
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18. And now E-10 will cost MORE than gasoline?
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19. But these guys are STILL DANGEROUS!
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20. Corn and oil correlation is breaking down . .
. . . Speculative? Necessary for acres?
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21. Corn prices have likely made a bottom . . .
. . . Future a function of soybeans, weather
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22. Corn must keep up with beans . . .
. . . And is not doing very well at the moment
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23. Weekly chart: Now in ’06-’07 trading range. . .
. . . But $3 to $4.50 is VERY wide, historically
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24. SBM futures: Confirmed double bottom . . .
. . . Now a function of Brazil, Arg, U.S. weather
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25. Feed costs have risen since early December
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26. DEMAND
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27. Demand indexes are down for all meats . . .
. . . And ALL have had a tough 3 years
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28. An alternate demand measure: RPCE
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29. Monthly RPCE clearly shows ’08 problem . . .
. . . retail price did not make up for exports
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30. Huge growth in pork exports -- +49.7% in ‘08
. . . Nov & Dec: up only 0.5% & 3.2% from ‘07
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31. Exports to China are down 80% from June. . .
. . . other markets are holding pretty well
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32. Impact 1: Exports pulled up low value cuts
. . . but we are back to “normal” now
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33. Impact 2: Record high by-product values
. . . but those are returning to “normal”, too
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34. How will a stronger $US impact exports?
. . . $US is still WEAK in historic terms
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35. HOG SUPPLIES
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36. Profits plunged again in Nov & Dec . . .
. . . To -$45 & -$40, -$27.86/hd in January
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37. 2008 will be the second worst year EVER . . .
. . . At $-21.78, second only to 1998
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38. Producer wealth is now at ’97 and ’06 levels
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39. December H&P Report: A hodge-podge
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40. Lower hog supplies are on the way . . .
. . . with significant reductions in Q2 & Q3
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41. Fewer Canadian market hogs -- MCOOL & $C
. . . down 76% year-to-date
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42. FP imports: 6.7 mil in ’08, 5 to 5.2 mil in ’09?
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43. 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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44. 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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45. Breeding herds are falling rapidly . . .
. . . But the incentives have changed
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46. Oct Canada-U.S. BH was smallest since 1986
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47. Sow slaughter slowed markedly in late ‘08
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48. Quarterly slaughter forecasts . . .
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49. Price forecasts based on Dec H&P . . .
. . . w/ futures lower re. cash forecasts
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50. 2009 prices are not “BAD” hog prices!!!
. . . but they’ve fallen $5 since Jan 1
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51. 2009: Futures prices are back to breakeven
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52. July & Aug: About 50% of seasonal rally . . .
. . . comes after January – mid to upper $80s
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53. Supply and price expectations
HIGHER meat prices LED by chicken this

winter – Ethanol’s impact on food is finally
here!
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54. Retail meat prices may flatten in short run . .
. . . but they still must rise to cover all costs!
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55. 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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56. 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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57. CME’s Daily Livestock Report
www.dailylivestockreport.com
National Hog Farmer’s
North American Preview
www.nationalhogfarmer.com
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58. Price forecasts based on Dec H&P . . .
. . . w/ futures lower re. cash forecasts
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